U.S shale boom threatens OPEC Oil demands

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OPECOPEC acknowledged it underestimated the significance of the North American energy boom as it tripled estimates for shale oil produced there and predicted a decline in demand for its own crude through to 2018.

The need for crude from the Organization of Petroleum Exporting Countries (OPEC), which produces about 40 percent of the world’s oil, will fall by 1.1 million barrels a day to 29.2 million barrels a day between 2013 and 2018, the Vienna-based group said Friday in its annual World Oil Outlook. Oil production from shale formations in the U.S. and Canada is seen climbing to 4.9 million barrels a day in 2018, compared with an estimate of 1.7 million barrels a day in last year’s report.

“The big picture is obviously surging shale production,” Mike Wittner, head of oil market research at Societe Generale SA, said in a interview before the release of the report.

OPEC’s analysis shows how growing oil output in North Dakota and Texas will prevent the 53-year-old group of 12 oil producers, mostly situated in the Middle East, from capitalizing on the 4.8 million barrel-a-day increase in oil demand it expects over the next five years.

The supply surge has also contributed to a decline this year in the price of oil grades on the U.S. Gulf Coast that influence the price of exports from Saudi Arabia, Kuwait and Iraq. The Gulf crude Mars Blend has fallen 12 percent this year to $93.05 a barrel yesterday, according to data compiled by Bloomberg.

Development of shale deposits will push combined U.S. and Canadian oil output to 16.9 million barrels a day by 2018, from 14.8 million this year, according to OPEC’s outlook report. It assumes there’ll be no development of such resources outside North America  over the next two decades.

“Until three years ago, oil and NGLs production from the U.S. was considered to be on a long-term trend of slow, but steady decline, after having peaked in 1970,” OPEC said.

“Surging production from tight oil plays and NGLs from shale gas plays has transformed the U.S. supply outlook,” it said in its latest report.

Total oil output from countries outside OPEC, including non-crude sources such as natural gas liquids, will increase to 59.3 million barrels a day by 2020, from 52.9 million last year. This will reduce OPEC’s share of the global oil market to 39 percent at the end of the decade, from 41 percent last year.

Shale oil production in the U.S. and Canada will hit a plateau from about 2017 because of the steep decline in output from wells, a transition away from the most productive “sweet spots” in rock formations, environmental concerns and rising costs tied to the availability of equipment and skilled labor, OPEC said.

“The rapid acceleration of tight oil supply in the U.S., and, to a degree, in Canada, is not thought to be sustainable over the long term,” the report said. Demand for OPEC crude will rebound after 2018 as shale production begins to falter, it said.

OPEC kept estimates for global oil demand growth through to 2018 in line with those it published last year. World oil consumption will increase by an average of 900,000 barrels a day each year to reach 94.4 million a day in 2018, driven by growth in emerging economies.

Consumption in those nations will increase to 44.4 million barrels a day in 2018, from 38.9 million barrels a day this year, overtaking demand in developed nations in the second half of 2014, according to the report.