One can’t deny that OPEC, for many years has been a very dominant force in the oil and gas export environment. In 2012, OPEC exports alone accounted for 28% of total crude oil consumption, according to Deloitte. OPEC is of course expected to remain a major force in the global oil market, but increasing production in the US and other regions is likely to but a cap on its power to influence crude oil prices by controlling marginal production.
The Energy Information Administration has said that US crude oil output growth went from 1.6 million bpd in 2010 to approximately 10.4 million bpd in 2013. This has led to a drop in imports from OPEC nations by 1.2 million bpd. This has impacted, according to Deloitte, mainly Nigeria and Algeria. Increasing production from US tight oil reserves may even allow the country to overtake Saudi Arabia as the world’s number one liquid producer this year. Canada is also another country which will impact OPEC, Deloitte say. Canadian crude output is expected to increase by 1 million bpd to 2020. And Mexico can’t be ignored either as the government is hoping that new steps to liberalise the country’s oil and gas industry will lead to production levels of 1.5 million bpd by 2025.
Looking else where, Brazil and Kazakhstan are noted by Deloitte as having the potential to expand global supplies and says that production from these regions is likely to increase by 3.9 million bpd and 1.7 million bpd respectively by 2030. However, OPEC has responded to oversupply in the past as well as depressed prices. The organisation has successfully lowered the overall export ceiling for its member countries. Now, OPEC will soon need to make a decision as to where to place cuts in member production, and especially when Libya, Iran and Iraq recover and Deloitte believes it faces a medium term dilemma.
As well as OPEC, Russia has been a hugely dominant force in the oil and gas export market and is also feeling a threat, especially when it comes to Europe, its main export market. Deloitte has reported that Norway overtook Russia as Europe’s main supplier of natural gas in 2012, due to more competitive, hub based spot prices. Also, several European countries are keen to become less reliant on Russia for energy. Finland and Estonia are noted by Deloitte as they are planning to build LNG regasification plants specifically to reduce Russian imports and Poland is prepared to pay significantly more for LNG from Qatar.
It seems that to offset the drop in demand from Europe, Russia is going to have to and in some instances has turned to the Asia Pacific region and is targeting new markets with pipelines and LNG exports in particular.
Asia Pacific, is at the moment, the place for growth in oil and gas demand and Deloitte expect that between 2012 and 2035, 72% of the world’s demand growth for liquids will come from the area. Asia Pacific is, at the moment, OPEC’s main customer and purchased 57% of its crude oil exports in 2012. Deloitte expect the region to become even more important to OPEC as US demand wanes, however, Russia, due to activities in Europe mentioned above, also has its eye on the region.
When it comes to natural gas, demand is led by Japan as it is the region’s largest fuel importer. Middle Eastern countries are currently the major suppliers, however competition is increasing, especially when it comes to LNG as new export facilities are opening in Australia and East Africa, and potentially from second hand purchases of US exports.
Looking at China, Deloitte has said that in 2013 it was OPEC that met most of the country’s needs. However, the country is now looking to diversify its supply to help secure its energy needs. China is especially looking to diversify its natural gas portfolio and is choosing imports from countries such as East Siberia and some in Central Asia by pipeline. As Deloitte has clearly said, when it comes to Asia Pacific, its market power is set to increase along with its strategic importance.
Deloitte’s view in a nutshell
- ‘New sources of supply will shake up the global hydrocarbon markets in the next decade.’
- ‘The dominance of traditional producers, mainly OPEC countries and Russia, will be challenged, and they will be forced to compete more aggressively to maintain their market share and influence.’
- ‘From the demand side, the Asia Pacific oil and gas markets have accounted for the majority of demand growth over the past decade and the upward trajectory is expected to continue.’
- ‘Future developments in the Asia Pacific oil and gas markets will be driven by what the main customer, China, does next to meet its growing energy needs and to enhance its energy security.’
Read the article online at: https://www.oilfieldtechnology.com/special-reports/24062014/reality_check_global_energy_supply/