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The global oil landscape is rapidly changing, with “shockwaves” from supply growth in the US due to shale gas, light tight oil as well as the Canadian oil sands extending to “virtually all recess of the global market,” according to the International Energy Agency.
“North America has set off a supply shock that is sending ripples throughout the world,” the IEA’s director, Maria van der Hoeven, said.
The report states that “OPEC oil will remain an essential part of the global supply mix for the forseeable future;” however, Middle Eastern crude trade is expected to decline in the next five years as North American refineries are supplied more and more from domestic sources.
Pointing to supply disruptions ahead, the IEA writes:
Non-OECD economies already account for a clear majority of global crude distillation capacity, but their share of the refining market is set to rise steeply in the next five years following large increments in the Middle East, Asia, Russia and Latin America. China, in particular, may become saddled with significant excess product output, following ambitious expansion plans at both state-owned refineries and socalled ‘tea-pot’ plants, a sector increasingly restructured and made more efficient in recent years. Saudi Arabia is also aggressively expanding downstream through large-scale joint ventures with international companies. As global refining capacity expansions outpace upstream supply growth, let alone demand growth, margins and utilisation rates will come under pressure and higher-cost refineries will face increasingly strong competitive headwinds. European refineries are at particularly high risk of closure over the forecast period. The rise in North American LTO production, coupled with cheap US shale gas, will greatly contribute to these pressures, as it will both make US export refineries more competitive and steeply increase excess light-product supply (gasoline and naphtha), causing US and European refineries to compete directly for export market outlets.
According to CBC Business, “[t]he IEA expects the flow of crude oil out of North America to grow by 3.9 million barrels per day between 2012 and 2018. That’s almost half as much as the total amount the agency expects global output to expand by, 8.4 million barrels per day.”