The shale US oil boom should not distract attention from future supply threats including Middle East political turmoil, the International Energy Agency has warned. The oil price slide may be the short-term worry dominating discussions in producing countries, but the rich countries’ energy watchdog is more concerned about the long-term effect that might have on investment.
“A well-supplied oil market in the short term should not disguise the challenges that lie ahead,” Fatih Birol, chief economist of the Paris-based IEA, said on Wednesday.
Introducing the IEA’s annual World Energy Outlook forecasts, he said: “The world is set to rely more heavily on a relatively small number of producing countries, [so] the apparent breathing space provided by rising output in the Americas over the next decade provides little reassurance, given the long lead times of new upstream projects.”
The IEA’s latest forecast is for world oil supply to rise to 104 million barrels per day in 2040 from last year’s average of 90 million bpd, but achieving that level “hinges critically on investments in the Middle East”, the IEA report said.
The shale oil boom in the US has risen sharply and is forecast to continue rising for a decade, which is the main contributing supply side factor to the recent sell-off in oil prices. But the IEA report expects this scenario to change.
“As tight oil output in the United States levels off, and non-Opec supply falls back in the 2020s, the Middle East becomes the major source of supply growth,” the report forecasts.
Demand patterns change dramatically, too, over this time period, with China overtaking the US to become the largest oil consumer by about 2030.
But then as its demand growth slows, India, sub-Saharan Africa, the Middle East and South East Asia take over as the main drivers of oil demand growth.
Other major trends forecast by the IEA include demand for natural gas rising by more than 50 per cent in 2040, compared with current levels. But again, investment is uncertain. A key question for gas supply outside North America is “whether it can be made available at prices that are low enough to be attractive for consumers and yet high enough to incentivise large investments in supply”.
Renewable sources of energy also are forecast to continue to grow. “It is incredible that we can now see a point where they become the world’s No 1 source of electricity generation,” said Maria van der Hoeven, executive director of the IEA.
The IEA’s annual world outlook is among the more influential forecasts for the industry, but it is often overtaken by events, as Helle Kristoffersen, head of strategy and business intelligence at the French oil company Total pointed out at the Adipec oil gathering in Abu Dhabi yesterday. She showed a graph of the IEA’s predictions for oil supply and demand over the past decade and how, like other major forecasters, it had been consistently lowered, mainly thanks to much greater gains in efficient use of energy, particularly in the most developed countries.
Indeed, as Yasushi Yoshikai, head of worldwide LNG for Mitsui & Company, pointed out at an Adipec debate about energy security, Japan had reduced its overall energy consumption by 16 per cent following the Fukushima nuclear disaster in 2011.
On oil supply, Ms Kristofferson said: “We can all agree that Opec policy on one hand, and sustainability of US shale oil production on the other, are the two key drivers of supply and energy security. But whatever your view on the US shale revolution, what I always say when questioned about it is that you cannot compare short-term, profit-driven US producers to long-term oriented Opec countries. We believe Opec’s share of the world oil market in 2030 will be at least twice as big as North America’s.”
Meawhile, the big question for Middle East energy consumers, where demand is the highest per capita in the world, will be moves that governments take to curb subsidies and force efficiency. But this is a very problematic policy, despite moves by some governments in the region.
“It’s not easy in this part of the world,” said Musabbeh Al Kaabi, the new chief executive of Mubadala Petroleum. “Many governments are planning for it and communicating to public. But the cross-subsidy from oil to gas is relatively small. One country in the region calculates that at $100 a barrel oil, the subsidy is less than 1 per cent, so there is no strong incentive to remove it.”
amcauley@thenational.ae
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