OPEC Sees Less Demand for its Oil to 2018 Amid Shale Boom

OPEC 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, 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 today 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 telephone interview from New York 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.

North America

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. Two years ago, the group predicted shale oil would only become a marginal source of supply.

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

Steep Decline

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.

December Meeting

OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. It will next meet to review production targets on Dec. 4 in Vienna.

Group Secretary-General Abdalla El-Badri described world oil markets as well-supplied while speaking in Muscat, Oman, on Oct. 21. The U.S. shale boom is a “grave concern” for Africa because it may lead to glut in global oil supplies, Nigerian Oil Minister Diezani Alison-Madueke said May 17 in a lecture at Oxford University in England.

OPEC’s estimates for the crude it will be required to pump are lower than current output, even after the group’s production slumped to its lowest in almost two years in September. Output fell by 389,700 barrels a day to 30.05 million barrels a day amid disruptions in Libya, a separate report from the secretariat showed on Oct. 10.

OPEC Target

OPEC set a collective production target of 30 million barrels a day in December 2011, which it has consistently exceeded.

The group bolstered forecasts for world oil demand through to 2035 for the first time since introducing the World Oil Outlook six years ago, reflecting stronger projections for the economy.

Global oil consumption will advance by a total of 20 million barrels a day over the next two decades, to 108.5 million barrels a day in 2035. That’s up from the estimate of 107.3 million barrels a day published last year.

The oil industry as a whole will need to invest $5 trillion on exploration and production in the period to meet this level of demand, OPEC estimates. Another $1.5 trillion will need to be spent on refineries, it said.

The report assumes prices for OPEC’s reference basket of crudes, a weighted average of its members’ export grades, will remain at about $110 a barrel through to 2020 and then advance to $160, in nominal terms, by 2035.

The International Energy Agency, an adviser to oil-consuming nations based in Paris, will release its long-term forecasts for supply and demand on Nov. 12.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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