(MENAFN- The Peninsula) Opec's oil market share is set to be 5 percent smaller by 2018 as supply of US shale oil grows faster than previously thought, giving the 12-member exporter group little comfort from rising world demand.
The Organisation of the Petroleum Exporting Countries has tended to downplay the impact that hydraulic fracturing, or fracking, is having on supply. Now, it expects the rise in US shale oil output to last longer and the supply source to start spreading to other countries.
In its 2014 World Oil Outlook, Opec said it expected global demand for its crude oil to average 28.50 million barrels per day (bpd) in 2018, down 1.5 million bpd from 2014, because of increasing non-Opec supply even as global demand rises.
The expected demand in 2018 is almost 2 million bpd less than Opec is currently producing and suggests the organisation, which pumps a third of the world's oil, faces an oversupplied market in the medium term without cutting its own output.
Opec faces a similar choice on November 27, when its oil ministers gather to review its output target of 30 million bpd for the first half of 2015. Oil has fallen this week to a four-year low below $82 a barrel, in part on expectations Opec will not cut output.
Under another, upside supply scenario, Opec sees as much as 6 million bpd more non-Opec supply in 2040 than in the baseline situation coming from shale and other supply sources, keeping downward pressure on its market share in the longer term.
"On the supply side, the last few years have seen significant growth from non-Opec countries," Opec Secretary-General Abdullah Al Badri said in the foreword to the report. "The outlook continues to see non-Opec supply growth in the medium term, albeit decelerating over the time horizon."
Opec, which holds 80 percent of the world's conventional oil reserves, has had a general consensus since 2012 that oil prices of around $100 a barrel - in nominal terms more than double their level a decade ago - are reasonable and fair. Higher oil prices have helped to make a wider range of supply economic to produce, including fracking, oil extraction from tar sands and conventional oil wells in harder-to-tap reservoirs like ultra-deep waters and in more remote locations.
The shale boom has already altered oil flows, forcing Opec members such as Nigeria and Algeria to seek other buyers for their crude as the United States, whose output was once thought to have peaked, pumps more and requires fewer imports.
Opec now sees the peak in US output of shale oil and natural gas liquids (NGLs) occurring later than previously thought, and expects that tight oil will start to make an impact in other countries. "Overall, tight crude supply projections in the reference case have been revised upward," the report said, due to "higher-than-expected supply from the US, better well productivities in some areas, and the inclusion of tight crude production forecasts from Argentina and Russia."
Argentina and Russia are expected to produce 700,000 bpd of tight oil by 2040. Last year's reference, or baseline, scenario assumed shale oil would have no impact outside North America.
Opec officials have often downplayed the impact of shale oil, although its annual outlook in 2012 acknowledged for the first time that the effect could be "significant". The report still sees a levelling off of US shale oil supply, although this is expected to take place later. It cites challenges including a rapid output decline from wells and environmental concerns. So far, output has defied expectations of a peak. "Even over the medium term we expect a slowdown in the contribution of this source, the supply of US tight crude and unconventional NGLs is now expected to peak a little later - the last years of this decade - and to remain higher in the longer term," the report said.
Opec kept the same oil-price assumption as last year, expecting its preferred measure of prices to remain at $110 to 2020, which it says corresponds to a small decline in real values, and around $100 in real terms in the long run.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.