Tuesday, May 14, 2013

'US shale oil supply rocks global power balance,' Arab Spring fallout in North and Sub-Saharan Africa slowed investment and growth-BBC, IEA

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"The regional fallout from the 'Arab Spring' is taking a toll on investment and capacity growth.”" IEA

5/14/13, "US shale oil supply shock rocks global power balance," BBC

"A steeper than expected rise in US shale oil reserves is about to change the global balance of power between new and existing producers. Over the next five years, the US will account for a third of new oil supplies, according to The International Energy Agency (IEA).

The US will change from the world's leading importer of oil to a net exporter. Demand for oil from Middle-East oil producers is set to slow as a result.

"North America has set off a supply shock that is sending ripples throughout the world," said IEA executive director Maria van der Hoeven.

The surge in US production will reshape the whole industry, according to the IEA, which made the prediction in its closely-watched bi-annual report examining trends in oil supply and demand over the next five years.

The IEA said it expects the US to overtake Russia as the world's biggest gas producer by 2015 and to become "all but self-sufficient" in its energy needs by about 2035.

The rise in US production means the world's reliance on oil from traditional oil producing countries in the Middle East, which make up Opec (the Organization of the Petroleum Exporting Countries), would end soon, according to the report.

US production is set to grow by 3.9m barrels of oil per day from 2012 to 2018, accounting for some two thirds of the predicted growth in traditional non-Opec production, according to the IEA.

Meanwhile, global oil demand is set to increase 8% and this would be met mainly by non-Opec supplies, the report said

The IEA still expects production capacity by traditional Opec suppliers in the Middle East to continue to grow over the next five years, but at a slower rate.

OPEC capacity, which counts for 35% of today's global oil output, is expected to gain 1.75m barrels of oil per day to 36.75m barrels of oil per day in 2018, about 750,000 barrels per day less than predicted in the IEA's 2012 forecast.

The IEA cites the "growing insecurity in North and Sub-Saharan Africa" in the wake of the Arab Spring uprisings as a key reason for the slowdown.

"The regional fallout from the 'Arab Spring' is taking a toll on investment and capacity growth," the IEA said.

The sharp rise in US oil production is largely thanks to shale oil, a product many have hailed as the saviour of the US energy market.

Fracking, the process of blasting water at high pressure into shale rock to release oil (or gas) held within it, has become widespread in the US.

But critics of shale oil point to environmental concerns such as high water use and possible water contamination, the release of methane and, to a lesser extent, earth tremors caused by drilling.
The process has been banned in France, while the UK recently lifted a moratorium on drilling for shale gas."

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"The controversial practice of hydraulic fracturing to extract natural gas does not pose a high risk for triggering earthquakes large enough to feel...a major government science report concludes.

Even those man-made tremors large enough to be an issue are very rare, says a special report by the National Research Council. In more than 90 years of monitoring, human activity has been shown to trigger only 154 quakes, most of them moderate or small, and only 60 of them in the United States. That's compared to a global average of about 14,450 earthquakes of magnitude 4.0 or greater every year, said the report, released Friday."...

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This is the article linked to by BBC:

5/14/13, "Supply shock from North American oil rippling through global markets," IEA

"The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released today. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined.

According to the MTOMR, the effects of continued growth in North American supply – led by US light, tight oil (LTO) and Canadian oil sands – will cascade through the global oil market. Although shale oil development outside North America may not be a large-scale reality during the report’s five-year timeframe, the technologies responsible for the boom will increase production from mature, conventional fields – causing companies to reconsider investments in higher-risk areas.

In virtually every other aspect of the market, developing economies are in the driver’s seat. This quarter, for the first time, non-OECD economies will overtake OECD nations in oil demand. At the same time, massive refinery capacity increases in non-OECD economies are accelerating a broad restructuring of the global refining industry and oil trading patterns. European refiners will see no let-up from the squeeze caused by increasing US product exports and the new Asian and Middle Eastern refining titans.

“North America has set off a supply shock that is sending ripples throughout the world,” said IEA Executive Director Maria van der Hoeven, who launched the report at the Platts Crude Oil Summit in London. “The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves. But as companies rethink their strategies, and as emerging economies become the leading players in the refining and demand sectors, not everyone will be a winner.”

While geopolitical risks abound, market fundamentals suggest a more comfortable global oil supply/demand balance over the next five years. The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

The growth in North American oil production presents opportunities and challenges, notes the MTOMR. With large-scale North American crude imports tapering off and with excess US refining output looking for markets, the domino effects from this new supply will continue. Having helped offset record supply disruptions in 2012, North American supply is expected to continue to compensate for declines and delays elsewhere, but only if necessary infrastructure is put in place. Failing that, bottlenecks could pressure prices lower and slow development.

While OPEC oil will remain a key part of the oil mix, OPEC production capacity growth will be adversely affected by growing insecurity in North and Sub-Saharan Africa. OPEC capacity is expected to gain 1.75 mb/d to 36.75 mb/d, about 750 kb/d less than forecast in the 2012 MTOMR. Iraq, Saudi Arabia and the UAE will lead the growth, but OPEC’s lower-than-expected aggregate additions to global capacity will boost the relative share of North America.

Rising non-OECD participation in the oil market will be associated with continued growth in commercial and strategic storage capacity, along with strategically located storage hubs to support long-haul crude and product trade. African economies will play a larger role in the global market than previously expected. Although data leave room for improvement, there is strong evidence that African oil demand has been routinely underestimated, and may grow by a further 1 mb/d over the next five years.

Finally, steep growth in non-OECD refining capacity will accelerate the transformation of the global product supply chain, exerting downward pressure on refining margins and utilisation rates and leaving OECD refineries at risk of closure, notably in Europe. Product supply chains will continue to lengthen as new merchant refining centres extend their reach, resulting in higher disruption risks and potentially more volatile markets in product-importing economies." via BBC


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