Shale oil boom to peak in 2025, decline from 2030 – OPEC

LONDON (ICIS)–Tight oil supply from the US and elsewhere will peak in 2025 and start to decline shortly after, with OPEC crude production expected to rise sharply around the same time, the oil cartel said on Tuesday.

Shale and sandstone-derived US oil has become the most significant contributor to non-OPEC crude supply growth, and the country is likely to drive additional volumes of around 4.8m bbl/day in the 2016-2022 period, according to OPEC’s World Oil Outlook report.

However, OPEC predicts that “heavily front-loaded” high production rates will be followed by output starting to taper off from 2030.

The oil group predicts that demand for oil from its member countries will remain relatively flat at a little over 33m bbl/day over the next eight years, but that this will ratchet up quickly from that volume to 41.4m bbl/day by 2040.

This would represent an increase in total OPEC market share from 40% to 46% over the period, the cartel added.

“Middle Eastern exports [will] increase significantly after 2025 as other exporting regions are either stagnating or in decline,” the group said.

The US is likely to remain by far the dominant producer of tight oil, with OPEC projecting that Canada, Argentina and Russia will also become increasingly prominent through the early 2020s.

Tight oil projections to 2040. Source: OPEC

However, those four countries may turn out to be the only tight oil players in the world, according to OPEC, indicating that the group does not expect plans by governments in China or Mexico to develop their unconventional oil sectors to come to fruition.

“No tight oil volumes are expected from countries outside of these four,” OPEC said in the report.

US unconventional oil has been a key factor in the decline in global oil pricing seen since late 2014, with weak demand growth on the back of tepid economic performance across most regions exacerbating the jump in supply.

Prices have risen in recent months as economic growth strengthened across much of the globe, as well as strong compliance to output curbs agreed among OPEC member countries and some key non-OPEC nations such as Russia.

Brent crude futures for January 2018 surged to over $64/bbl on Tuesday as prices firmed further following a series of arrests in Saudi Arabia, and some analysts are projecting that prices could reach $70/bbl in the next few weeks, but current future prices running through September 2018 remain in the low $60s/bbl at present.

OPEC Secretary General Mohammad Barkindo noted that supply and demand in the oil market may finally be coming back into balance.

“There are signs that the rebalancing of the oil market is finally in sight,” he said at a press conference on Tuesday. OPEC meets later this month to determine whether to continue production curbs beyond the current March 2018 end point.

Total global oil supply will rise to 111.1m bbl/day by 2040, driven by growing developing world populations and demand from the transport and aviation sectors, but oil demand growth is expected to decelerate over the next two decades due to energy efficiency policies.

However, fossil fuel demand is likely to remain the pillar of global energy demand, OPEC added. Oil, gas and coal are expected to comprise over 75% of the total in 2040, OPEC said, due in part to the low base that renewable energy sources and electric vehicles are building from.

The petrochemicals sector is also likely to buoy demand and was a factor in a more bullish world oil outlook this year than in 2016, OPEC added. Oil demand from petrochemicals is likely to grow by 3.9m bbl/day between 2016 and 2040, to 16.5m bbl/day.

Focus article by Tom Brown