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London - The Organisation of Petroleum Exporting Countries' (OPEC) share of the global oil market will expand from 2020 as prices recover to $80 and supply outside the group stagnates following spending cuts, according to the International Energy Agency (IEA).
OPEC’s share of global supply will remain steady at 41% until 2020 then rise to 44% by 2025, two percentage points higher than the IEA forecast a year ago. Production growth from countries not part of the group will slow over the next five years and halt by 2020.
OPEC’s decision last year to defend its market share rather than cut production to support prices has curbed growth of rival supplies such as US shale oil.
While the resulting 40% slump in crude prices has “sharply” reduced the group’s revenues, the strategy will eventually prove beneficial for members that are able to increase output, the IEA said.
“Market opportunities seem to be open for countries that seek to expand their future production,” the Paris-based adviser to 29 nations said on Tuesday in its annual World Energy Outlook.
“With higher-cost non-OPEC producers driven (by the lower price) to give ground,” the way is clear for Iran and Iraq to increase output, it said.
Investment cuts
The global oil and gas industry will need to keep spending $630bn on exploration and production each year just to maintain output at current levels as aging fields decline, the agency said.
Investment will be cut by 20% this year and will drop further in 2016, the first two-year decline in spending since the 1980s, IEA Executive Director Fatih Birol told reporters at a briefing in London.
Reductions to industry spending will result in non-OPEC crude supply leveling off at about 55 million barrels a day before 2020. That’s 1.3 million higher than this year, less than a third of the total growth of 5 million from 2010 to 2015.
US drillers have cut the number of rigs in use by an unprecedented 63% in the past year and daily production has fallen by 450 000 barrels from its June peak.
While the nation’s shale output “stumbles” in the short term, it will resume its “upward march” once prices recover to plateau at 5 million barrels a day early next decade, the agency said. Output will gradually decline in the early 2020s as costs increase and operators exhaust the most prolific areas.
‘Serious challenges’
By 2040, OPEC could account for almost half of global oil production, or 49.2 million barrels a day. Over-reliance on a small number of producers would trigger concerns about the security of energy supply, particularly for Asia, the IEA said.
Growth in OPEC’s market share isn’t guaranteed. Some of the countries with the largest potential to increase production over the long term - Iran, Iraq and Venezuela - also face “serious challenges” in attracting sufficient investment amid political instability and security concerns, the IEA said.
The price of crude - trading below $50 a barrel - may remain near current levels next year and in 2017, Birol said.
If global economic growth falls short of forecasts, OPEC bolsters production more than expected or US shale supply proves surprisingly resilient, oil prices may remain near $50 through this decade, the agency said.
Lower revenues
While the market share of Middle Eastern producers would climb to its highest in 40 years in this situation, OPEC’s revenues would be 25% lower as weaker prices counter increased sales volumes. A sustained period of low prices may even prompt OPEC members to reconsider their current course, Birol said.
Annual global demand growth will average 900 000 barrels a day during the rest of the decade, driven by emerging economies, according to the report. That compares with an average of 1.15 million a day from 2000 to 2010, IEA data show.
Consumption growth will slow from 2020 because of rising oil prices, efforts to phase out fuel subsidies, energy- efficiency policies and increased used of alternative fuels. By 2040, oil consumption in the US, European Union and Japan will have dropped by 10 million barrels a day, the IEA said.
