The world’s top oil exporter, Saudi Arabia, is set to grow its share on the global oil market to 15 percent by 2025 from 11.6 percent now, for the highest share since the 80s, JP Morgan analyst Christyan Malek told Reuters on Friday.
OPEC and its largest producer, Saudi Arabia, will step in to fill the gap in oil supply as investments into new oil production will be significantly affected by the oil price crash and the coronavirus crisis, according to the investment bank.
“Saudi Arabia will come out on top in the fight for market share as non-OPEC and U.S. production fades,” JP Morgan’s Malek told Reuters.
The share of OPEC in global oil supply is set to surge to 40 percent by 2025, up from around 33 percent now and up from the 2016 peak of 39 percent, according to the Wall Street bank.
While OPEC and the Saudis are set to take advantage of reduced exploration and development budgets elsewhere, U.S. shale production is not set to materially grow in 2030 compared to 2020—JP Morgan sees U.S. shale output at 11 million barrels per day (bpd) in 2030, compared to estimated 10.9 million bpd in 2020.
While the U.S. shale patch could soon return to easing the production curtailments, the rate of depletion is fast, while reduced investments in conventional projects elsewhere could result in a supply crunch in just a few years’ time, according to analysts.
According to Rystad Energy, global spending on oil and gas is set to crumble to a 15-year-low of US$383 billion this year, down by 29 percent compared to 2019.
If investments in oil do not improve from the depressed levels in 2020, “then this would reduce the previously-expected level of supply in 2025 by almost 9 million barrels a day, creating a clear risk of tighter markets if demand starts to move back towards its pre-crisis trajectory,” the International Energy Agency (IEA) said in a report last month.
By Tsvetana Paraskova for Oilprice.com
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The first is rising domestic consumption which is still growing at 5% per annum despite a reduction in the subsidies for gasoline and transport fuels since 2016. In 2019 Saudi Arabia exported an estimated 7.0 million barrels a day (mbd). This is projected to decline to 2.41 mbd by 2025 based on an estimated production of 7.15 mbd and a consumption of 4.74 mbd.
The second reason is that Saudi Arabia’s oil production peaked at 9.65 mbd in 2005 and has been in decline since. Saudi Arabia can at best produce currently some 8.0-9.0 mbd with another 700,000 b/d to 1.0 mbd coming from storage. Production is projected to decline to 7.15 mbd by 2025. The reason is that Saudi production comes from five giant but aging and fast-depleting oilfields discovered more than 70 years ago. By 2030, Saudi oil exports will cease altogether as all Saudi projected production of 4.74 mbd will be consumed domestically necessitating an import of 3.46 mbd to satisfy domestic needs.
The share of OPEC in global oil supply is set to surge to 44% by 2025 with Iraq’s production compensating for the decline in Saudi production. Iraq will be then OPEC’s largest producer assuming that political stability and an enhanced oil infrastructure allow it to expand its exports to the global oil market.
By 2025 US shale oil could be an emaciated industry managing to produce merely 4- 5 mbd and this is projected to decline further to 2-3 mbd by 2030.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London