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IEA boosts US shale estimate by 35%, in warning for OPEC

Highlights

US tight oil output peak moves to mid-2030s

OPEC's market share to drop to 36% in 2025

Income squeeze seen for traditional producers

Singapore — The International Energy Agency on Wednesday raised its estimate of US tight oil resources by 35% and said production of this oil could continue to grow into the mid-2030s under its central scenario, with major implications for Middle East producers and their efforts at market management.

Publishing its annual World Energy Outlook 2019, the IEA put US tight crude and condensate resources at 155 billion barrels; by comparison its 2011 estimate was a mere 24 billion barrels.

It forecast production of US tight crude would rise from 6 million b/d last year to a maximum of 11 million b/d in 2035, adding that the Permian basin alone would produce more crude than Africa soon after 2030 under its central, or "stated policies," scenario. This is in a context of global oil production rising nearly 10% through 2040. Last year's World Energy Outlook had US tight oil production declining from 2025.

While acknowledging significant uncertainty, including a "fast-moving" regulatory debate in the US, it said oil-dependent nations faced a "stark challenge" if US shale does not peak until the mid-2030s, and some might consider ending output restraint in favor of maintaining market share.

The US surge, combined with rising Brazilian and Norwegian production, would mean OPEC's share of global oil production dropping to 36% by 2025, its lowest since 1990.

And the share of OPEC-plus-Russia in the global oil market is likely to fall to 47% in 2030, down from 55% in the mid-2000s.

"The extended growth in US tight oil to the 2030s is set to squeeze the oil income for some of today's major conventional producers and exporters," the IEA said.

Assuming OPEC continues efforts to manage the market, in practice this means "the aggregate production of OPEC countries only exceeds its 2018 level in 2030, by which time demand growth has slowed markedly."

"An alternative for some resource-rich countries could be to prioritize their share of the oil market and therefore boost production," essentially dropping oil prices and pushing out rivals such as the US shale producers, it said.

TRADITIONAL PRODUCERS' OUTLOOK

The IEA based its sharp upward revision of US prospects on official reassessments of the various shale plays. It estimated that by 2030 over 16,000 tight oil wells would be drilled annually, up 40% on last year.

The stated policies scenario has the US accounting for 85% of the increase in global oil output to 2030, with total US oil output reaching nearly 22 million b/d in that year. The second-largest source of growth is Iraq, with production expected to rise from 4.7 million b/d in 2018 to 5.3 million b/d in 2025 and 6.5 million b/d in 2040, albeit heavily dependent on the security situation and investment in water injection projects.

Brazil, the third largest growth source, sees its production rise from 2.7 million b/d last year to 4.7 million b/d in 2040.

As for the other big producers, Russian production falls gradually under the central scenario, from 11.5 million b/d last year to 9.4 million b/d in 2040, reflecting production restraint and the decline of maturing fields, while "near-term prospects for developing new tight oil resources and project in the Arctic are constrained by sanctions and high costs," it said.

Saudi Arabia would be left picking up where other producers decline, with Saudi oil output, including natural gas liquids, rising from 12.4 million b/d in 2018 to 13.1 million b/d in 2040, with notable increases from the Marjan and Berri offshore fields.

OPEC's own World Oil Outlook, published last week, put the peak in non-OPEC oil output in 2026.

On the investment front, the IEA noted upstream oil and gas investment last year was 42% below 2014 levels at $475 billion, but in real terms, adjusted for declining costs, this amounted to a 16% decrease. Under the stated policies scenario, upstream spending averages $650 billion in 2019-30 and $750 billion thereafter.

-- Nick Coleman, nick.coleman@spglobal.com

-- Edited by Jim Levesque, jim.levesque@spglobal.com