A data release from the US Energy Information Administration (EIA) prompted headlines this week declaring that China had displaced the US as the world’s top oil importer. The background: US imports are tumbling as, on the supply side, it produces more (shale) oil of its own while, on the demand side, the economy runs at half throttle. Meanwhile, Chinese growth is spurring domestic oil demand. The resulting switch in import positions is “a generational shift that will shake up the geopolitics of natural resources”, reports the Financial Times. But the small print reveals some big caveats.
To begin with, the imports in question are net (total imports minus total exports), and not just of crude oil: petroleum products (kerosene, naptha and the like) are also included. Confusingly, though, much of the reporting speaks simply of “oil imports”. Moreover, China’s anointment as the biggest oil importer is based on only one month’s data (December, the month when Chinese refined-product imports tend to peak). Over the whole of 2012 the US bought 7.1m barrels/day of crude and products—net—whereas China purchased 5.7m b/d. When it comes to absolute imports of crude oil alone, the US (8.5m b/d) leads China (5.4m b/d) by an even greater distance, although the gap is closing (see chart).
None of this is to argue that the day—or rather year—when China truly overtakes the US as a net importer of oil and related products will not come. Unless the US shale-oil boom fizzles, for instance, or China replicates it, the “generational shift” is only a matter of time. It just hasn’t happened quite yet.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
Shale gas, you might think, is old hat. As a topic of conversation, the “revolution” in US natural gas production—in which innovative techniques including hydraulic fracturing (“fracking”) have opened up hundreds of trillions of cubic feet of reserves—is being overtaken by developments surrounding shale oil. With US gas prices languishing, investment is flooding away from “dry”, gas-dominated shale plays into “wet”, oil-rich ones. Burgeoning oil output from the Bakken shale in particular, as well as new supplies of natural-gas liquids (NGLs), hold out the promise of US oil self-sufficiency. At least, so some people appear to think.
In a new report on North America’s oil and gas boom, we argue that dreams of US oil self-sufficiency, let alone energy independence, are overblown. Oil is a global good. The availability and price of American oil is determined by the interplay of far-flung factors—from Nigeria’s supply to Norway’s demand. Even the miracles of fracking cannot obscure economic reality.
This is not to deny, however, that shale oil is having a big impact. US oil output is growing quickly, and will continue to make large strides. Despite gluts and transport bottlenecks, Canadian tar-sands output is also flowing fast. Somewhat puzzlingly, given low gas prices, the shale-gas bonanza rolls on. This is fuelling a new race, in both the US and Canada, to launch shale-gas exports in the form of liquefied natural gas (LNG).
Our report, Independence Day: A special report on North America’s oil and gas boom, is available for download (free registration required) at www.eiu.com/oilgasnorthamerica.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
Since the end of June, oil prices have been steadily climbing, regaining much of the ground lost during a plunge in the second quarter. Brent crude futures are now around US$115/b, more than US$23/b higher than at the end of June.
On the demand side, oil market indicators look bearish. Global economic performance is hampered by a stagnant euro zone, a struggling US economy, and signs of a slowdown in China. Meanwhile, Saudi Arabia is pumping oil at record levels, while Iraq and Libya have made significant production gains this year. What gives?
One explanation is ongoing tension between Iran and the West. The harshest US and EU sanctions on Iran’s oil exports took effect in July, and these exports have plummeted by around 1m b/d from 2011 levels. Speculation is mounting about a possible Israeli strike on Iran’s nuclear facilities, while Iran is threatening to block the Strait of Hormuz. All of this sabre-rattling makes oil markets nervous. A modest acceleration in demand in the second half of the year after a lacklustre first half will also support prices somewhat.
So, although the daily headlines focus on poor growth prospects in many developed economies, the news from the oil market is about sharply higher prices. The futures market implies some softening in the coming months, while the Economist Intelligence Unit expects a more pronounced fall in prices. Still, Brent crude should fetch more than US$100/b for the foreseeable future, an unwelcome trend given the sluggish global economy.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
With tensions rising between the US and Iran over Tehran’s nuclear programme, attention is turning to the Strait of Hormuz, a vital oil tanker thoroughfare. Markets fear that the narrow stretch of water between the Persian Gulf and Gulf of Oman could be shut to tanker traffic, either due to retaliation by Iran in response to a blanket embargo on its oil exports or as a result of a military conflagration pitting Iran against the US and/or Israel.
Either scenario would rile global energy markets. Around 20% of the world’s traded oil passes through the Strait, so any closure—even for a few days—would push up prices significantly. And it’s not just oil: the Strait is also an important export outlet for liquid natural gas (LNG), with Qatar, the world’s largest LNG supplier, shipping 25% of the world’s LNG through the passage in 2010.
According to the International Energy Agency, just over 15.5m b/d of crude oil and 1.3m b/d of oil products flowed through the Strait of Hormuz between January and October 2011. Around three-quarters of this crude was directed to markets in Asia-Pacific, highlighting the region’s significant dependence on Middle East oil supply compared with North America and Europe. Japan has historically been dependent on Middle East oil, and the two rising economic powers of Asia, China and India, rely heavily on the region for crude oil supply as well.
The nature of the oil market is such that a closure of the Strait would impact on oil-consuming economies globally. However, should there be a series of events that causes the Strait to be closed to outgoing oil tanker traffic, the graph above shows that Asia in particular will suffer collateral damage.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
The year 2013 will be a landmark one for the global oil market. That is when oil consumption from outside the OECD will exceed that of OECD economies for the first time ever, reflecting the locus of energy consumption patterns shifting east. According to EIU forecasts, in 2013 the OECD will consume 45.45m b/d of crude oil, while the rest of the world will consume 46.84m b/d. Between 2009 and 2013, oil demand is set to increase by 7m b/d in non-OECD countries and decrease by 200,000 b/d in the OECD.
China, of course, will be the main driver of non-OECD demand growth, with its oil consumption hitting the 10m b/d mark in 2012 and reaching 10.8m b/d in 2013. In 2013, nearly 25% of global oil demand will come from non-OECD Asian economies, where oil consumption will exceed that in the US. As the Asian region is resource poor when it comes to oil, its import needs will dramatically increase, providing a new opportunity for OPEC producers in the Middle East whose market share in the US, the world’s largest market, is declining. Demand for oil is also growing in the Middle East, however, which will leave fewer barrels available for export.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
The US oil market has been changing quietly over the last half-decade or so. In 2005, US oil consumption peaked at 20.8m barrels/day (b/d), with the use of motor gasoline contributing nearly half of the total. Since then, each new year saw demand drop. According to the US Energy Information Administration, oil consumption dropped to 18.87m b/d in 2011 (a fall of 9% since 2005), and is forecast to only rise slightly to 19.01m b/d by 2013. Gasoline demand is now in the doldrums at just below 9m b/d, having peaked in 2007 at 9.29m b/d.
Why is this the case? Fuel prices have risen, sales of light trucks have slowed, and tighter fuel economy standards have been introduced. The recent recession also led Americans to drive and fly less than they were previously accustomed to. Demand for residual fuel oil, used for power generation and by heavy industry, is also slipping. Now, refineries are exporting oil products, especially gasoline and distillates (heating oil and diesel), to Latin America, where demand for oil products is growing.
Meanwhile, the Obama administration is discouraging a revival in transport fuel demand as part of its strategy to reduce oil consumption, and thus imports. Last year, the president announced an agreement with automakers to boost fuel economy to 54.5 miles per gallon (mpg) for cars and light-duty trucks by the 2025 model year, building on a previous agreement to increase fuel economy to 35.5 mpg, from 27.5 mpg, by 2016.
Until a few years ago, it seemed that the US’s love affair with petroleum would lead it down an irreversible path of increased dependency on oil imports. Now, signs suggest that Americans may be falling out of love with petroleum.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
In November, we discussed Iran’s major oil export markets in the light of rising tensions with the West over Tehran’s nuclear programme. This hostility has contributed significantly to higher oil prices, with Brent crude oil futures settling at around $113/barrel, an increase of 9% since mid-December.
The US and the EU both recently announced tighter restrictions on Iranian oil exports, which provide around 50% of the Islamic Republic’s government income and 80% of its export revenue. An EU ban on Iranian crude oil would hurt Iran more than it would hurt the EU, but the extent of this impact would depend on whether other countries, especially in Asia, co-operate with Western efforts to cut Iranian oil imports.
Any meaningful ban on importing Iranian oil would require replacement from other producers, leaving additional supplies from key exporters like Saudi Arabia putting pressure on spare capacity. The International Energy Agency puts the Opec cartel’s spare capacity at around 3.1m barrels per day (b/d). The majority of this belongs to Saudi Arabia, which has already increased production to 10m b/d, from 9m b/d in mid-2011.
An outright ban on Iranian oil imports by the EU would require about a fifth of Opec’s spare capacity to make up the difference, while a global ban on Iran’s output would soak up around 80% of the cartel’s spare output. Needless to say, both possibilities imply much higher oil prices. For this reason, the last thing a weak global economy needs is for Iran’s relations with the West to pass the point of no return.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
In 2009 and 2010, US crude oil production registered two consecutive years of growth for the first time since 1984 and 1985. Output from deepwater Gulf of Mexico fields remains important, but more recently the rapid growth in oil-bearing shale plays is what’s really moving the dial. High oil prices, new shale discoveries and enhanced recovery techniques will contribute to further rises in US oil production over the next 25 years, according to the US Energy Information Administration.
The so-called shale gas revolution garners most of the headlines, but liquids-rich shale plays are also contributing to the boost in US oil production. Take the Bakken shale. North Dakota, where most of the horizontal drilling and hydraulic fracturing activity in the Bakken takes place, now produces more than 400,000 barrels per day (b/d), more than four times the state’s output at the start of the century.
North Dakota is now the fourth-largest oil-producing state in the US, behind Texas, Alaska and California. In its optimistic case, North Dakota’s department of mineral resources reckons that production of some 800,000 b/d, or around 80% of what the US currently imports from Saudi Arabia, is achievable. Although not nearly enough for the US to declare energy independence, it is yet another example of the ongoing transformation of America’s energy supplies.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
Iran’s standoff with the West over its nuclear programme is making an impact on oil markets, following the decision by the US to extend secondary boycott measures to include Iran’s refining and petrochemical sectors, and by the UK and Canada to ban dealings with Iran’s financial sector.
These measures were taken in the light of the latest IAEA report on Iran’s nuclear activities, the agency’s strongest statement to date on the possible military dimensions of the country’s nuclear programme.
More recently, France announced a unilateral ban on imports of Iranian crude oil. But France is not a major buyer of Iranian oil, importing just 49,000 barrels per day in the first half of this year.
Furthermore, unilateral sanctions do not have a great record in influencing the actions of targeted states. The US, for example, has not bought any Iranian oil since the 1979 revolution. And whatever barrels Iran cannot sell to France, or others in the EU—Italy is reported to be urging domestic firms to shun Iranian oil—it will be able to sell elsewhere, largely to energy-hungry markets in Asia. These days, most Iranian barrels head east.
The EIU's Energy Briefing provides forecasts to 2020 and daily news analysis for the world's most important energy markets, along with a database developed in association with the International Energy Agency.
