Global crude oil markets are set to undergo a significant reconfiguration over the next two decades, with the US poised to emerge as a major producer on the back of sizeable investments.
A study conducted by the International Energy Agency (IEA) has projected that US crude oil production will outstrip that of Saudi Arabia — currently the world’s largest producer — by 2020 and the trend will continue until the middle of that decade.
US’ competitive edge
Driven by upstream technologies that are unlocking tight oil and shale gas resources and spurring economic activity, American industry will also gain a competitive edge from less expensive gas and electricity prices.
But at the same time, the US is expected to undertake new fuel-efficiency measures in the transport sector as well as ramp up efforts to harness renewable energy sources. This will result in a decline in US oil consumption.
The IEA has predicted that these efforts will result in a decline in US oil imports to the extent that the North American continent will become a net oil exporter around 2030.
The US itself will be unable to meet 100 per cent self-sufficiency, but its imports will reduce sharply from the present level of 20 per cent of total energy needs in a dramatic reversal of the trend likely to be seen in other energy-importing countries. The development of crude oil capacities in the US will accelerate the switch in the direction of international oil trade toward Asia.
The IEA has predicted that import dependence will increase in all regions of the world, barring North America, by 2035.
India more reliant
Countries such as India and China, in particular, are expected to buy more crude oil from international markets as domestic demand rises rapidly. In the case of China, imports are tipped to make up 82 per cent of the country’s total oil needs in 2035 compared with only 54 per cent today. India, which presently imports around 70 per cent of its crude oil requirement, is also expected to become even more reliant on global supplies to fuel economic activity.
The growth in US crude output will not lead to more stable oil prices, however, as developments in international markets will continue to guide prices. In this regard, the Organisation of Petroleum Exporting Countries (OPEC) is likely to calibrate output so that crude oil prices — their main source of income — do not depreciate too far. As such, supply is unlikely to outstrip demand by a great extent. But with more supplies of alternative energy sources like low-priced gas becoming available, this has the potential to mitigate the growth in crude oil demand.