The rapid growth of U.S. oil production is transforming global markets and easing supplies just as China and the rest of the developing world move to overtake the developed world for the first time in consumption, the International Energy Agency reported Tuesday.
The shale oil revolution in the U.S. heartland will cause a surge in oil production of 3.9 million barrels a day in the next five years, far exceeding the growth of OPEC and other oil suppliers, eliminating the need for Middle Eastern imports in the U.S. and causing other cascading effects.
“North America has set off a supply shock that is sending ripples throughout the world,” said IEA Executive Director Maria van der Hoeven. “The good news is that this is helping to ease a market that was relatively tight for several years.”
Besides displacing Middle Eastern oil imports so they can be redirected toward Asia, which is the fastest-growing center of demand, the hydraulic fracturing technologies used to release the oil from shale rock in the U.S. have the potential to transform the way oil is produced around the world and could lead to a major reassessment of the world’s oil resources, she said.
Ms. van der Hoeven called the American oil renaissance “remarkable,” given how the U.S. faced seemingly irreversible production declines for decades after serving for more than a century as the “cradle of the oil industry.”
The U.S. Energy Information Administration also is projecting a surge in U.S. oil production in the next five years as various prolific shale plays come to market, but it is somewhat less optimistic about how long the production boom will last, given the uncertainties on how long oil can be produced from shale formation before running into technical obstacles.
The growth of oil supply from the U.S. and Canada, which is ratcheting up development of its vast Alberta oil sands, couldn’t come at a better time as the developing world is set to surpass the developed world in the consumption of oil for the first time this quarter, the international agency said.
Total world oil demand will grow from about 90 million barrels a day today to nearly 97 million in 2018, with more than half of that coming from developing countries.
China has been the biggest and most dramatic source of demand for oil in the past 15 years, but the use of oil also is growing briskly in the rest of Asia, the Middle East and Africa, areas that are enjoying robust economic growth. At one time only a decade or so ago, the U.S., Europe and Japan were the dominant sources of world oil demand.
“There is a growing perception that the peak in [Organization for Economic Cooperation and Development] oil demand, including in the U.S., is behind us,” said Ms. van der Hoeven, “whereas non-OECD demand growth is spreading from China, which appears to be slowing down somewhat, to other Asian economies and even Africa, which is emerging as a new demand frontier.”
Even as supplies surge in North America, production by OPEC has grown only weakly, hobbled by unrest in the Middle East and North Africa stemming from the Arab Spring uprisings, the agency said. Iraq is leading the growth in OPEC production, but it continues to encounter obstacles that slow the development of its vast oil reserves.
“OPEC oil will still very much be needed,” despite the cartel’s recent troubles, because of the surging demand in Asia and the developing world, said Ms. van der Hoeven. “It will remain an essential part of oil mix for as long as we can tell.”
While the U.S. and Canada aren’t producing enough oil to dramatically lower global oil prices, it probably was enough last year to avert a serious supply crunch when OPEC supplies were disrupted by various crises in the Middle East, she said.