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.

Developments In The Middle East Have The Capacity To Undo All The Projections

by shariff mohammed | Dec 03, 2017

Nothing is certain over the long term energy horizon, the Paris based International Energy Agency, says in its much-awaited World Energy Outlook (WEO) 2017, released mid-November. The projections made in the just-released WEO, are not as emphatic as it used to be in past years.

In view of the emerging, new, variables impacting the global energy equation, the IEA cut its oil demand growth forecast by 100,000 barrels per day (bpd) for both 2017 and 2018. And this meant that the global oil consumption may not breach 100 million bpd next year as many were anticipating.

And in the meantime, the U.S. is emerging as a dominant, global energy player. Already, the U.S. crude oil production has jumped more than 14 percent since mid-2016 to 9.65 million bpd and is expected to grow still further.

The U.S. will be a dominant force in global oil and gas markets for many years to come as the shale boom becomes the biggest supply surge in history, IEA said. By 2025, the growth in American oil production will equal that achieved by Saudi Arabia at the height of its expansion, and, increase in natural gas output will surpass those of the former Soviet Union, the IEA emphasized.

The boom will turn the U.S., still among the biggest oil importers, into a net exporter of fossil fuels. “The United States will be the undisputed leader in global oil and gas markets for decades to come,” IEA Executive Director Fatih Birol told Bloomberg television, after unveiling the outlook. “There’s big growth coming from shale oil, and as such there’ll be a big difference between the U.S. and other producers.”

The agency also raised estimates for the amount of shale oil that can be technically recovered by about 30 percent to 105 billion barrels. Consequently, forecasts for shale-oil output in 2025 were bolstered by 34 percent to 9 million bpd.

All this is a far cry from the OPEC halcyon days. Even in the shorter run, the situation doesn’t appear rosy. As per WEO, non-OPEC production would rise 1.4 million bpd in 2018, undermining efforts by the OPEC and other producers to limit global crude supplies and support prices.

In the wake of abundant new supplies coming to markets, the IEA also cut its forecasts for oil prices significantly – to $83 a barrel for 2025 from $101 previously, and, to $111 for 2040 from $125 before. But this could change too, IEA admits.

The agency, however, remains hopeful on some counts, underlining that the global crude consumption would rise through 2035 – despite the growing market share of electric vehicles. Yet, in view of the changing variables, the IEA is finding it difficult to stay emphatically optimistic.  

At one point, it points out that the U.S. shale output is expected to decline from the middle of the next decade, and with investment cuts taking their toll on other new supplies, the world will become increasingly reliant once again on OPEC, with its market share growing to 46 percent in 2040 from 43 percent now. Yet, in the same breath, it admits, ‘that could still change.’

Similarly, it concedes, if shale resources turn out to be double the current estimates, and the use of electric vehicles erodes demand more than anticipated, prices could stay in a “lower-for-longer” range of $50 to $70 a barrel through to 2040. “There could be further surprises ahead,” the IEA hence felt like emphasizing. Ifs and buts continue to haunt the pundits.

On the other, just a day prior to the launch of the WEO, the OPEC raised the call next year on its crude projecting it would go touch 33.42 million bpd - up 360,000 bpd from its previous forecast, marking the fourth consecutive monthly increase from its first estimate made in July.

The gap between IEA and the Opec projections seems widening, once again, on a number of counts.

Geopolitical developments in the Middle East, however, have the capacity to undo all the projections. In the given scenario, indeed it’s not easy for good, old, friend, Fatih Birol and his team to bet on the winning combination. With little control and foresight over the emerging variables, the IEA has little option but to be a bit wavy, one needs to concede here.

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