Syed Rashid Husain

 The writer is Vice President of Al-Khobar-based Al-Azzaz Est., eminent journalist and energy analyst. He writes a popular weekly column   ‘Energy Outlook’ for Saudi Gazette and also contributes to Pakistan’s Dawn and the BBC.

Crude Enters the New Year in Subdued Mood

by shariff mohammed | Apr 02, 2014

THE crude world is entering the New Year in a rather subdued mood. Pundits are talking today in terms of glut, price crash and new horizons. Global energy dynamics are in the midst of a massive revolution – undergoing a major transformation. 2014 is to be significantly different from previous years, most assert today.

As the oil boom adds to supply and more efficient vehicles dampen the global thirst for crude, the US Energy Information Administration (EIA), the statistical arm of the Department of Energy, now says that the world’s largest consumer would continue to grow less and less dependent on foreign (middle eastern) oil. US oil production which slipped to as low as 5.1 million barrels a day in 2006, topped 8 million in the first week of December. While releasing an early version of its Annual Energy Outlook 2014 – the AEO2014 Reference case (the complete AEO 2014 is to be released only in September next year only) – the EIA now says that crude oil production in the United States is expected to rise faster than projected earlier – to a near historic high by 2016. The forecasts show that shale will help U.S. oil output to go up by 800,000 barrels a day every year until 2016, when it will total 9.5 million b/d, just below the 1970 record of 9.6 million. And though U.S. shale oil production is expected to plateau after 2016 and then begin to taper gradually after 2020, its natural gas output will in the meantime continue to increase steadily – growing 56 per cent between 2012 and 2040. The U.S. is now also projected to become a net exporter of liquefied natural gas in 2018, two years earlier than forecast in last year’s EIA report, ramping up its LNG exports to 3.5 tcf (or 9 billion cubic feet per day) by 2029, provided indeed that at least three big LNG export facilities eventually get built in the country.

This is a completely altered landscape. Just a few years ago, U.S. policy makers were overly worried of the risks of an ever-rising dependence on imported fuel. The EIA itself made barely a mention of shale oil in its 2010 outlook, focusing rather on offshore production growth. Now the agency is struggling to get to grips with a complete reversal of that equation. The government has begun approving more natural gas exports and may consider lifting a ban on crude oil exports. The impact of the shale development on market prices and crude oil producers is getting to be significant, EIA too is emphasizing now. EIA now projects that the higher U.S. production will help keep global benchmark Brent crude oil prices down to $92 a barrel – in 2012 prices – in 2017, before rising to $141 in 2040. Last year, the EIA had projected a fall to $96 in 2015.

Analysts seem to be concurring too. Fadel Gheit, the Cairo-born analyst working for Oppenheimer, now believes oil prices are in a bubble. 20-30% of the current oil price reflects a “supply isk premium” that will disappear when Iran’s nuclear issue is finally resolved, he underlines. In a rather authoritative note to clients, Oppenheimer last month emphasized: “We believe the current oil price bubble will burst eventually and the question is not if, but when, and to what level.”

One cannot deny the fact therefore that shale would impact oil producers too in a big way. OPEC is keeping tabs on the emerging trend. Just last month, it conceded that it may lose 8 per cent of its market share to shale over the next five years. The EIA too underlined in AEO2014 that OPEC’s world crude oil market share would fall to below 40 per cent (from 40-45 percent forecast just last year) in the near term but then recover after 2016. The impending shale revolution is altering the global energy map.

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