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Published on March 14th, 2019 | by Joshua S Hill

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International Energy Agency Sees No Peak Oil In Sight, US To Lead Oil Supply Growth

March 14th, 2019 by  


The International Energy Agency sees no peak in oil demand and expects the United States will drive global oil supply growth over the next five years, according to its most recent annual oil market forecast, published Monday.

“These are extraordinary times for the oil industry as geopolitics become a bigger factor in the markets and the global economy is slowing down,” said Dr Fatih Birol, the IEA’s Executive Director. “Everywhere we look, new actors are emerging and past certainties are fading. This is the case in both the upstream and the downstream sector. And it’s particularly true for the United States, by far the stand-out champion of global supply growth.”

US To Drive Growth

Specifically, the “unprecedented” ability of the United States to turn itself into a major oil exporter within less than a decade is due to the shale industry’s ability to respond quickly to price signals by ramping up production. According to the International Energy Agency (IEA), the United States now accounts for 70% of the total increase in global oil capacity out to 2024, adding a total of 4 million barrels per day (mb/d), following “spectacular” growth of 2.2 mb/d in 2018.

“The second wave of the US shale revolution is coming,” said Dr Birol. “It will see the United States account for 70% of the rise in global oil production and 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.”

In addition to the United States, the IEA forecasts growth among other non-OPEC producers as well, including Brazil, Norway, and new producer Guyana. Iraq will reinforce itself as one of the world’s top oil producers as the world’s third-largest source of new supply, compensating for losses from Iran and Venezuela, as well as the still-fragile situation in Libya.

The IEA also expects upstream investment to increase in 2019 for the third year in a row. Further, for the first time since the industry’s downturn in 2015, investment in conventional assets could increase faster than for the shale industry this year. It’s worth noting, however, that the IEA’s growth forecasts have been paired with pleas for further investment “to ensure adequate spare production capacity.” For the IEA, “it is therefore reassuring that 2019 upstream investment is set to rise for the third straight year, according to preliminary plans announced by key oil and gas companies.”

Conversely, the IEA believes that the oil industry’s downstream sector is “on the eve of one of the biggest shakeups ever” in advance of the implementation of the International Maritime Organisation’s new rules governing bunker fuel quality in 2020. There have been concerns over the past few years that the shipping and refining industries, despite several years notice, might encounter shortfalls when the new rules come into effect, however, the IEA’s updated analysis predicts industry players will be in a strong position to comply across the medium term.

No Peak In Sight

Even more troubling, however, than the IEA’s predicted demand and investment growth is its contention that it “continues to see no peak in oil demand, as petrochemicals and jet fuel remain the key drivers of growth, particularly in the United States and Asia, more than offsetting a slowdown in gasoline due to efficiency gains and electric cars.”

According to the IEA — and in the face of “Ongoing trade disputes between major powers and a disorderly Brexit” and acknowledging that “the economic mood is not encouraging” — oil demand is still expected to grow according to its most recent forecast, “although at a more measured pace.”

The IEA points to the fact that “leading developing economies will continue to expand” as the reason for its prediction oil demand will continue to grow. “China and India will account for 44% of the 7.1 mb/d growth in global demand expected to 2024,” wrote the authors of the Oil 2019 Analysis and forecasts to 2024 report. “Despite its recent slowdown, China’s GDP has more than doubled in real terms in the past decade and is still growing at a healthy clip. Income levels have grown sharply and the structure of oil demand is moving away from heavy industrial sectors towards consumer needs. As for India, while its GDP per capita is still only a fifth of China’s, it is growing more strongly: By 2024, India’s oil demand growth will match China.”

However, the IEA’s fossil fuel and energy forecasts have repeatedly underappreciated and underrepresented on-the-ground events and policies which have been shaping energy demand over the past decade. While this repeated low-balling is generally seen in how the IEA views the role of renewable energy in the power sector, one wonders at its inability to see peak oil in sight.

This is doubly the case when you consider how many other analysts and experts can see peak oil on the horizon. One such example is global quality assurance and risk management company DNV GL, which in September of 2018 published its Energy Transition Outlook 2018 and which predicted oil will peak in 2023.

“Like the IEA, DNV GL also sees continued growth in oil use through to the early 2020s,” said Bent Erik Bakken, Deputy Programme Director of the Energy Transition Outlook of DNV GL, who spoke to me via email. “The IEA annual oil forecast stops in 2024. But other IEA publications go further, and its NPS projection to 2040 sees continued growth in oil demand.”

Image Credit: DNV GL

“Unlike the IEA, we forecast that demand will level off in the early 2020s, and, from 2028, oil use will start a steady decline,” Bakken continued. “This is related to slowing global growth, but also to the inexorable electrification of the world’s fleet of road vehicles. That really starts to take off once light EVs reach strict cost parity with their internal combustion counterparts in 2024. Other factors to consider are the rise of biofuels and, longer term, the use of hydrogen fuel cell technology for long distance heavy goods transport. Moreover, we do not see petrochemicals as a life raft for the oil industry once demand for oil in transport starts to wane. The world’s war on plastic will see the markets for plastic will grow more slowly than GDP.”

 
 
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About the Author

I'm a Christian, a nerd, a geek, and I believe that we're pretty quickly directing planet-Earth into hell in a handbasket! I also write for Fantasy Book Review (.co.uk), and can be found writing articles for a variety of other sites. Check me out at about.me for more.



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