FINANCIAL POST
ENERGY 28% jump by 2023, IEA forecasts
CANADA BRACES FOR ‘SECOND WAVE’ OF U. S. SHALE OIL.
HOUSTON • The United States is set to dramatically ramp up its own oil exports, a move that will reshape the global oil trade in the next five years.
“We see there is huge investment going on in this part of the United States, in Texas,” Fatih Birol, executive director of the International Energy Agency, told reporters Monday at the CERAWeek energy conference.
The Paris- based I EA’s five- year oil markets outlook, released at CERAWeek, predicts “the United States dominates oil supply growth” in the near term as the country’s production rises by 28 per cent to 17 million barrels per day by 2023.
Birol called the coming surge “a major second wave” of the U. S. shale revolution and said that much of the production growth is expected to flow to export markets. The U.S., Canada’s biggest market, will “put its stamp on global oil markets” over the next five years, he said.
The surge in production highlights the reasons behind a palpable sense of optimism at the event. “It’s clear to me that the American energy renaissance … is now in full swing,” said Daniel Sullivan, a Republican senator from Alaska.
The Organization of the Petroleum Exporting Countries, which has been increasingly alarmed by the growth in North American oil supply growth, is also forecasting rising supplies from the U.S.
“Of course, non- OPEC supply continues to grow,” OPEC s ecre t ar y- general Mohammad Barkindo said in a panel discussion with Birol. “The numbers may differ, but in terms of the trend going forward, we are also on the same page,” Barkindo said of the IEA report.
Non- OPEC supplies will take up a larger share of the market, but Barkindo said he believes the overall market for oil is also growing. “Demand has not been this solid and positive in a long while, probably since the last global financial crisis,” he said.
“We have seen a very sharp contraction in investment for almost two consecutive, running to three consecutive years,” Barkindo said, adding, “We are sowing the seeds for a possible — God forbid — future energy crisis.”
The IEA projects that China and India are both on pace to overtake the U. S. as the world’s largest import markets over the next five years.
The optimism in U. S. energy markets is in sharp contrast to the mood in the Canadian industry, which is reeling from US$30 per barrel discounts for domestic heavy oil and a lack of new pipelines to reach export markets in the U. S. and elsewhere.
Asked whether surging U. S. production could hurt Canada’s energy industry by eliminating the need for Canadian supply in its biggest market, Kevin Birn of IHS Markit said, “Not at this point.”
“We’re yet to see what happens with the infrastructure, yet to see the total potential with U. S. crude, and I think that goes to the importance of Canada building its own pipelines,” Birn said.
The IEA expects Canadian oil output to rise by 16 per cent, or 790,000 bpd, to 5.6 million bpd by 2023, largely as a result of major projects sanctioned before the oil price downturn of 2014. As a result, Canada will actually be the third-largest source of non- OPEC supply growth in the next five years after the U. S. and Brazil. The IEA also expects the new Canadian barrels will be processed in the U.S.
“We think the U. S. refinery industry is well geared up to process this heavy crude,” IEA senior market analyst Toril Bosoni said, adding the Canadian supply was “a good substitute” for declining heavy oil production from Venezuela.
“The light, tight oil in the second round ( of the U. S. supply growth story) will probably be exported in order to make room for these barrels,” Bosoni said of Canadian oil supply.
Bosoni cautioned, however, that part of the reason Canada’s oil supply growth isn’t expected to be larger is because of delays facing TransCanada Corp.’s Keystone XL pipeline and Kinder Morgan Canada’s Trans Mountain expansion project.
“I think this is one of the reasons why we’re seeing capacity constraints is one of the bottlenecks of not having more Canadian projects being sanctioned because of the uncertainty of how to get these barrels to market,” Bosoni said.
The IEA warned Canadian oil pipeline constraints are part of a wider capacity crisis brewing in North America.
“Colossal growth in North American supply from 2018 to 2023 raises the crucial question of whether there is enough pipeline capacity to transport and sell all of that oil,” the agency said in its report. “If sufficient capacity is not built, the increase in production we foresee could be at risk, with serious implications for global markets.”
Choked pipelines mean Western Canada Select is currently trading at a $ 31 per barrel discount against West Texas Intermediate, compared to $12 at the same time last year.