Global energy markets are reaching a new equilibrium, offering little upside signals for oil or natural gas prices as strong demand is countered by an equally strong supply, according to Wood Mackenzie's forecast to 2030.
Energy demand may be shifting to the Asia-Pacific markets, driven by China, but the increases are being matched, said the analyst's long-term view of global energy trends to 2030. The "revolutionary" supply growth in North America now is redefining global energy markets, which are "increasingly interconnected," while and supplier-consumer relationships are increasingly dependent, as reflected by Russia's gas trade links with Europe.
"As demand shifts East it will expand to extraordinary proportions, but this era is also one of robust energy supply," said Wood Mackenzie's Paul McConnell, principal analyst for the firm’s global trends service. "As a result, we see few, if any, strong upside signals for oil, gas and coal prices. Investors are wary, and shareholder pressure is pushing down spend and forcing an emphasis on short-term cash flow.
"This shift from volume to value means a rebalancing toward a supply outlook more appropriate to a world in which demand growth, while still remarkable in the context of history, is somewhat softer than was expected only a few years ago."
While the industry settles into the new equilibrium, "cost pressures will remain at the forefront of executive concerns. However, the expansion of developing markets, the impact of new techniques and technology on the supply mix, and the increasingly interconnected character of global energy trade, provides an endless spread of opportunities for growth over the long term."
China already is the world's largest energy consumer, and the entire region's thirst for energy is getting larger, McConnell said.
"By 2030 China's energy consumption will be unrivaled and the center of gravity for global energy demand will have decisively shifted East. India and the other developing economies of Asia Pacific are also of huge importance. India and China will cement their positions as compelling destinations for exporters of coal, oil and gas. And between 2014 and 2030, energy demand growth in the region will outpace that of North America by five times. On average, the effect is to add a new Brazil to global energy demand, every year between now and 2030."
Wood Mackenzie's forecast for growing gas demand mirrors some of the findings of the International Energy Agency, which on Tuesday issued its 2014 Medium-Term Gas Market Report (see Daily GPI, June 10). The U.S. gas surfeit is "beyond the golden age," with China coming on strong.
Increasing global energy demand should be met partly by the emerging North American natural gas -- and oil -- energy export market, said McConnell.
"The renaissance of North American gas and oil production is the critical supply-side trend affecting global energy markets in the long term," he said.
By 2020, Wood Mackenzie thinks North America oil output will outpace the Middle East by "four barrels to one," and by 2030, North America will have grown by 390 million metric tons of oil equivalent (MMtoe) from 2009's levels of 650 MMtoe. That growth would rival an increase of around 430 MMtoe in the Middle East, where oil production is seen increasing, mostly driven by growth in Iraq. Meanwhile, the tight oil supply in Canada and the United States "plateaus post-2020."
Natural gas output from North America also is expected to expand, doubling to 1,000 MMtoe in 2030 from 2005.
By 2018, "North America will become energy independent with energy exports exceeding imports," predicted the analyst. By that time North America also will have overtaken the gas output of Russia and the Caspian and will be the world's largest gas producing region by 2030.
"The growth in North American supply has introduced a new dynamic to global oil prices, with U.S. tight oil providing a price floor for global oil prices," said head of macro oils research, Ann-Louise Hittle. "Increasing U.S. tight oil supplies and Canada's growth in oilsands production are expected to continue to add stability to the international oil market, rather than remove it."
As North America becomes energy independent, Europe is seen growing increasingly dependent on imports. "A growing reliance on imported natural gas will prevail, with imports set to increase by 50% between 2014 and 2030, from 215 to 320 MMtoe," Wood Mackenzie analysts said.
"The ongoing crisis in the Ukraine has focused attention on Europe's reliance on Russian natural gas," said Massimo Di-Odoardo, principal analyst for European gas and power. "Russian gas remains competitive against other alternatives and will continue to be the cornerstone of European gas supply. It also represents a major market for Russian gas, even in light of the recent signing of a gas pipeline deal to export Russian gas to China. Therefore, our long-term view is that the Europe-Russia gas relationship will continue out of necessity."