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IEA: North America's Oil Output Growth Leading the Globe

Reflecting the "formidable power" of drilling technology that transformed the natural gas industry, surging unconventional oil production in North America is redefining the industry and should transform international trade over the next five years, the International Energy Agency (IEA) said Friday.

North American oil supplies are forecast to lead the way through 2017. IEA now predicts that close to 40% of liquids growth over the next five years will come from North American oilsands and light, tight oil production; about 20% is forecast to come from Iraq. Globally, oil supplies -- except for OPEC-producing nations -- are expected to jump 9% annually, increasing by 4.8 million b/d.

"Remarkably, roughly 80% of the growth comes from North American light, tight oil and Canadian oilsands production, offsetting mature field decline elsewhere," said the report. "This growth reflects the formidable power of the technological advances applied to developing unconventional resources -- a technology revolution akin to the onset of 3-D seismic exploration and development in the 1980s."

For supplies, "technological advances and innovation, despite logistical bottlenecks and constraints to market access, have unlocked more supply growth than anticipated in North America, a trend that is now expected to continue, albeit at a somewhat reduced rate, for the next five years."

The global oil market should become "somewhat less tight" than it has been through most of the past 10 years because of a combination of demand and supply factors, according to IEA's Medium-Term Oil Market Report. The report is a companion to IEA's Oil Market Report and offers a "bridge" between the monthly snapshot of market conditions and the Paris-based agency's annual World Energy Outlook.

The IEA report is the last in a series of forecasts on the four primary energy sources: oil, natural gas, coal and renewable energy. Last year the IEA said a "golden age" was on the horizon for natural gas, and followed that with recommendations this year on the "golden rules" for gas extraction (see NGI, June 13, 2011).

"The oil market is at a crossroads," said IEA Executive Director Maria van der Hoeven. "On each and every front -- technology, geopolitics, the economy -- potentially game-changing developments are taking place."

The technologies so far have been focused on North America's oilpatch, "reflecting the region's large nonconventional resources but also is favorable investment conditions. While there is a strong potential for the same transformative technologies to lift unconventional production elsewhere, that is not expected to bear fruit until after the forecast period."

The IEA's revised assumptions are based on the market developments of the past 18 months, which sketch out a "seemingly more benign medium-term market outlook than the agency reported in June 2011 and updated last December.

The IEA can't anticipate "everything the next five years have in store," said van der Hoeven, but the report may offer a way to "think through the issues and gain a more refined understanding of the broader context in which tomorrow's surprises will play out."

IEA's researchers said there is a "continued rebalancing of refining capacity, with expansions in Asia and the Middle East more than offsetting continued attrition" for nations within the Organization for Economic Cooperation and Development. "Internationally traded crude volumes are expected to decline sharply, as rising domestic production reduces North America's import needs and more Middle East oil is kept at home to satisfy growing regional demand rather than exported. Product trade may grow in both volume and scope, however."

Trade flows "also will also deeply affect" the redrawing of the global oil map, the researchers found, with the "crude trade map...increasingly split over the forecast period between a more and more self-contained Western Hemisphere and the rest of the world.

"Once a large importer, North America moves closer to balance thanks to surging nonconventional production in Canada and the U.S. Midcontinent. The changing quality of U.S. domestic crude production also deeply affects U.S. trade flows, backing out most light, sweet grades previously imported from West Africa and elsewhere."

North America "for the main part benefits from new, discounted feedstock supply, some of the lowest energy costs on the planet in the form of cheap natural gas, economies of scale and at its most advanced plants' state-of-the-art technology," the report said. "Within the U.S., eroding domestic demand and a glut of unconventional supply [are] converting a once inward-looking refining industry into a fast-growing export business.

"Increasing product exports from large Gulf Coast refineries support the nation's re-industrialization fueled by unconventional oil and gas, even as diminishing gasoline import needs pose a challenge to exporters elsewhere."

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