WoodMac: NorAm oil output increases to outpace Middle East 4:1 by 2020

By 2020, increases in North American oil production will outpace that of the Middle East by 4:1 on a per barrel basis, and by 2030, North American output will increase by 390 million tonnes of oil equivalent (mtoe) from 650 mtoe in 2009, according to long-term analysis of global energy trends by Wood Mackenzie.

The growth rivals an increase of 430 mtoe in the Middle East, where oil production will accelerate primarily due to increases in Iraq. North American tight-oil supply expansion is expected to plateau after 2020.

“The growth in North American supply has introduced a new dynamic to global oil prices, with US tight oil providing a price floor for global oil prices,” commented Ann-Louise Hittle, head of macro oils research for WoodMac. “Increasing US tight oil supplies and Canada’s growth in oil sands production are expected to continue to add stability to the international oil market, rather than remove it.”

WoodMac in March declared the North American tight-oil market “too strong to breakdown (OGJ Online, Mar. 25, 2014).”

WoodMac also forecasts that North American gas production will continue its rapid expansion, doubling to 1,000 mtoe in 2030 from the beginning of the energy boom in 2005.

The growth in oil and gas production is occurring in an environment of locally weakening demand, and by 2018 North America’s energy exports will exceed imports, WoodMac says. By 2018 North America will also have overtaken the gas output of Russia and the Caspian Sea, and will grow to be the world’s largest gas producing region by 2030.

Redefined world energy markets

WoodMac predicts that North America’s enormous supply growth will redefine global energy markets. Markets are increasingly interconnected and supplier-consumer relationships are increasingly dependent, as reflected by Russia’s gas trade links with Europe.

“Global energy markets are reaching a new equilibrium,” said Paul McConnell, principal analyst for WoodMac’s global trends service. “As demand shifts East, it will expand to extraordinary proportions, but this era is also one of robust energy supply. As a result, we see few, if any, strong upside signals for oil, gas, and coal prices.

“This shift from volume to value means a rebalancing towards a supply outlook more appropriate to a world in which demand growth, while still remarkable in the context of history, is somewhat softer than was expected only a few years ago,” McConnell said. “As the energy industry adjusts and settles into this new equilibrium, cost pressures will remain at the forefront of executive concerns.”

He added that China’s energy consumption will be unrivalled by 2030, making it “the center of gravity for global energy demand.” McConnell sees energy demand growth in the Asia-Pacific region during 2014-30 outpacing that of North America by five times.

Europe’s import dependence

WoodMac predicts that Europe’s outlook over the next several years will differ greatly than that of North America’s, as Europe will become increasingly import dependent, exposed to high fuel costs, and energy insecure.

A growing reliance on imported natural gas will result in an increase in imports to Europe to 320 mtoe from 215 mtoe during 2014-30.

“Russian gas remains competitive against other alternatives and will continue to be the cornerstone of European gas supply,” said Massimo Di-Odoardo, principal analyst, European gas and power for WoodMac. “It also represents a major market for Russian gas, even in light of the recent signing of a gas pipeline deal to export Russian gas to China. Therefore, our long-term view is that the Europe-Russia gas relationship will continue out of necessity.”

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