A Review of the Nigerian Energy Industry

US tight oil ‘to take spotlight’

Gulf-of-mexico-oil-rig12 November 2013, News Wires – The US is set to become the world’s biggest crude producer by as early as 2016 as the shale boom fuels its tight oil output but oil prices are still seen rising steadily over the next two decades despite the supply surge, according to the International Energy Agency (IEA).
Launching its World Energy Outlook in London on Tuesday, the Paris-based agency forecast that oil prices would hit $128 per barrel in 2012 terms by 2035 – an increase of $3 from last year’s outlook – when it predicts global demand to increase by 14 million barrels per day to 101 million bpd.

While the US is set to surpass Opec powerhouse Saudi Arabia and Russia as the world’s leading crude supplier in a few years’ time, its tight oil output will only partially fill the supply gap as conventional production is expected to fall to 65 million bpd by 2035.

The IEA’s chief economist Faith Birol said the surge in tight oil production from the US would last only to 2020, after which it is expected to reach plateau and decline.

The agency predicted the Middle East would regain its dominant supply position by the mid-2020s as non-Opec production falls back.

The IEA said that oil prices would remain high in the coming decades to support exploitation of resources in unconventional plays such as the US shale and Canadian oil sands, as well as deep-water provinces like that off Brazil, with the use of new technologies.

Although this would increase the volumes of oil that remain to be produced, the agency stated “this does not mean the world is on the cusp of a new era of oil abundance” as it said other nations are unlikely to emulate the US’ success in tapping its shale reserves.

Upstream investment towards 2035 is set to be largely dedicated to compensating for declining output from existing conventional oilfields, where output is set to drop by 40,000 bpd annually.

“Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production,” the agency stated.

The IEA predicts global demand to rise by one-third in the period to 2035 and sees demand growth shifting increasingly to Asia – particulary China and India, as well as other emerging economies – while the Middle East is also set to become the world’s second-largest gas consumer by 2020 and third-largest oil consumer by 2030 in a redefinition of its market role.

IEA executive director Maria van der Hoeven said: “Major changes are emerging in the energy world in response to shifts in economic growth, efforts at decarbonisation and technological breakthroughs.”

The agency pointed out though that energy price differentials between countries and regions affected their relative industrial competitiveness, highlighting the fact that gas prices in the US were presently about a third of those in Europe and one-fifth of Japan’s.

Such price disparities are expected to persist to 2035, affecting company strategies and investment decisions in energy-intensive industries, it stated.

However, it said “accelerated movement towards a global gas market” could reduce price differentials between regions.

“Gas market and pricing reforms in the Asia-Pacific region and LNG exports from North America can spur a loosening of the current contractual rigidity of internationally traded gas and its indexation to high oil prices,” the IEA added.

– Upstream

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