The US is expected dominate global oil markets for years to come, satisfying 80 per cent of global demand growth to 2020 as the shale boom keeps OPEC under pressure, according to the International Energy Agency (IEA).
“The US is set to put its stamp on global oil markets for the next five years,” said IEA Executive Director Fatih Birol in a report published Monday, reported Bloomberg News, and OPEC’s surging rivals, which also include Brazil and Canada, will leave little space for the cartel to expand even after its production curbs expire this year.
New US output is expected to cover 80 per cent of global oil demand growth over the next three years.
OPEC is currently defying the sceptics by going deeper than their pledged cuts and maintaining them for long enough to deplete bloated oil inventories. However, the IEA has said that the ensuing price recovery has 'unleashed a new wave of growth from the US'—the supply is expected cover over half the world’s demand growth into 2023, thanks to the shale boom. Production from the prolific Permian Basin is likely to double over the period and the country’s total liquid hydrocarbon output will rise to 17 million barrels a day from 13.2 million last year.
This surge and a slightly weaker outlook for global demand growth make uncomfortable reading for OPEC. The IEA slashed projections for crude needed from the cartel, indicating its supply cuts would need to stay in place until 2021 to avoid creating another prolonged surplus.
The bullish forecast kick-starts the annual CERAWeek conference, a gathering of thousands of oil executives, traders, bankers and investors in Houston.
Closer to 2023, global markets are expected to start tightening and the IEA has warned that more investment is needed to meet growth in consumption and to make up for production lost to natural declines, and OPEC will struggle to start new production of its own.
The IEA’s five-year outlook for new output capacity from the group was reduced by about 62 per cent from the previous report. The group will add 750,000 barrels a day by 2023—just 2.1 per cent—as gains in Iran and Iraq are offset by economically troubled Venezuela, where capacity will slump to the lowest since the 1940s.
That wider industry may also fall short after an unprecedented drop in spending from 2015 to 2016, and little sign of a rebound in the subsequent two years, is a risk the IEA said, and constant investment is essential because the world loses approximately three million barrels of output each year—equivalent to the production of the North Sea—as oil fields age and their reservoir pressure drops, Bloomberg reported.
By 2023 the level of spare production capacity that could be used in the event of a disruption will be the lowest since 2007, which increases the risk that prices will become more volatile, the agency said.
However, that process isn’t happening as rapidly as previously feared. Despite expectations that lower investment would accelerate the depletion of maturing non-OPEC oil fields, the opposite is happening. Lower operating costs have so far offset the impact of reduced spending.
The IEA said that the average decline rate eased to 5.7 per cent last year, compared with seven per cent between 2010 and 2014—a shift was aided by a “remarkable deceleration in decline rates” in the North Sea.
Global oil demand will likely increase by 6.9 million barrels a day to reach 104.7 million a day by 2023, an average annual growth rate of about 1.2 million barrels a day, little changed from last year’s forecast. China will remain the main engine of demand growth.