By the end of the decade, North America will become a “titan of unprecedented proportions” when it comes to exporting refined petroleum products, according to a new report from the International Energy Agency (IEA).
The IEA’s “Medium-Term Oil Market Report 2014” pays particular attention to the ongoing shale oil and gas revolution in the United States, where its transformative impact, the agency says, “cannot be emphasized enough.” The United States is now the world’s largest petroleum liquids producer, as well as the largest exporter of refined petroleum products -- a category that includes gasoline, kerosene and fuel oil. By 2020, the IEA projects the U.S. will be able to achieve net exports of 3.5 million barrels per day (bpd) of refined products.
However, this massive opportunity for America’s refiners, which have been fortunate for the glut of tight oil coming out of shale fields far and wide, could be short-lived. Only a few weeks ago, the IEA published a separate report that said that oil production from non-OPEC countries (where net growth has come almost exclusively from the United States) “starts to run out of steam in the 2020s.”
The IEA reiterated this position in its most recent oil market report, declaring a U.S. “production plateau may be in sight, including a rising percentage of supplies that require a higher breakeven price.”
Plateauing production in North Dakota and Texas would have enormous ramifications for oil markets globally, which are “tighter today than they were at the onset of the U.S. shale and tight oil boom,” the IEA says.
That’s because the influence of the Organization of Petroleum Exporting Countries (OPEC) has been on the wane. OPEC members have suffered from “above-ground” problems (i.e. political turmoil), which have slashed production. Iran and Libya have already seen their oil output levels cut back severely, and now Iraq is in a state of disintegration. Over the next five years, the production levels from Iran, Libya, and Iraq are intensely uncertain, to say the least.
Meeting global demand, which is expected to climb from 91.43 million barrels per day in 2013 to 99 million bpd in 2019, will obviously require an increase in production. The problem is that the 2.08 million bpd of increased production from OPEC is supposed to come entirely from Iraq.
If Iraq cannot meet expectations, the world will have to find oil elsewhere. As mentioned, the U.S. may be hitting a ceiling in terms of production over the next five to 10 years, so American shale may not be the answer.
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If the world cannot rely upon OPEC or the U.S., that leaves hopes pinned on the shale revolution spreading to other countries, which the IEA says may actually occur sooner than expected. At the top of the list are Russia, Argentina, and Mexico. Russia recently signed cooperation agreements with several international oil companies to tap its rich shale reserves. Argentina made some tax reforms to make shale investment more attractive. And Mexico is in the midst of an historic liberalization campaign in its energy sector, which could lead to major oil companies drilling new wells on and offshore. Taken together, the IEA projects that non-U.S. shale oil could hit 650,000 bpd by 2019.
This would be a notable development, but not exactly a game changer in terms of global supply.
That means oil prices could be heading higher over the medium-term.
But instead of demand inexorably rising and pushing up prices to stratospheric heights, in reality, sustained higher prices could lead to demand destruction. “Before the end of the decade, the market looks likely to reach an inflexion point after which demand growth may start to decelerate, as a combination of high oil prices, environmental concerns and cheaper and cleaner fuel alternatives kick in,” the IEA concluded.
So while stagnating oil production could inflict pain on the global economy in the coming years, consumers may finally begin to switch away from oil in earnest.
By Nick Cunningham of OIlprice.com