Opec admits impact of shale oil on supply

November 09, 2012 - 4:45:44 am

LONDON: Opec acknowledged for the first time yesterday that technology for extracting oil and gas from shale is changing the global supply picture significantly, and said demand for crude would rise more slowly than it had previously expected.

In its annual World Oil Outlook, Opec cut its forecast of global oil demand to 2016 due to economic weakness and also increased its forecast of supplies from countries outside the 12-nation exporters’ group.

“Given recent significant increases in North American shale oil and shale gas production, it is now clear that these  resources might play an increasingly important role in non-Opec medium- and long-term supply prospects,” the Organisation of the Petroleum Exporting Countries said in the report.

Opec has been slower than some to acknowledge the impact that new technologies such as hydraulic fracturing - known as “fracking” - may have on supply. Conoco’s Chief Executive Ryan Lance has gone so far as to predict North America could become self-sufficient in oil and gas by 2025.

In Opec’s new forecast, shale oil will contribute 2 million barrels per day (b/d) to supply by 2020 and 3m b/d by 2035. For comparison, 2m b/d is equal to the current  output of Opec member Nigeria, which is Africa’s top exporter.

Fracking involves pumping chemical-laced water and sand into a well to open cracks that release oil and gas. The technology has transformed the production outlook in North America but drawn criticism from environmentalists, although the industry insists it is safe as long as wells are properly built.

Opec said that in the medium-term shale oil would continue to come from North America only, but other parts of the world might make “modest contributions” in the longer term. Shale oil and gas may also play a role in Opec members themselves.

Previous editions of the Opec report saw no significant supply addition from shale oil. As recently as June, oil ministers including Rafael Ramirez of Venezuela played down the prospects as Opec met in Vienna for its last meeting to set output policy. Opec Secretary-General Abdullah Al Badri told reporters in Vienna that shale oil still did not pose a threat to the group as rising demand would easily absorb the higher output. “It doesn’t concern us that much,” he said.

However, yesterday’s report shows that the world is expected to need less oil from Opec members, which pump more than a third of the world’s oil and hold about 80 percent of its conventional  crude reserves. That is partly because of a reduced demand outlook, reflecting immediate concerns about the strength of economic growth particularly in the euro zone and, over the longer term, higher oil prices.

Opec forecast world demand would reach 92.9m b/d by 2016, a cut of over 1 million from last year’s report. By 2035, consumption will hit 107.3m b/d, more than 2 million less than previously thought. Demand was 87.8m b/d in 2011.

Partly due to the higher amounts of shale oil, supply from countries outside Opec is expected to rise to 56.6m b/d by 2016, up 4.2m b/d from 2011. Oil extracted from tar sands in Canada and crude from the Caspian and Brazil are also expected to drive the growth.

As a result, Opec expects demand for its crude to average 29.7m b/d in 2016, less than it is currently producing. The forecast for the amount of crude needed from Opec by 2015 is more than 1.6m b/d less than it expected last year. “This downward revision, together with updated estimates of Opec production capacity over the medium-term, implies that Opec crude oil spare capacity is expected to rise beyond 5m b/d as early as 2013/2014,” Opec said.

Opec assumes its preferred measure of oil prices will average $100 a barrel in the medium term, up from the $85-$95 during this decade that it assumed in last year’s forecasts. It sees prices rising with inflation to $120 by 2025 and $155 by 2035, compared with $107 most recently.

Meanwhile, oil rose further. Brent futures traded 56 cents higher at $107.38 per barrel by 1507 GMT. US crude rose 45 cents to $84.89 a barrel, after losing nearly 5 percent in the previous session.  

Reuters

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