By 2025, the US could account for around half the growth in oil and natural gas over the next six years.
According to the annual energy outlook from the International Energy Agency (IEA) the US could account for 20% of the daily production of oil and gas in the world.
The IEA sees oil demand growing by around one million barrels a day every year to 2025, after which demand slows down.
However, global demand is not expected to peak until around 2040. “This divergence in trends between strong consumption growth and weak investment in new supply, if left unchecked, points to damaging price spikes in the 2020s.”
The forecast of price spikes, as we saw up to six weeks ago when the global price for Brent crude peaked around $US86 a barrel (a four year high), is not new.
The slide of 20% or more since then to where the Brent price is back under $US70 a barrel and the key US crude price is now under $US60 a barrel tells us the oil market is more delicately balanced than previously thought.
The volatility for the past two years has been driven by the combination of the OPEC and Russian production cap of 1.8 million barrels a day and now the Trump sanctions on Iranian crude which first boosted prices, and now are having no impact with 8 key major importers (India, Japan, China) still being allowed to lift Iranian crudes and import them.
In fact the likes of Standard and Poors’ forecast a falling oil price, which drops from around $US65 a barrel in 2019 down to $US55 a barrel for 2021 and beyond.
The IEA outlook highlighted the increasing electrification of the world (with more to come from transport) and wind and solar playing a major role in this as the world shifts from coal-fired generation.
“The electricity sector is experiencing its most dramatic transformation since its creation more than a century ago,” IEA executive director Dr. Fatih Birol said in a statement.
Coal’s role as a power source will fall with the 2018 World Outlook forecasting coal demand to fall by around 3% compared to its last outlook and go on falling into the 2030’s and beyond as renewables replace it as a primary energy source.
It will be mostly replaced by a combination of new wind and solar projects. Gas remains stable while nuclear power sees a slight fall.
Global electricity demand will grow 2.1% a year, mostly driven by rising use in developing economies. Electricity will account for a quarter of the energy used by end users such as consumers and industry by 2040, the Agency forecast.
Coal and renewables will swap their positions in the power generation mix. The share of coal is forecast to fall from about 40% today to a quarter in 2040 while renewables would grow to just over 40% from a quarter now.
Gas though sees the most action in the outlook. The IEA said that energy demand would grow by more than a quarter between 2017 and 2040 assuming more efficient use of energy – but would rise by twice that much without such improvements.
Global gas demand would increase by 1.6% a year to 2040 and would be 45% higher by then than today, The IEA said.
“The shale revolution continues to shake up oil and gas supply, enabling the U.S. to pull away from the rest of the field as the world’s largest oil and gas producer,” said the Paris-based organization that advises governments and corporations on energy trends.
“By 2025, nearly every fifth barrel of oil and every fourth cubic meter of gas in the world come from the United States.”
The IEA said its main projection scenario through to 2040 foresees the US accounting for nearly 75% and 40% of global oil and gas growth, respectively, over the next six years.
Growth is expected to be driven primarily by shale fracking, which should lead US shale oil supply to more than double, reaching 9.2 million barrels a day by the mid-2020s, the agency said. Total US production is running at more than 11.5 million barrels a day and the US Energy Information Administration expects output this year to average 10.9 million barrels a day and well over 12 million barrels a day in 2019.
The IEA does point out that US shale oil production is expected to plateau in the mid-2020s, falling by 1.5 million barrels a day in the 2030s as a result of resource constraints.
Underlying how well placed Australia is in energy, the IEA says increasing production and consumption of LNG or Liquified Natural Gas will see natural gas will replace coal as the world’s second most important energy source by the mid 2030s as countries seek to cut air pollution and the rise in liquefied natural gas (LNG) use.
“Natural gas is the fastest growing fossil fuel in the New Policies Scenario, overtaking coal by 2030 to become the second-largest source of energy after oil,” the IEA report said.
And like in every commodity, China is the major driver of this change.
Reuters reckons that according to figures from China’s General Administration of Customs, China has already overtaken Japan as the world’s top natural gas importer.
That’s because of the campaign to replace coal as the primary winter heating (and cooking) fuel in homes across northern China, especially in the winter heating season that starts on Thursday.
This has seen China is the world’s third-biggest user of natural gas behind the United States and Russia, it has to import about 40 percent of its needs as local production cannot keep pace.
But other emerging economies in Asia are projected to lift demand for reasons similar to China’s in coming decades. The IEA says emerging Asia would account for about half of total global gas demand growth and their share of LNG imports would double to 60% by 2040.
Australia is well placed for that demand being so close to the region and especially the likes of China, India, Japan and Indonesia.
The US would account for 40% of the total growth in gas production to 2025, the IEA forecast while other sources would take over as US shale gas output plateaued and other nations turned to unconventional methods of gas production, such as hydraulic fracturing or fracking.
The IEA said that energy-related carbon dioxide emissions will continue to grow at a slow but steady pace to 2040.
From 2017 levels, the IEA said CO2 emissions would rise by 10% to 36 gigatonnes in 2040, mostly driven by growth in oil and gas.
The agency said this growth trajectory was “far out of step” with what scientific knowledge says would be required to tackle climate change.