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The International Energy Agency, which advises most major economies on energy policy, forecast that global oil demand will climb this year by the most in two years amid stronger-than-expected consumption in Europe and the U.S. although it was unclear just how this will offset recently fading demand by the two biggest marginal consumers, China and India. The IEA reported that global oil demand grew very strongly in Y/Y in Q2 2017, by 2.3mmb/d, or 2.4%, and increased its estimate for demand growth in 2017 by 100,000 barrels a day to 1.6 million a day, or 1.7%. The IEA has now raised its 2017 oil-demand growth forecast for three months in a row.
The agency observed that the re-balancing of oversupplied world markets continues with OPEC supplies falling for the first time in five months as reported yesterday, and inventories of refined fuels in developed nations subsiding toward average levels. In August, global oil supply fell by 720 kb/d due to unplanned outages and scheduled maintenance, mainly in non-OPEC countries. OECD commercial stocks were unchanged in July at 3 016 mb, when they normally increase.
“Demand growth continues to be stronger than expected, particularly in Europe and the U.S.,” the Paris-based agency said in its monthly report.
The IEA also said that the impact of Hurricane Harvey on global oil markets is “likely to be relatively short-lived,” according to Bloomberg. Although the oil market “coped relatively well” with the disruption caused by this year’s storms, the damage to U.S. facilities will still be felt, according to the report. The country’s production was curbed by about 200,000 barrels a day in August and 300,000 a day in September.
Meanwhile local stockpiles were at “comfortable” levels before the storm hit, while releases from government reserves and plentiful imports from Europe allayed any shortage.
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In this week’s MacroVoices podcast, Erik Townsend and Joe McMonigle, former chief of staff at the US Department of Energy, discuss the state of the global energy market, and OPEC’s rapidly diminishing ability to control oil prices. McMonigle believes investors will be hearing more jawboning from the Saudis, OPEC’s de-facto leader, over the next two weeks as they try to marshal support for extending the cartel’s production-cut agreement past a March 2018 deadline.
Of course, anyone who’s been paying attention knows the cuts have done little to alleviate supply imbalances that have weighed on oil prices for years. In a report published by the International Energy Agency earlier this month, the organization notes that non-compliance among OPEC members, and non-members who also agreed to the cuts those non-members who also agreed to cut oil production, increased again in July. According to the IEA data, non-compliance among the cartel’s members rose to 25 percent in July, the highest level since the agreement was signed in January. Meanwhile, noncompliance for non-members rose to 33%.
Given that oil prices have fallen since OPEC members and non-members first agreed on the cuts last November, the Saudi’s might have difficulty convincing their peers that the cuts are having an impact, other than allowing US shale producers to flourish.
OPEC will meet Nov. 30 in Vienna.
Erik: Joining me now as this week’s featured interview guest is former US Department of Energy Chief of Staff Joe McMonigle, who now heads up the energy research team at Hedgeye. Joe, I think everybody understands that the key question in today’s oil market is whether the rebalancing that OPEC production cuts were supposed to achieve is really happening or if the supply glut is actually still continuing. So let’s start with your high-level view first. Is OPEC effectively managing supply or are they really just managing market sentiment?
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Without new investments, oil prices will rise sharply in the next five years, energy conference told
The International Energy Agency says there will be supply problems in three years if a two-year trend in falling oil investments continues into 2017. (Jeff McIntosh/Canadian Press)
That was the message of the International Energy Agency as the CERAWeek energy conference kicked off in Houston. There’s a worldwide glut of oil now, and the IEA said that supply looks adequate for the next three years, thanks to rising production from U.S. shale producers and Canadian oilsands projects that were sanctioned before the oil price crunch began.
However, oil investments dropped sharply in both 2015 and 2016, and if that trend continues into 2017, there will be a problem in three years.
“We have seen two years in a row of huge declines in upstream investment. If this is the case in 2017, if we don’t see substantial rebound, we may well see that the market tightens around 2020 and the spare production capacity shrinks,” said Fatih Birol, the chairman of the IEA, at a news conference in Houston.
Oil investment globally was $450 billion US in 2016. The IEA is hoping to see that increase by 20 per cent, a further $90 billion US in 2017. In 2016, oil investment in Canada was estimated at $37 billion, and the Canadian Association of Petroleum Producers expects it to rise to $44 billion in 2017.
Fatih Birol, executive director of the International Energy Agency, speaks about the state of the oil industry at the annual IHS CERAWeek global energy conference Monday in Houston. (Pat Sullivan/Associated Press)
Birol made reference to 2008, when prices spiked to more than $140 US per barrel, saying that without new investment, the oil market could be tighter in 2022 than it was in 2008.
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Oil prices fell on Friday as the IEA downgraded its projections for oil demand, dashing hopes that oil markets would rebalance this year.
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When it comes to “real-time” measurements of crude demand and supply, the data is notoriously bad (and perhaps, according to some, intentionally manipulated). We pointed this out most recently in early March when we that according to IEA data, crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of this 1 billion barrels which the IEA said was produced but not consumer, some 420 million are said to be stored on land in OECD member countries and another 75 million can be found stored at sea or in transit by tanker somewhere from the oil fields to the refineries. This means that as of this moment, about 550 million “missing barrels” are unaccounted for “apparently produced but not consumed and not visible in the inventory statistics.”
However, it is not only data at the annual level that is flawed: monthly, and especially weekly data is just as, if not even more distorted. In fact, as Bloomberg’s oil energy analyst Julian Lee asks, “could it be that the U.S. demand that’s helped drive a near doubling of oil prices since mid-February was illusory?”
Lee is referring to a major discrepancy in DoE reporting which through the Energy Information Administration, produces two sets of U.S. demand data that drive sentiment and influence trading. The first shows monthly figures. They’re two months out of date, but they give the most accurate assessment of what’s going on in the world’s largest oil-consuming country.
The second set of numbers come out each Wednesday, giving preliminary estimates for the previous week. For crude markets these weekly figures – though less reliable – are arguably more important, largely because they’re bang up to date.
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A report by Wood Mackenzie has warned the world may face a daily oil shortage of 4.5 million barrels by 2035. The amount represents around half of the global consumption estimate of the International Energy Agency (IEA) for 2016. In other words, a true crisis is looming—and for the moment, there is no apparent way around it.
The most obvious reason is that energy companies don’t want to spend money on exploration when prices are so disappointingly low. Many of them simply can’t afford to spend on exploration if they want to survive in today’s price environment. Ironically, their long-term survival can only be guaranteed by further exploration spending.
A lot of costly projects have been shelved since the summer of 2014 when oil prices started falling, with the initial investments basically written off. Reviving these projects will cost more money. Where this money will come from is unclear—there is no certainty where oil prices are going in the near term, let alone any longer period, and the European Commission today forecasted $41/barrel oil for the rest of this year and just over $45 for 2017.
Another part of the answer to the question, “How did we get ourselves into this mess?” has to do with the knee-jerk reaction of E&Ps in times of crisis. That knee-jerk reaction is generally “fire at will”. Layoffs in oil and oilfield services are piling up at speed, well into six-figure territory to date. Cost-cutting has become the daily mantra of oil companies, and it’s easy to see why.
Oil dived more than 75 percent over a year and a half – that’s a hard blow to withstand. However, those laid off as part of the E&Ps’ coping mechanism will not sit around and wait to be rehired at the first opportunity.
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If none of these problems arises in the near term (say for the next ten years), and demand for oil is high enough to keep annual average oil prices above $75/b from 2018 to 2025, then the average annual decline rate of oil (C+C) output will remain under 2%.
For simplicity in the analysis that follows, I assume the peak in C+C output is 2015 and that output will decline at a relatively steady rate from 2015 to 2025. This in unlikely to be the case in practice and the actual path of future world output is unknown, the intention is to determine a likely trend line for World C+C output. Using quarterly C+C output data from the EIA, I constructed the charts that follow.
Data is from the International Energy Statistics page at the EIA website.
The “Big 14” oil producers from 2002 to 2015 are (in order from largest to smallest): Russia, Saudi Arabia, United States, China, Iran, Mexico, Canada, UAE, Venezuela, Kuwait, Iraq, Nigeria, Norway, and Brazil. The Rest of the World (ROW) is all other oil producers besides the “Big 14”.
All charts below (except the natural log charts) are in kb/d.
The Big 14 increased C+C output by about 8 Mb/d from 2010 to 2015.
For the ROW C+C output decreased by about 3 Mb/d from 2010 to 2015.
To consider decline rates we look at the linear trend of the natural log of output. For the ROW the average annual decline rate was 2.69% from 2010 to 2015.
The C+C output of the Big 14 increased at an average annual rate of 2.71% from 2010 to 2015.
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The recent EIA drilling productivity reports show a peaking of shale oil production in the main production regions. https://www.eia.gov/petroleum/drilling/
Fig 1: Bakken production change from old/new wells
The 1st panel shows that the number of drilling rigs has dropped sharply but the initial well production per rig has increased from 450 b/d to 750 b/d. The 2nd panel depicts the monthly production decline in old wells, which has stabilized at around 60 kb/d. This is the volume needed to keep production flat but the 3rd panel shows that new wells offset only about half of the decline. That is why in panel 4 overall production declines.
Fig 2: History of production change
We see that in 2015 production from new wells declined abruptly. The intersection point with old wells corresponds to the peak in production. The old wells decline has moderated suggesting that more and more old wells have entered their phase of final, flat production at very low levels.
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That sounds good, doesn’t it. But at best, the claim is only partly true. The article is actually about energy-related emissions. . Now this is clear enough if you read the article carefully, “Preliminary data for 2015 from the International Energy Agency (IEA) showed that carbon dioxide emissions from the energy sector have levelled off at 32.1bn tonnes”.
Yet the previous sentence says: “Falling coal use in China and the US and a worldwide shift towards renewable energy have kept greenhouse gas emissions level for a second year running, one of the world’s leading energy analysts has said.” And here is the clue: the “leading energy analyst” is none other than Fatih Birol, Director (and former chief economist) at the International Energy Agency. The IEA was terribly slow in waking up to the promise of renewables and still maintains a thoroughly orthodox position on the relationship between economic growth and emissions.
The article on the IEA website that the Guardian is referring to has the headline:
“Decoupling of global emissions and economic growth confirmed”, although the subheading again makes it clear that it was “energy-related emissions of CO2 [that] stalled”. And Birol is quoted as saying: “Coming just a few months after the landmark COP21 agreement in Paris, this is yet another boost to the global fight against climate change.” This would indeed be good news, but let’s take a look at the data.
Here is the IEA graph:
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You may remember that just two months ago the International Energy Agency warnedthe oil market could “drown in oversupply” in 2016. The outlook for oil, which had tumbled 75% since 2012 and hit a low of $28 per barrel by mid January, was looking bleak with some analysts suggesting that sub-$20 oil was a real possibility.
The official numbers were compelling – the world was awash in oil with scores of tankers brimming with black gold reportedly sitting in limbo with nowhere to go. Oil storage was at capacity. OPEC warned that oil wouldn’t return to triple digits for two decades.
The entire North American oil sector had collapsed. Tens of thousands of jobs disappeared almost overnight. And with prices so low, many producers and exploration companies who had taken out large financing packages started missing payments. The energy debt bubble had burst.
But what if the oversupply that was threatening to topple mid east governments and unravel the global economy was a complete fabrication?
What if it the numbers upon which the entire narrative was predicated were nothing but fantasy?
It turns out that this may well be the case, according to Fortune:
The IEA was unable to account for 800,000 barrels of crude per day last year–the highest level of missing crude in 17 years.
The missing crude could simply be a figment of statistics, showing up in the agency’s data due to flawed accounting.
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If the oversupply has been exaggerated and those barrels don’t exist, market analysts say that the oil market could tighten substantially.Crude prices have wallowed at their lowest point in more than a decade over the course of a nearly-two-year crash marked by concern about oversupply.
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Reduced coal use in China will have a positive impact on poor air quality.
Image: V.T. Polywoda via Flickr
LONDON, 18 March, 2016 – The world continued to make progress towards a low-carbon economy during 2015, according to analysis by the International Energy Agency (IEA).
It says analysis of preliminary data for the year reveals that global energy-related emissions of carbon dioxide − the largest source of man-made greenhouse gas emissions − showed no increase for the second year in a row.
The IEA announcement will be doubly welcome as some Arctic temperatures continue to warm bizarrely. It comes a day after reports from Fort Yukon in Alaska said temperatures there had reached up to 10°C higher than expected for this time of year.
Fatih Birol, the IEA’s executive director, said of the emissions report: “The new figures confirm last year’s surprising but welcome news. We now have seen two straight years of greenhouse gas emissions decoupling from economic growth.
Landmark agreement
“Coming just a few months after the landmark COP21 agreement in Paris, this is yet another boost to the global fight against climate change.”
Significantly, the global economy continued to grow in 2015 by more than 3%, which the IEA says is further evidence that the link between economic growth and emissions growth is weakening.
In more than 40 years, it says, there have been only four periods in which emissions stood still or fell compared to the previous year. Three of those – the early 1980s, 1992 and 2009 – were associated with global economic weakness.
But the recent stall in emissions comes amid economic expansion. According to the International Monetary Fund, global GDP grew by 3.4% in 2014 and 3.1% in 2015.
Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.
The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity. The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.
Understandably enough, the stunning increase in North American oil production in the past few years simply wasn’t on their radar. According to the Energy Information Administration (EIA) of the Department of Energy, U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels as 2016 began, an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye. Similarly unexpected was the success of Canadian producers in extracting oil (in the form of bitumen, a semi-solid petroleum substance) from the tar sands of Alberta.
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It was based on the Medium-Term Oil Market report released by the International Energy Agency (IEA) on February 21 looking at global crude supply and demand for the next five years through the end of 2021. Based in Paris, the IEA is made up of 29 member countries which fund its research and reports into global energy markets.
The problem is that the headline is not true. At least not for the next three years, which is an eternity for the many exploration and production (E&P) and oilfield services (OFS) companies trying to figure out how to finish 2016 on the right side of the grass. Thanks to oilsands and east coast offshore projects still under construction, Canadian oil output is going to rise by 100,000 barrels per day (b/d) this year, 285,000 b/d in 2017 and 200,000 b/d in 2018, a total of 585,000 b/d. This is more oil than OPEC members Ecuador and Libya averaged in the fourth quarter of 2015.The two big projects which will move the needle on Canadian output the most are Suncor Fort Hills and Hebron, along with several others.
What the IEA actually wrote – which the headline writers apparently missed – was, “We are likely to see continued capacity increases (in Canada in) the near term, with growth slowing considerably, if not coming to a complete standstill, after the projects under construction are completed.” Which is 2019, unless the developers of these projects pull the plug.
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New report suggests public support for research is dwindling in Canada
Canada should increase funding to the energy sector, according to a new IEA report. (Kyle Bakx/CBC)
Financial resources are “under pressure” and that’s why the IEA suggests a federal energy research and development strategy could help coordinate the work being done by industry and provincial governments. Such a strategy would focus on clean energy technologies, carbon capture and storage and environmentally beneficial methods for unconventional oil and gas production.
“This will contribute to reducing the environmental impact of energy use and production, as well as the cost of natural resource development, notably for oil-sands operations,” the report states.
In its first in-depth review of the country’s energy industry and policies since 2009, the IEA notes other challenges facing Canada. The country is one of the most energy-intensive nations belonging to the IEA. In addition, changes to electricity generation, such as reducing coal use and nuclear reactors reaching the end of their economic life, threaten the self-sufficiency of some provinces.
A demonstration by the group Oil Change International at the COP21 climate conference in Paris urged countries to stop subsidizing the fossil fuel industry. (Kyle Bakx/CBC)
In general, Canada needs to adapt to the downturn in oil and natural gas prices, which is impacting government revenue and the country’s economy. The importance of the energy industry to Canada is clearly outlined in the report. In 2014, the sector contributed about 10 per cent of gross domestic product, employed about 280,000 people and accounted for 30 per cent of Canada’s total exports. In addition, the energy sector contributes about $20-$25 billion in taxes, royalties and other payments to federal and provincial governments, each year.
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The International Energy Agency released its Medium Term Oil Market Report on February 22 at the IHS CERA Week conference in Houston, an annual confab for the elite of the oil industry. In its report, the IEA sees U.S. shale finally capitulating this year, falling by 600,000 barrels per day, plus another contraction of 200,000 barrels per day in 2017. By then, oil prices should rebound as supply and demand converge.
But, it won’t be the end of U.S. shale, the IEA says. “Anybody who believes that we have seen the last of rising LTO production in the United States should think again; by the end of our forecast in 2021,
total U.S. liquids production will have increased by a net 1.3 mb/d compared to 2015,” the IEA wrote decisively. LTO refers to “light, tight, oil,” or light oil from shale.
Related: Eagle Ford Struggles, But It’s Still The Sweet Spot
The near-term prospects don’t look so good, however. The Paris-based energy agency believes that crude oil markets will remain oversupplied throughout 2016, with the glut expected to be around 1.1 million barrels per day (mb/d). The supply overhang will disappear in 2017, but the extraordinary levels of oil currently siting in storage will delay a rise in oil prices.
The pain will be felt far and wide. Shale companies are slashing spending, laying off workers, and forgoing drilling plans in an effort to avoid bankruptcy. Collectively, OPEC has seen oil export revenues fall from a peak of USD$1.2 trillion in 2012 down to USD$500 billion in 2015. Revenues will further decline to just USD$320 billion this year.
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