IEA warns of oil supply crunch after 2020
Failure to invest could lead to lack of spare capacity in case of future supply shocks
US dominance of oil production growth over the next two years will keep the market well supplied — but a crunch could loom after 2020 if investment into future global output fails to keep up with rising consumption, the International Energy Agency said.
Crude prices above $60 a barrel, prompted by robust world demand for oil and output cuts from global producers led by Opec and Russia, have spurred a second wave of production growth from US shale companies.
These producers, which are more efficient than before the oil market crash in 2014, will help US output grow by 3.7m barrels a day by 2023 — more than half of the world’s total growth, the Paris-based body said in its five-year oil market outlook published on Monday. Its publication coincides with the start of the annual CERAWeek oil industry gathering in Houston.
The agency revised higher its US output estimates by more than 2m b/d compared to last year’s report.
The US, together with Brazil, Canada and Norway, will ensure supply growth meets rising consumption over the next two years, the IEA said. Total supply outside of the Opec cartel is expected to reach 63.3m b/d in 2023.
But a pullback in spending on future output since the 2014 price crash could be “storing up trouble”.
A recovery in investments into exploration and production has “barely started”, the IEA said, with the world at risk of a lack of extra capacity if the market requires more barrels in the event of a supply shock.
“Upstream investment may be inadequate to avoid a significant squeezing of the global spare capacity cushion by 2023,” the IEA said. “With global demand rising steadily, the response from the supply side is crucial.”
Without sufficient spending, the amount of extra oil on hand could drop to just over 2 per cent of demand — the lowest since 2007.
For decades the world has relied on Opec countries, particularly the cartel’s de facto leader Saudi Arabia, to provide this security. The kingdom hold’s the largest share of the world’s spare capacity at more than 2m b/d.
“This emphasises the crucial role Opec’s largest producer continues to play in providing stability to global oil markets,” the IEA said.