Oil production growth from US, Brazil, Canada and Norway can keep the world well supplied, more than meeting global oil demand growth through 2020, but more investment will be needed to boost output after that, according to the International Energy Agency's latest annual report on oil markets.
Over the next three years, gains from the US alone will cover 80% of the world's demand growth, with Canada, Brazil, and Norway able to cover the rest, according to Oil 2018, the IEA's five-year market analysis and forecast.
By 2023, supply outside the Organization of the Petroleum Exporting Countries grows by 5.2 million b/d. OPEC oil capacity rises only 1.2 million b/d due to Venezuela collapse and limited increases elsewhere.
But the report finds that despite falling costs, additional investment will be needed to spur supply growth after 2020. The oil industry has yet to recover from an unprecedented two-year drop in investment in 2015-2016, and the IEA sees little-to-no increase in upstream spending outside of the US in 2017 and 2018.
"The US is set to put its stamp on global oil markets for the next five years," said Dr. Fatih Birol, the IEA's Executive Director. "But as we've highlighted repeatedly, the weak global investment picture remains a source of concern. More investments will be needed to make up for declining oil fields - the world needs to replace 3 million b/d of declines each year, the equivalent of the North Sea - while also meeting robust demand growth."
Expanding oil demand
Boosted by economic growth in Asia and a resurgent petrochemicals industry in the US, global oil demand will increase by 6.9 million b/d by 2023 to 104.7 million b/d, according to the IEA.
China and India account for almost half of world. And petrochemical feedstocks (ethane and naphtha) will account for 25% of oil-demand growth by 2023.
China remains the main engine of demand growth, but more stringent policies to curb air pollution will slow growth. The increasing penetration of electric buses and LNG trucks will have a bigger impact on curbing consumption of transport fuels than the electrification of passenger vehicles.
In the US, fuel-economy standards for passenger cars will curb gasoline demand with growth coming from the petrochemical sector, which is thriving thanks to low-cost ethane.
Meanwhile, a new marine fuel rule with lower sulfur content that will come into force in 2020 is creating uncertainty in the market.
Global oil production
Global oil production capacity is forecast to grow by 6.4 million b/d to reach 107 million b/d by 2023. Thanks to the shale revolution, the US leads the picture, with total liquids production reaching nearly 17 million b/d in 2023, up from 13.2 million b/d in 2017. Growth is led by the Permian Basin, where output is expected to double by 2023.
As new pipeline projects and other infrastructure ease the current bottlenecks, US crude export capacity reaches nearly 5 million b/d by 2020 and Corpus Christi solidifies its position as the primary North American crude-oil export hub.
US oil finds new market as refiners in Asia and Europe look for suitable crude oil to produce petrochemical feedstocks and low-Sulphur fuels.
Virtually all the OPEC output growth comes from the Middle East. In Venezuela, oil production has fallen by more than half in the past 20 years, and declines are set to accelerate. Sharply falling production in Venezuela will offset gains in Iraq, resulting in OPEC crude oil capacity growth of just 750,000 b/d by 2023. Unless there is a change to the fundamentals, the effective global spare capacity cushion will fall to only 2.2% of demand by 2023, the lowest number since 2007.
However, Middle East wants to refine more oil. Middle East accounts for 30% of global refining capacity growth. International downstream expansion becomes a strategic objective for the region’s NOCs.