Strong production growth from unconventional natural gas and oil resources — mostly in the United States — will redefine expectations for major economies and rebalance global trade flows, according to BP plc.
Chief economist Christof Ruhl spent close to two hours Wednesday discussing the oil major’s latest annual outlook, which details BP’s “most likely” developments in global energy resources to 2030 from both a supply and demand perspective.
Shale gas production is on track to grow by 7% a year and reach 54 Bcf/d by 2030, which would account for 37% of the growth of global natural gas supply, said Ruhl. Most of the increases would be from North America.
As in recent annual projections, BP still expects natural gas to continue to be the fastest growing fossil fuel over the next decade and a half. And the United States will continue to show the world how it’s done.
“Vast unconventional reserves have been unlocked in the U.S., with oil production following gas,” Ruhl said. “This delivery has been made possible not only by the resources and technology, but also by ‘above-ground’ factors such as a strong and competitive service sector, land access facilitated by private ownership, liquid markets and favorable regulatory terms.
“No other country outside the U.S. and Canada has yet succeeded in combining these factors to support production growth. While we expect other regions will adapt over time to develop their resources, by 2030 we expect North America still to dominate production of these resources.”
The above-ground factors include “a robust service sector with the world’s largest rig fleet of over 1,800 rigs in operation — a majority of which can drill horizontally — a competitive industry that spurs continued technological innovation, land access facilitated by private ownership, deep financial markets, and favorable fiscal and regulatory terms,” he said.
“As an example, output in the Bakken has increased from 1,000 b/d just five years ago to over 1 million b/d currently, roughly matching that of Colombia, as operators are drilling more oil wells than in all of Canada.”
Worldwide, natural gas demand is forecast to rise by an average of 2% a year. Emerging economies will generate 76% of demand growth, and power generation and industry account for the largest increments to demand by sector.
Shale gas supplies should meet 37% of the global growth in gas demand, as well as account for 16% of world gas and 53% of U.S. gas production by 2030, Ruhl said.
North American shale gas production growth may slow after 2020, while gas output from other regions would increase. However, in 2030 North America still is expected to account for 73% of world shale gas production, Ruhl said.
In addition to sustaining its natural gas output, the United States likely will surpass Russia and Saudi Arabia this year to become the largest liquids producer in the world on tight oil and biofuels growth. The U.S. oil gains are due in part to expected OPEC production cuts,. Russia will likely pass Saudi Arabia for the second slot in 2013 and hold that position until 2023, when Saudi Arabia would regain its lead.
The Americas are expected to account for 65% of incremental oil supply growth to 2030 as tight oil (5.7 million b/d), oilsands (2.7 million b/d) and biofuels (1.8 million b/d) drive growth. “The United States (4.5 million b/d) leads regional increases and will surpass its previous record output reached in 1970,” said Ruhl.
BP’s new projections are the third to forecast to 2030. In 2014 the outlook is to take a longer view. ExxonMobil Corp. last month issued its energy outlook to 2040 (see Daily GPI, Dec. 12, 2012).
BP’s “overall expectation for growth in global energy demand to 2030 is little changed from last year, with demand expected to be 36% higher in 2030 than 2011 and almost all the growth coming from emerging economies,” Ruhl said.
“However, expectations of the pattern of supply of this growth are shifting strongly, with unconventional sources — shale gas and tight oil together with heavy oil and biofuels — playing an increasingly important role and, in particular, transforming the energy balance of the U.S.”
Liquefied natural gas (LNG) output “is expected to grow more than twice as fast as gas consumption, at an average of 4.3% a year and accounting for 27% of the growth in gas supply to 2030,” he noted.
“Alongside the growth of LNG volumes, we have seen a diversification of trading partners for both exporters and importers. In 1990 each exporter or importer had an average of two partners. By 2011 that had risen to nine and six, respectively. Nigeria, Qatar and Trinidad and Tobago are leading export diversification, with an average of 20 trading partners in 2011…
“The trend toward diversification is expected to continue as new exporters and importers join the LNG trade. Increased market flexibility and integration is also supported by the expansion of the physical infrastructure, creating an ever-expanding network of trading nodes.”
Production growth from unconventional sources of oil, which includes tight oil, oilsands and biofuels, is forecast to provide all of the net growth in global oil supply to 2020, and more than 70% of growth to 2030.
“By 2030, increasing production and moderating demand will result in the U.S. being 99% self-sufficient in net energy; in 2005 it was only 70% self-sufficient,” Ruhl noted. “Meanwhile, with continuing steep economic growth, major emerging economies such as China and India will become increasingly reliant on energy imports. These shifts will have major impacts on trade balances.”
BP Group CEO Bob Dudley said the outlook “shows the degree to which once-accepted wisdom has been turned on its head. Fears over oil running out — to which BP has never subscribed — appear increasingly groundless. The U.S will not be increasingly dependent on energy imports, with energy set to reinvigorate its economy. And China and India are expected to need a lot more imports to keep growing.
“The projections demonstrate yet again that we inhabit a diverse and dynamic energy market. The future is full of opportunities for job-creating businesses with world-leading technology and capability and for countries that want to work with them.”
Major shale gas and tight oil resources exist outside of North America, but significant exploitation to date has taken place only in North America. “While advances in technology and high prices offer the potential for development of resources elsewhere, a combination of other factors is also necessary,” Ruhl noted.
The outlook indicates that global energy demand continues to increase at an average of 1.6%/year to 2030. Growth is expected to moderate over the period, climbing at an average of 2%/year to 2020 and follow with 1.3%/year growth to 2030.
Nearly all of the global energy demand (93%) is expected from countries outside the Organisation for Economic Co-operation and Development, or OECD, “with China and India accounting for more than half of the increase,” said Ruhl.
The global fuel mix is evolving but fossil fuels will continue to rule over the forecast period. Oil, gas and coal are expected to converge on market shares of around 26-28% each by 2030, and nonfossil fuels — nuclear, hydro and renewables — on a share of around 6-7% each, said Ruhl.
BP’s forecast “underlines the power of competition and market forces in driving efficiency and innovation — important not only in unlocking new supplies such as unconventional oil and gas, but also in improving energy efficiency and consequently limiting the growth of carbon emissions,” said Dudley.
A second message “is the importance of technology and innovation, which underpin the key trends…from the development of shale resources to the efficiency of power generation and improved vehicle fuel economy.”
BP’s outlook “highlights the way energy resources are opening up,” Dudley said. “The energy industry is highly competitive and investment will flow to the places that possess the right resources below ground and the right conditions above it. Highlighting the above-ground factors that have made the U.S. and Canada engines for energy innovation can be instructive for other nations seeking to develop their domestic energy resources.”
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