After 2020, oil supply lags behind demand unless new investments approved soon

IEA: Oil supply from US, Canada, Brazil expected to grow for next three years

On Monday, the International Energy Agency reported that global oil supply could struggle to keep pace with demand after 2020, which could mean sharp increases in prices, unless new projects are approved soon.

In its latest five-year oil market forecast, the IEA says oil supply and demand trends point to a tight global oil market, with spare production capacity falling to a 14-year low in 2022.

Supply from the United States, Canada, Brazil and elsewhere will continue to grow for the next three years, but the IEA believes the growth could stall by 2020 if the investment slump seen in 2015 and 2016 is not reversed.

The IEA reports while investments in the US shale play are strongly increasing, early indications of global spending for 2017 are not encouraging.

Oil demand is expected to rise in the next five years and will pass the 100 million b/d threshold in 2019 and will reach about 104 million b/d by 2022.

Developing countries are expected to account for all the growth.  Asia will consume seven out of every 1o extra barrels consumed globally.  By 2o22, India’s oil demand growth will outpace China.

The report says that despite an increase in sales of electric vehicles, they will displace only limited amounts of transportation fuel by 2022.

 

“We are witnessing the start of a second wave of US supply growth, and its size will depend on where prices go,” said Dr Fatih Birol, the IEA’s Executive Director. “But this is no time for complacency. We don’t see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon.”

The largest contribution to new supplies will come from the United States. The IEA expects US light tight oil (LTO) production to make a strong comeback and grow by 1.4 million b/d by 2022 if prices remain around US$60 per barrel. Expectations for US LTO are higher than last year’s forecast thanks to impressive productivity gains.

According to the report, the US responds faster to price signals than other producers. If prices climb to US$80 per barrel, US LTO production could grow by 3 million b/d in five years. Alternatively, if prices are at US$50 per barrel, it could decline from the early 2020s.

Within OPEC, the bulk of new supplies will come from major low-cost Middle Eastern producers, including Iraq, Iran, and the United Arab Emirates. Others like Nigeria, Algeria and Venezuela are expected to decline. Russian production is forecast to remain stable over the next five years.

The report also highlights changes in international oil-trade flows and investments in storage infrastructure. Asia will need to look beyond the Middle East to meet its growing import requirements.

With OPEC countries focused on boosting domestic refining capacity to meet local demand and ramp-up exports of refined products, additional crude oil exports from Brazil and Canada will be higher than those from the Middle East.