By Kjetil Malkenes Hovland and Sarah Kent
Continued investment in new and existing oil projects will be
essential to ensure the world remains adequately supplied, despite
the oil boom under way in the United States, industry experts said
Monday.
The U.S. is experiencing a surge in oil production as a result
of the faster-than-expected development of hydrocarbon resources
locked in shale and other tight rock formations in the country. The
shale oil boom is expected to transform energy supply in the coming
years.
This surge and other new sources of production have largely
displaced the belief, widely held a few years ago, that the world
was entering a period of "peak oil"--a scenario in which global oil
supply was seen to have reached its limit, pushing up prices and
putting strain on industry.
Instead, the supply picture appears to look increasingly
comfortable in the coming years.
In its closely-watched World Energy Outlook published earlier
this month, the International Energy Agency, or IEA, joined other
forecasters such as the Organization of the Petroleum Exporting
Countries and the U.S. Energy Information Administration in
predicting a sharp rise in U.S. oil production in the coming years,
going so far as to predict that the United States could become the
world's largest oil producer within the next 10 years. It also
predicted significant growth in production from Iraq in the period
to 2035.
But the Paris-based IEA, which represents energy-consuming
nations, also said global oil demand was expected to rise by more
than 10 million barrels a day over the next 20 years to reach 99.7
million barrels a day by 2035.
"If the [IEA] estimates for U.S. production are not met," that
"could trigger the possibility of oil shortages and higher prices"
as producers could have cut their investment based on these
forecasts, OPEC Secretary General Abdalla Salem el-Badri said in an
interview last week.
Hurdles exist that could stand in the way of current production
forecasts. In the U.S., policy decisions on the environmental
impact of the technologies used in extracting shale oil could
hamper projects, while political instability and the need for
substantial infrastructure investment pose significant risks to the
outlook in Iraq, industry experts said Monday.
The uncertainties make it difficult to predict how production
will develop in the coming year, let alone over the next two
decades.
"People are looking at a more comfortable supply situation [in
2013], but that may be slightly blinkered because just focusing on
the undoubted resilience in North America ignores the fact that
non-OPEC supply has struggled a bit this year," said David Fyfe,
head of market research and analysis at Gunvor Group, a role he
previously held at the International Energy Agency.
Booming production of unconventional oil will not be enough on
its own to provide adequate supply, said Helge Lund, chief
executive of Norwegian oil company Statoil ASA.
"I think unconventionals are very, very important, but I think
decline is underestimated when discussing the balance between
supply and demand," Mr. Lund said.
Production at many of the world's existing and older oil fields
is falling and will need to be replaced in order to maintain levels
of supply.
The Norwegian continental shelf, where Statoil still has the
bulk of its production, is a good example. Since Norway's crude oil
production hit a peak in 2000 at 3.12 million barrels per day, it's
been nearly halved to 1.68 million barrels per day in 2011.
"Norway has been quite good at achieving a high recovery rate.
So you can almost assume that the decline is stronger and the
recovery rate smaller elsewhere," said Mr. Lund.
"There's a risk people get very complacent about supply," said
Gunvor's Mr. Fyfe. "The real struggle is with mature
resources."
But Richard Newell, former head of the U.S. Energy Information
Administration, or EIA, said oil prices wouldn't need to be much
higher than the current range of around $100-$120 a barrel in order
to sustain enough investment to ensure oil supply matches global
demand in the future.
"There are a lot of barrels of oil that could be profitably
developed at $120-something a barrel," Mr. Newell said, speaking
Monday on the sidelines of a conference in Norway, though he added
that price stability would also be important in ensuring
investment.
"Oil prices which vary between $80 per barrel and $140 per
barrel make it more challenging," he said.
The price of the European benchmark Brent crude oil futures
contract for January jumped above $111 a barrel Monday.
Mr. Newell was administrator of the EIA from 2009 to 2011 and
has served on the President's Council of Economic Advisers. He is
now director of the Duke University Energy Initiative.
Write to Kjetil Malkenes Hovland at
KjetilMalkenes.Hovland@dowjones.com and Sarah Kent at
sarah.kent@dowjones.com
(Benoit Faucon in London contributed to this report.)
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