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IEA: United States to lead global oil supply growth

11/03/2019
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The United States will drive global oil supply growth over the next five years. That’s one of the main conclusions of the International Energy Agency’s annual oil market forecast which has been released today.
The United States will be 'by far the stand-out champion of global supply growth' according to the IEA's Oil 2019 report
(The United States will be ‘by far the stand-out champion of global supply growth’ according to the IEA’s Oil 2019 report. Image via Getty).

The dynamics of global oil markets are set to change radically, with oil exports from the United States set to overtake Russia and close in on Saudi Arabia, not only bringing greater diversity of supply but challenging OPEC’s position as the swing producer.

“These are times of extraordinary change for the oil industry. Everywhere we look, new actors are emerging and certainties of past years are fading”, says Fatih Birol, Executive Director of the IEA.
The IEA sees oil demand easing, but will continue to increase through to 2024
(Chart via IEA).

Peak demand?


The IEA’s Oil 2019 report also challenges the commonly held notion that the world will soon see peak oil demand. Whilst the report recognises that oil demand growth will ease, it still sees an annual increase averaging 1.2 mb/d to 2024. Much heralded market-disrupters such as EVs will be more than offset by growth in demand for jet fuel and petrochemical products.
U.S. shale is the central element to overall supply growth through to 2024
(Chart via IEA).

U.S. Shale leads the way


The IEA attributes the strong growth in supply specifically to the U.S.A’s shale industry, which has grown from ‘next to nothing’ in 2010 to more than 7 mb/d at the start of 2019. A key feature of the shale industry which renders it a central element within the supply growth story is the fact that production can be turned on and off exceedingly quickly in response to price signals making it ‘a free market oil’ in the words of one analyst. ‘The United States accounts for 70% of the total increase in global capacity to 2024, adding a total of 4 mb/d. This follows spectacular growth of 2.2 mb/d in 2018’, says the IEA.

“The second wave of the U.S. shale revolution is coming,” says Dr Birol. “It will see the United States account for some 75% of the expansion in LNG trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy”.
Non-OPEC producers such as Guyana, Norway and Brazil play an important role in boosting global oil supply.
(Chart via IEA).

Non-OPEC countries adding to supply


Oil supply from the U.S. is being joined by a range of new non-OPEC producers. Significant growth has, and will continue to, come from Brazil, Norway and Guyana. Iran and Venezuela however are expected to see a reduction in production over the forecast period due to a mix of sanctions and other political factors.
Shale crudes and new bunker fuels will create a different operating scenario for refiners.

A changing picture for refiners


The combination of the U.S. shale revolution and the forthcoming International Marine Organisation (IMO) 2020 sulphur regulations are changing the way refineries will do business over the forecast period.

With the IMO banning high sulphur fuel oil (HSFO) from next year, the bunker fuel landscape will change dramatically. Demand for HSFO, the main vessel fuel since the 1960s, will fall from 3.5 mb/d to 1.4 mb/d in just one year. This will potentially leave refineries with excess capacity and a cratering of the price for HSFO.

U.S. Shale will present its own challenges for refiners. Shale crudes are typically much lighter and sweeter than the average crude slate, meaning they require less complex refining processes to turn them into final products. Whilst this may sound like a win-win, shale crudes are typically able to produce less varieties of refined products than heavier varieties of crudes, meaning refineries may have to reduce their product slates in response to the increased supply of shale crudes.

So, its interesting times ahead then for the global oil markets. “These are extraordinary times for the oil industry as geopolitics become a bigger factor in the markets and the global economy is slowing down”, concludes Dr Birol.

With the oil industry changing, perhaps it’s time to change jobs?

If you’re looking for a new career opportunity, register with Fircroft today. Since 1970 Fircroft has been recruiting technical and engineering professionals for oil and gas and chemicals companies across the world. Explore our current job opportunities and apply today.
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IEA: United States to lead global oil supply growth - Time to read 4 min
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