John Kingston of Platts, James Burkhard of IHS-CERA and Richard Kauffman, senior adviser to the U.S. Secretary of Energy discuss the global energy outlook.
The energy renaissance in the United States that the IEA predicted will make the U.S. the world’s top oil producer by 2017 brings with it some important economic and structural challenges.
Among them, how soon will the relatively sudden expansion of production capabilities in North America be met with the corresponding infrastructure to bring oil to world markets?
James Burkhard, managing director of global oil at IHS CERA mentioned at a Global Financial Leadership Conference panel discussion the day of the report’s release that this is already beginning, but will take some time.
“The market is starting to respond. We saw that first with the seaway pipeline. And there are lots of opportunities to build new infrastructure. That includes pipeline, trucking, shipping, and rail.”
Panel moderator John Kingston of Platts pointed out that University of Houston Professor Craig Pirrong posted on his Streetwise Professor blog that the value of the oil produced in North America will bring the investment necessary for proper infrastructure.
That value will be largely derived from the presumption of the panelists that the price spread between West Texas Intermediate crude and Brent crude will narrow from its current range. Burkhard said the WTI discount will continue, but will remain at only $3 – 4, compared to current levels around $20.
The U.S. lead over Saudi Arabia is not expected to last long, according to the IEA. The Saudis should retake the lead in production sometime in the mid-2020s. This is because China is expected to continue demanding more and more oil, and the IEA says Saudi Arabia is expected to be the one to provide it.
One question is what will happen to OPEC oil. The report says that’s up to OPEC:
Non-OPEC oil output steps up over the current decade, but supply after 2020 depends increasingly on OPEC. A surge in unconventional supplies, mainly from light tight oil in the United States and oil sands in Canada, natural gas liquids, and a jump in deepwater production in Brazil, push non-OPEC production up after 2015 to a plateau above 53 mb/d, from under 49 mb/d in 2011.
Burkhard expressed his opinion on that issue:
“What we’re likely to see is non-OPEC supply growth, which could be greater than global oil demand in the coming years. This means the world would need less OPEC oil.”
Regardless of OPEC’s fate, it appears the U.S. will not remain insulated from global oil markets anytime soon.
Says the report: “Oil prices are set globally, so consumers in the United States will continue to feel the effects of worldwide price fluctuations.”
That may be especially true as the WTI-Brent spread narrows.