U.S. Supply Shock to Lift Non-OPEC Oil Output 1.9%, IEA Says

Crude from outside the Organization of Petroleum Exporting Countries will increase by 990,000 barrels a day annually to 2018 as U.S. tight oil output continues to boom, according to the International Energy Agency.

Non-OPEC supplies are forecast to grow to 59.3 million barrels a day in 2018 from 53.3 million last year, or 1.9 percent a year, the Paris-based energy adviser said in its medium-term oil market report today. The U.S. will add 2.8 million in liquids production, accounting for nearly half of the growth and 420,000 barrels a day more than in the IEA’s estimate in October.

“North America has set off a supply shock that is sending ripples throughout the world,” IEA Executive Director Maria van der Hoeven said in a press release accompanying the report. “The good news is that this is helping to ease a market that was relatively tight for several years.”

The tight oil boom in the U.S. unleashed by hydraulic fracturing, or fracking, boosted output last year to the highest level since 1995 and could help make the world’s largest oil consumer energy independent by 2020. New North American supply will hurt growth in OPEC’s production capacity and could slow global “megaprojects” as investment tilts toward the U.S., the IEA said.

U.S. output will reach 11.9 million barrel a day in 2018, while Canada will add 1.3 million of liquids production over the next five years as the country taps its oil sands deposits, the IEA said. Growth in Canada may be limited before 2016 due to a lack of pipeline capacity.

Russian Output

The U.S. will overtake Russia as the largest non-OPEC producer in 2015 as Russian liquids output will climb 30,000 barrels a day to 10.76 million barrels in 2018. Confusion about the country’s tax policy and planned incentives to develop new areas could delay greenfield production, according to the IEA.

Non-OPEC supply forecasts have been regularly adjusted upwards since 2009 due to high oil prices, the agency said. Brent crude traded for $102.64 a barrel on the ICE Futures Europe exchange as of 1:16 p.m. London time, up from $77.93 a barrel at the end of 2009.

Brazilian output will grow by about 1 million barrels a day to reach 3.2 million by 2018, primarily because of supply from pre-salt areas, according to the report. Production outlook was cut from the previous forecast because of a revised project schedule from Petroleo Brasileiro SA, the IEA said.

Increasing Capex

New projects in the North Sea and better recovery techniques could add 260,000 barrels a day by 2016 or 2017 as capital expenditure grows for production within the Organization for Economic Cooperation and Development.

“Increasing capex levels in the OECD could dent the pace of growth in investment from non-OPEC Africa production,” the IEA said. “Major oil companies may begin to focus their activity where investment requirements are not as steep.”

Local content policies in Brazil, Columbia, Kazakhstan and east Africa may offset production gains, according to the IEA.

“Output growth from North America dominates the medium-term growth profile,” the agency said. “At the more established tight oil plays, operators are getting better at targeting the sweet spots.”

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