Expecting the unexpected: the consequences of the USs resurgence as a fossil fuel power
The US surge in oil and gas production is transforming the global market more profoundly than expected, according to a new report. But it warns other countries are unlikely to see a similar surge in production from unconventional fuels; nor will the world experience significant reductions in oil prices.
Speaking at the launch of the International Energy Agency (IEA)’s medium term oil market report at the Platts crude oil summit in London, agency head Maria van der Hoeven called the US’s re-emergence as a significant producer of oil and gas a “game changer in every way”.
Unconventional oil and gas production outside the US is unlikely to take off any time soon
Until a few years ago, North America’s oil and gas production was in decline. But now, the region’s oil production alone is set to increase by 3.9 million barrels per day thanks to a significant increase in production from shale formations and tar sands – which are more expensive to extract, so were not economically viable until the price of oil and gas from conventional sources started to rise in the last decade. Shale also holds the key to a surge in domestic gas production – in 2011, 95 per cent of natural gas consumed in the US was produced domestically, mostly from shale deposits.
But despite unconventional oil and gas’s transformation of the US hydrocarbon market, the IEA warns it’s unlikely that shale oil will be developed outside the US before 2018. US advances in technology for exploiting unconventionals may still be used to prolong the lifespans of old oilfields in areas like Russia and China, but a US-style glut in shale oil and gas is not on the cards over the next few years.
What about climate impacts?
Challenged on why the IEA calls the prolonging of fossil fuel production “good news” when the agency recognises the need to cut global carbon emissions, van der Hoeven told the audience that fossil fuels will still be necessary for the forseeable future.
Meanwhile, she said technologies like carbon capture and storage (CCS) and extraction methods that keep emissions to a minimum aren’t being developed quickly enough to constrain fossil fuels’ impact on the climate. The IEA isn’t confident much is being done to get CCS or low carbon generation off the ground, either. In a report last month, the agency said progress toward clean energy had “stalled”.
The glut of North American oil won’t push down prices
All this extra supply should normally bring down prices in the oil market, as another delegate pointed out. But head of the IEA’s oil industry and markets division, Antoine Halff, said he did not believe North America’s unconventionals boom will work that way due to the uncertainties in the market brought about by the Arab Spring and the continuing violence in Syria.
So even though new oil supply is bolstering global stocks, nervousness about the risk of supply disruption elsewhere in the world is keeping prices high.
Natural gas is emerging as a transport fuel faster than expected
The report also holds a surprise for the transport industry. Transport accounts for the lion’s share of oil demand at present, but according to the IEA, increased domestic gas production in the US from shale deposits is likely to see natural gas emerge much faster than expected as a transport fuel – a development that could see emissions from the sector decrease.
Image - Screen Shot 2013-05-14 At 12.51.00.png (note)Source: IEA slides
According to the IEA, the US shale gas surge and reduction in domestic gas prices are making a shift from oil to gas in the transport sector more likely, especially in areas like haulage, Halff told delegates today.
And the switch won’t necessarily be confined to the US – it’s also likely to happen in countries such as China and Australia, the IEA says, although the need to create an infrastructure network to serve natural gas-powered vehicles is likely to delay an expansion of gas-powered vehicles until after 2018.