Posted on 11/10/2015 5:53:37 AM PST by thackney
If crude prices don't bounce back by the end of the decade, an era of cheap oil could consolidate more oil-market power into the hands of a few low-cost producers in the Middle East - raising concerns about energy security for oil-importing nations, the International Energy Agency says.
The IEA's closely watched World Energy Outlook, an annual report being released Tuesday, said the world's reliance on Middle Eastern oil exports could "eventually escalate to a level last seen in the 1970s," most profoundly in developing Asian countries like India and China, if oil prices stay low well beyond 2020 and force higher-cost producers out of the market over the next 25 years. The Paris-based group, which consults 29 oil-importing nations, is a well-respected oil-market forecaster.
"It would be a grave mistake to index our attention to energy security to changes in the oil price," IEA Executive Director Fatih Birol said in a written statement. "Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats."
Plus, the world's increased dependence on cheap oil could crowd out $800 billion in possible energy efficiency improvements in automobiles and aircraft by 2040, eliminating 15 percent of the efficiencies the IEA otherwise expects to see. In other words, technological advancements and policy prescriptions for renewable resources might not make as big an impact in the market if fossil fuels are cheaper to buy.
But the IEA's gloomy scenario, describing a world with cheap - and more tempting - oil until 2040, was just one possible oil-market future considered by group.
For its "Low Oil Price Scenario" to come true, the IEA said, global economic growth would have to remain sluggish for years, violent uprisings in the Middle East would have to subside and the Organization of Petroleum Exporting Countries would have to live with revenues falling by 25 percent in the pursuit of much higher market share. In this lower-price scenario, the IEA predicted crude prices would hover around $50 a barrel for the next five years and gradually increase to $85 a barrel by 2040.
U.S. crude fell 42 cents to $43.87 a barrel on the New York Mercantile Exchange on Monday. It has plunged 8.4 percent since Nov. 3 as fresh worries about global demand weigh on the market. Brent, the international standard, which is affected by the roughly same market forces as U.S. crude, declined 43 cents to $47.19 a barrel on the ICE Futures Europe.
The IEA's more moderate oil-price forecast predicts oil prices will rise to $80 a barrel by 2020, with further increases as global energy use grows by a third over the next quarter of a century, as demand in India and China continue to surge.
All told, the IEA said, the world's daily oil demand could grow by 900,000 barrels each year, though the projected climb of global demand to 103.5 million barrels a day in 2040 could be offset if prices rise and governments adopt more policies pushing the use of alternative fuels. In the United States, Japan and the European Union, demand for crude could fall by a combined 10 million barrels a day over that same time.
But the oil industry will have to spend $630 billion a year just to keep production levels even with output this year. The U.S. shale plays at the center of the nation's energy production surge could reach their peak output levels by the early 2020s before they start to decline. "The current overhand in supply should give no cause for complacency about oil market security," the IEA said.
The IEA said India could eventually overtake China as the country with the highest demand for energy, as the direction of the Chinese economy shifts from heavy steel and cement to growth in the services sectors, requiring 85 percent less energy for each unit of future economic growth.
Meanwhile, the 240 million people living in India without access to electricity will drive the largest surge in global energy demand, overtaking China as the world's largest user of coal and boosting oil demand to 10 million barrels a day - roughly equivalent to China's daily demand now. The IEA believes India will import 90 percent of its oil by 2014, as its production "falls well behind the growth in demand."
India's policymakers and private sector will have to draw $2.8 trillion to meet the nation's energy needs over the next 25 years, and of that, about three fourths of it would go toward building power plants and boosting electricity capacity.
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Here in the US ... we have developed NG at a stupendous rate ... and it continues
Are we not also producing a great(er) amount of oil ?
As I see it (and I have a card in my wallet proving I'm a dummy at these things) .. we have everything needed to be energy self sufficient ... the only hindrance is government
Of course it could. It is intentional.
I’ve read that twice, and I still don’t understand the mechanism a low oil price would switch a nation to ME crude
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At the current oil prices our domestic oil production is falling while several Middle East oil countries are growing production.
Our demand is climbing and our production is falling. So our imports have already started to rise.
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Here in the US ... we have developed NG at a stupendous rate ... and it continues
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Our Natural Gas production has begun falling as well. Prices are too low to justify enough drilling to keep up production rates. That should change as we start some exports of LNG.
So there is no way for frakkers to ride out this price war? Our production being more expensive.
I do hope that frakkers made a tidy profit prior to this price war at least?
“we have everything needed to be energy self sufficient ... the only hindrance is government”
We’ve proven that.
If the Middle East gets too beligerent, we could raise oil import taxes now. But then, that only works if frakkers are ready to raise production quickly enough.
On the other hand ...
On the other hand ...
[Looking to Joe’s expertise]
As I understand it, there is lots of cheap drilling being blocked from us. Remember the Cuban oil well that is visible off the Florida coast? Then there’s ANWR.
The bad news for OPEC is that they're stuck now with low prices. When prices rise, the American wells will resume production.
In the meantime, Americans have better things to do with our capital.
But the Keystone Pipeline isn’t of strategic importance... after all, gasoline prices are low now. /s That’s our brilliant President O’s logic.
Frackers is a silly term. Hydraulic Fracturing has been done for decades and is performed on traditional wells in addition to tight formations like shale. The companies that do the hydraulic fracturing are not the companies producing the oil. HydroFracs are done by contractors, just like the drilling itself.
We still have production in shale fields. We still have some new drilling but not enough to keep up with naturally falling production.
We won’t stop producing oil. We will have some companies go bankrupt; particularly those that tried to grow to fast by taking on too much debt.
Thank you for the info. I feel bad about the bullish investors.
Then again, bullish enough to borrow deeply when BO aka ‘0’ aka ‘Goose Egg’ is president? Hm ....
Are you talking about the pumps, Frac tanks and other equipment that get moved to each well site? There isn’t an infrastructure like gathering lines or other permanently installed equipment.
Those are used after drilling is completed and before the well goes into service. Occasionally they are brought back to an existing well in an attempt to bump the flow rate back up. The well is not producing while that is being done.
If pumps, tanks and other equipment are just left to rust for years with no maintenance, there will be problems when brought back to use. But most Hydro-Frac is done by major companies like Weatherford, Schlumberger, Halliburton and Baker Hughes. They are not going out of business; they will maintain their equipment. They know this won’t last forever. Also, they are still get some hydro-frac work, just less than before.
We have short memories. The design point of cheap ME oil was to kill off the US and Canadian production by taking prices so low they could not survive.
I am really glad to ‘hear’ that.
Now the only hurdle is regulatory.
Once prices get intolerable again, we must get the public mentally prepared to note that regulations delay oil production start-up far more than operational delays.
The term infrastructure sounds like roads, pipelines and other permanently installed equipment. Hydro Frac equipment is not permanently installed.
The industry is losing experienced people in the downturn. It won't be as strong when this ends as it was 18 months ago. But the industry certainly isn't ending. It is still working today, but at a much slower pace.
Thank you again. Something tells me that training people to gear back up later won’t be all that serious a problem. With modern technology, training is getting more efficient all the time.
I would recommend they massively record current sites so that they have a basis for training and review later on. But I bet they do that already.
Based on what you and Smokin’ Joe wrote, I’m more concerned about government stonewalling, red tape.
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