OPEC grapples with US tight oil but sees market share improving long-term

Vienna — OPEC's share of the oil market will shrink to 31% in 2024, from 37% in 2018, as US tight oil supplies surge, the producer group forecast in its World Oil Outlook on Tuesday.

But the long-term prospects for the group are much better, with non-OPEC production peaking in 2026, allowing OPEC to regain its footing and claim a 40% market share by 2040, the report projected.

The outlook, OPEC's annual medium- and long-term oil market forecasts, is meant to guide the organization as it navigates an uncertain future of climate change regulations and peak demand concerns, while trying to bolster prices enough to support its members' oil-dependent economies against torrid competition from US shale producers.

The World Oil Outlook painted a bearish medium-term picture, forecasting that the 5.3 million b/d rise in non-OPEC oil supply over the next five years would outpace global demand growth of 4.9 million b/d in that span.

OPEC is almost three years into its partnership with Russia and nine other non-OPEC producers on coordinated output cuts, with speculation that the coalition could have to cut further when it next meets on December 5-6 in Vienna to prevent another slump in prices.

"There is no doubt this historic cooperation between OPEC and non-OPEC producing nations will be vital in the years and decades ahead,"OPEC Secretary General Mohammed Barkindo wrote in the foreword of the report.

The outlook forecasts that US tight oil production, which includes NGLs, will continue to be a thorn in the side of OPEC in the coming years, rising from 10.2 million b/d in 2018 to 16.9 million b/d in 2024. But after it peaks in 2029 at 17.4 million b/d, US tight oil supplies fall back to 14.5 million b/d in 2040.

It is the driving force behind non-OPEC production growth, which will hit 72.2 million b/d in 2024 and fall back to 66.4 million b/d in2040, the outlook stated.

That is an upward revision from last year's report, which estimated 2040 non-OPEC output at 62.6 million b/d.

"While there continues to be talk of more financial prudence in the tight oil patch, prospects for growth remain given that efficiency and technology gains have further increased," Barkindo wrote.

OPEC, meanwhile, is expected to contribute 44.4 million b/d of crude and NGLs in 2040, up from 36.6 million b/d in 2018, according to the outlook.

"In the long-term, much of the new supply that will be needed in the world will come from OPEC countries," OPEC analyst and report co-author Julius Walker said at the report's launch in Vienna.

Today's OPEC stories

OPEC's rebuttal to keep-it-in-the-ground activists: The world needs more oil

OPEC predicts easier market transition for IMO 2020 marine fuel rules

Too many refineries, not enough product demand will lead to closures, OPEC says

LOWER DEMAND GROWTH

Like all long-term energy outlooks, OPEC sees oil remaining the dominant fuel in the global energy mix in the coming decades, though the organization revised downward its forecast for 2040 oil demand from last year's report.

Oil's share of the energy market will still be some 28% by then, as long-term demand will increase by 11.9 million b/d to hit 110.6 million b/d in 2040, the report said, down from 111.7 million b/d forecast in the 2018 World Oil Outlook.

Petrochemicals will lead the way, with the sector's demand expected to grow 4.1 million b/d by 2040. Oil demand for road transportationwill plateau from 2030 to 2040, the report added, with electric vehicles forecast to make up 13% of the global fleet by 2040.

Some $10.6 trillion in oil industry investments will be needed to keep up with global demand, according to the analysis, most of it in North America due to its fast supply growth and the high cost of developing tight oil resources.

Renewables will see the largest growth in percentage terms of energy supplies, adding the equivalent of 17 million b/d of oil equivalent through 2040, but "we do not see any reputable forecasts that renewables will overtake oil and gas in the years ahead," Barkindo said at the report's launch.

Lest anyone accuse OPEC of rigging its analysis to favor oil and gas, the secretary general said that OPEC countries were enthusiastically backing renewables development and that all members had signed the UN's Paris climate change accord.

"Many OPEC member countries have great sources of solar and wind, and we are seeing huge investments made in this field," he said. "We fully support the development of renewables and hence almost all our member countries are engaged in diversification in sources of energy by investing heavily in renewables."

LONG-TERM GLOBAL LIQUIDS SUPPLY OUTLOOK (MILLION B/D)

Source: OPEC World Oil Outlook

-- Herman Wang, herman.wang@spglobal.com

-- Edited by Alisdair Bowles, alisdair.bowles@spglobal.com