North America’s unconventional oil production from shale and tight formations will remain a “major source” of global supply growth until 2030, with output to 2040 rising faster than initially forecast because of lower costs and improved productivity, the Organization of the Petroleum Exporting Countries (OPEC) said Tuesday.

In the 10th annual World Oil Outlook (WOO) for 2016, OPEC’s flagship publication predicted a slower recovery than expected in oil prices. It now assumes an average price of $65/bbl in 2021, versus last year’s estimate that prices would average $80 by 2020. Pressure on prices is expected to limit production gains among “non-OPEC” members, i.e., North America and elsewhere, through next year.

“The lower oil price environment is expected to see overall non-OPEC supply decline in the period 2016-2017, before slowly rising again to 2021,” OPEC Secretary General Mohammad Barkindo said in introducing the report. The latest publication “underlines the increasingly complex nature of the oil industry, both in the upstream and downstream,” as well as “the market adjustments that have been taking place since the price drop that began in mid-2014…”

Since last year’s publication, “the oil market has shown some signs that fundamentals are rebalancing,” he said. “However, high inventory levels continue to be a major concern.”

Rising output from lower cost shale and tight formations are a major reason for the oversupply. Worldwide, unconventional oil output is forecast to reach 4.55 million b/d by 2020 and peak at 6.73 million b/d in 2030, as North America is joined by Argentina and Russia as unconventional producers. Last year OPEC estimated unconventional oil would reach 5.19 million b/d by 2020 and 5.61 million b/d by 2030.

Overall, that means a “slow road to recovery over the medium term for non-OPEC supply,” Barkindo said. “Total non-OPEC liquids supply is expected to shrink from 56.9 million b/d in 2015 to 55.9 million b/d in 2017 — a decline of 1 million b/d — in response to reduced spending in the lower oil price environment. A slow recovery in output is then projected for the rest of the medium-term, in line with the gradual rise in the outlook’s price assumption over the period.”

By 2021, non-OPEC supply is seen reaching 58.6 million b/d, with most of the growth coming from the United States, Canada and Latin America. In the longer term, non-OPEC supply is seen “fairly flat” until after 2030. Researchers predicted non-OPEC oil supply would rise to a high of 61.4 million b/d in 2027 and slowly decline to 58.9 million b/d by 2040.

“Until 2030, a major source of growth is U.S. tight crude,” the report said. “Around this time, tight crude begins to contract, while sources like oilsands and biofuels become more important non-OPEC supply growth drivers.”

On the back of lower oil prices and investment cuts, tight crude and unconventional natural gas liquids (NGL) are seen falling in 2016 and 2017 in countries that are not members of OPEC before resuming growth. Global tight crude plus unconventional NGLs production is expected to reach a high of around 10 million b/d in 2029 and remain relatively level for a few years thereafter before declining to under 9 million b/d in 2040.

“At that stage, around 8 million b/d of this production is anticipated to come from the U.S. and Canada,” according to the report. “Some long-term tight oil production is also anticipated from Argentina and Russia.” The higher non-OPEC projections in this year’s outlook come from “reduced costs and the sector’s productivity improvements, some of which are anticipated to have lasting effects.”

OPEC increased the medium-term view for world oil demand from a year ago. It now sees oil demand reaching 99.2 million b/d by 2021, which is 1 million b/d higher than in the 2015 forecast. Demand is expected to reach 41 million b/d in 2040, with OPEC accounting for 37% of global supply, versus 34% in 2016.

This year’s annual report also explores several issues that may impact how the future oil market and energy mix evolve. One example is future energy policies, with a major focus on last year’s Conference of Parties to the United Nations Framework Convention on Climate Change to limit greenhouse gas emissions (see Daily GPI, Dec. 14, 2015). OPEC noted that it welcomed the agreement, as its 14-member countries “played a role in drafting it, and they will also play a role in helping to implement it.”

The impact of climate change mitigation measures is seen in this year’s reference case energy mix on the shift to renewables and gains by natural gas, WOO noted.

“In the power generation sector, for example, there is a shift to renewables and away from coal, in particular, and gas to a lesser extent. While gas does see a drop in expected demand by 2040 compared to last year’s outlook, it should be noted that it still sees the largest growth by far in absolute terms. And oil and gas are still anticipated to meet 53% of the world’s energy needs by 2040.”

In percentage terms, renewables — mainly wind, solar and geothermal — see the largest average annual growth at 6.6%/year, the WOO said. “However, given their low initial base, the overall share in the energy mix is anticipated to be only 4.7% by 2040.”

This year the oil market “has shown signs that fundamentals are gradually rebalancing,” OPEC researchers said. “However, despite non-OPEC supply contracting considerably, global demand remaining robust and the pace of the stock build decelerating, it is clear that instability and volatility remain.”

Global spending on exploration and production by oil and gas producers is expected to fall slightly less this year than in 2015, but “the combined amount over the two years still equates to a loss of more than $300 billion. This will impact not only new projects coming onstream, but new discoveries too.”

A question that still needs an answer is whether lower oil prices have put the future outlook at risk, “particularly given the dropoff in investments seen over the past two years,” Barkindo said. “While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future.”

If the “right” price signals are not forthcoming, “there is the possibility that innovation will dry up, that technological breakthroughs will not materialize, and that not enough new capacity and infrastructure will be in place in time to meet future demand levels.”