The balance of power is changing, with respect to the world’s oil and gas resources, and a phenomenon being called “supply shock” is working its way through the industry. North America is the main drivers, with its booming oil production driven by the shale energy revolution and by Canada’s oil sands. The International Energy Agency (IEA) says that the boom in new supply will be as transformative for the world energy industry over the next five years as the rise of Chinese demand has been over the past fifteen.
The IEA forecast last year that the United States could become the world’s biggest oil producer, thanks to shale. North American output is expected to grow by 3.9 million barrels per day by 2018. This would be equal to nearly two-thirds of all non-OPEC supply growth, projected at 6 million barrels per day.
OPEC capacity currently accounts for 35 per cent of global oil output, and is expected to increase to 36.75 million barrels per day by 2018.
The North American growth, however, could come at the expense of the OPEC member producers. Faster than anticipated growth in US production, mainly from shale plays, has diminished US demand for OPEC oil. What’s more, growing exports from the US could further weaken OPEC’s position of dominance in the energy industry. The IEA expects demand for OPEC oil to fall below 30 million barrels per day in a trend that could continue until 2018.
Canadian production is also expected to surge, though the IEA is concerned that current pipeline capacity will not support greater production volumes. Canada’s production is forecast to rise from 3.7 million barrels per day now to 5 million barrels per day by 2018.
Without a coordinated effort to control production by the OPEC producers, oil prices could crash, according to some analysts.
“There is hardly any aspect of the global oil supply chain that will not undergo some measure of transformation over the next five years, with significant consequences for the global economy and oil security,” the IEA said.
