million barrels per day if key pipeline projects are approved, according to the
International Energy Agency.
Wary OPEC comes to terms with shale gale
Demand for OPEC crude could fall by a million barrels per day within five
years, as North American tight oil chips away at the group’s influence on global
The IEA’s latest annual report, published Tuesday, expects Canada’s oil
production to rise to 5.7 million barrels per day by 2030, but believes some oil
sands development may hinge on market access.
“While the [Canadian] resources are unquestionably large enough to support
such an expansion, achieving it is contingent on the construction of major new
pipelines to enable the crude to be exported to Asia and the United States,” the
Paris-based agency said.
The Canadian energy industry forecasts 6.7 million bpd of production by 2030
and assumes pipeline projects will get the go-ahead from North American
Critics of Canadian oil sands believe the rejection of the Keystone XL
pipeline by the U.S. government will dampen interest in the world’s
third-largest oil reserves. But the industry remains defiant, with Suncor Energy
Inc and its partners, and Royal Dutch Shell Plc. announcing two separate oil
sands projects with a combined output of more than a quarter of a million bpd in
the past week alone, despite uncertainty over pipelines.
If this optimism persists, Canadian oil production will be the fourth-fastest
among major producers during the next two decades, growing at a compound annual
growth rate of 2.1%, and eclipsed only by Brazil (4.5% annual growth), Iraq
(4.3%) and Kazakhstan (3.6%). The scale of development in the Alberta oil patch
would place Canada as the third-largest contributor to new oil production after
Iraq and Brazil in the next two decades, according to the IEA.
The agency, which advises 28 developed nations, identifies a number of
tectonic shifts in the global energy market that will see North American oil and
gas production emerge as a formidable player this decade, but will leave Middle
East oil dominance in the long-term “unstirred”.
The role of OPEC in quenching the world’s thirst for oil is temporarily reduced
over the next ten years, due to rapid growth of supply from LTO [light tight
oil] in the United States, from oil sands in Canada, from deepwater production
in Brazil and from NGLs [natural gas liquids] from all over the world,” said the
IEA in its report. “But the share of OPEC countries in global output rises again
in the 2020s, as they remain the only large source of relatively low cost oil.”
Combined with developments south of Canada’s borders, North America can claim
energy self-sufficiency in “net terms” as early as 2020, and self-sufficiency in
oil before 2030.
Indeed, soaring production of light tight oil will catapult the United States
ahead of Saudi Arabia to emerge as the world’s largest oil producer as early as
2015, IEA data shows.
North America’s hydrocarbon surge and low commodity price environment will
also be felt in Japan and the European Union which may lose a third of their
combined export market share of energy-intensive goods partly because of their
high natural gas, coal and electricity costs, the IEA said.
The U.S., whose factory power costs are less than half those in the EU and
Japan, may get a “slight increase” in the share of exports from industries
including chemicals, aluminum and cement, the agency said, noting that’s the
“clearest indication” of the link between low energy prices and the outlook for
industry, the IEA said.
North America is currently home to half of the world’s upstream oil and gas
investment with annual capital expenditure of US$194-billion each year till
2035, which is a reflection that the resources are relatively expensive to
Capital costs per barrel per day in the Canadian oil sands (with upgrading)
stand at about US$100,000-US$200,000 and about US$90,000-US$100,000 in the
United States’ light tight oil projects. In contrast, capital cost per barrel in
Brazil is at about US$55,000, in West Africa US$80,000 and Iraq US$15,000, IEA
However, oil prices will rise to US$128 a barrel by 2035, with a 16% increase
in consumption supporting the development of higher cost resources.
The agency expects North America’s share of global investment to stabilize at
about 30% of the total during the projection period, but remain high relative to
the region’s level of production.
Not content with cornering a part of the global crude oil market, North
America is also set to shake up global gas markets and threaten established
players such as Russia and Qatar.
“There are signs that the terms of international trade – particularly in the
form of LNG [liquefied natural gas] – will become more sensitive to short-term
market conditions, with innovative pricing and fewer destination clauses,
bringing new connections between the different regional markets and changes in
the way gas is priced around the world,” the IEA said.
The agency expects Canadian greenfield LNG projects on the West Coast to take
longer than the first wave of U.S. projects, while pricing arrangements are
expected to be at least partially indexed to oil.
“[Canada]s] relative proximity of the west coast projects to Asian markets
and the promise of supply diversity for consumers are likely to appeal to Asian
The rise of North American oil and gas surge comes as Middle East producers
are going through their a disruptive transformation, especially as rising
domestic consumption is slowly reducing their ability to export hydrocarbons.
The IEA expects the Middle East to rise through the ranks and emerge as the
second-largest gas consumer by 2020 and third-largest oil consumer by 2030 from
virtually nowhere a decade ago.
But don’t write off Middle East OPEC countries just yet. The region continues
to hold 80% of proven oil reserves, and as Arab oil and gas exporters build
their own renewable energy sources to free up hydrocarbons, the IEA expects them
to regain their influence over global oil markets.
With so many new players in both the global oil and gas space, it’s unlikely
the old Middle East guard will be able to reclaim its past glory any time
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