The US will drive global oil supply growth over the next five years thanks to the remarkable strength of its shale industry, according to the annual oil market forecast by the International Energy Agency (IEA)
By the end of the forecast, oil exports from the US will overtake Russia and close in on Saudi Arabia, bringing greater supply diversity.
Fatih Birol, the IEA’s Executive Director, said, “The second wave of the US shale revolution is coming. It will see the United States account for 70 per cent of the rise in global oil production and some 75 per cent of the expansion in LNG trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”
While growth in global oil demand is set to ease, particularly as China slows down, it still increases an annual average of 1.2 mbpd to 2024, according to the report.
The IEA continues to see no peak in oil demand, as petrochemicals and jet fuel remain the vital drivers of growth, especially in the US and Asia, more than offsetting a slowdown in petrol due to efficiency gains and electric cars.
While the US is increasingly leading the expansion of global oil supplies, the agency also highlights significant growth from other non-OPEC producers, including Brazil, Norway and Guyana.
It is due to the ability of the US shale industry to respond quickly to price signals by increasing production. The US accounts for 70 per cent of the global capacity increase to 2024, adding a total of 4 mbpd.
Iraq, the world’s third-largest source of new supply, will also drive OPEC growth by 2024. The increase will have to compensate for steep losses from Iran and Venezuela, as well as a still fragile situation in Libya. The implications of these developments on energy security are significant and could have lasting effects, the agency added.
The report revealed that major international oil companies’ preliminary investment plans indicate that upstream investment is set to rise for the third straight year in 2019. For the first time since the downturn in 2015, investment in conventional assets could rise faster than for the shale industry.
Product markets in the downstream sector are on the eve of one of the biggest shake-ups ever, with the implementation of the new rules governing bunker fuel quality by the International Maritime Organisation in 2020.
The updated analysis of the IEA shows that industry players are in a strong position to comply in the medium term. The situation will be tight as for the first year. Gasoil prices could rise as demand from the marine sector increases. The industry is adjusting, with the biggest incremental volumes coming from the US, the Middle East, and China.
The US shale revolution is also altering the picture for refiners. These barrels are generally lighter and sweeter than the average crude slate, which means they require less complex refining processes to turn them into final products.
“These are extraordinary times for the oil industry as geopolitics become a bigger factor in the markets and the global economy is slowing down. Everywhere we look, new actors are emerging and past certainties are fading. This is the case in both the upstream and the downstream sector. And it’s particularly true for the United States, by far the stand-out champion of global supply growth,” Birol concluded.