EIA administrator: US, Canada energy boom fuels global demand growth

By ADRIENNE BLUME
Managing Editor

HOUSTON -- Deloitte’s 2014 Oil and Gas Conference opened Tuesday with an industry outlook by John England, vice chairman of US oil and gas for Deloitte. Mr. England forecast that North America’s presence and importance will continue to expand in the global oil and gas industry. The region’s economy represents a major force in the energy sector.

US boom will continue. Production is rising dramatically for both crude oil and natural gas, introducing opportunities for optimization throughout the hydrocarbon value chain, Mr. England said. He sees the development of a robust midstream gas industry in the US, while the US downstream gas industry will be defined by LNG export facilities, petrochemicals expansions and GTL technologies as the US seeks to monetize its large supply of low-cost gas.

Canada, meanwhile, will continue to expand its gas market, although it needs more access to US and international markets to foster significant growth.

Challenges to energy development moving forward include cost containment, as energy costs have risen dramatically alongside prices. The key question to ask, Mr. England said, is, “How do we apply technology and innovation to lower costs?” Water stewardship is another key issue for oil and gas producers, as water resources are becoming scarcer and more expensive.

Additionally, social and environmental issues around hydraulic fracturing operations should be given attention. Finally, the hot-button issue of climate change must be addressed. “No matter what you believe scientifically or politically, it’s a business risk” that needs to be addressed by the industry, Mr. England explained.

Social responsibility. The vice chairman closed his talk by saying that it is the industry’s job to educate people on all of the great things about the oil and gas industry, to help redefine the public’s perception of the industry.

The energy sector is about “technology, innovation, and environmental and social responsibility,” Mr. England said. Educating the public on these points is important for the shaping of public policy and legislation, but it is also essential to draw the future workforce that will be needed. “They don’t want to work for a dinosaur,” the vice chairman said.

Mr. England then yielded the podium to Adam Sieminski, administrator of the US Energy Information Administration (EIA), who delivered the keynote speech. Mr. Sieminski provided perspective on the US energy outlook in relation to global energy projections.

Demand growth stays in developing countries. Renewables and nuclear are the fastest-growing sources of power globally, the administrator said, although crude oil will maintain its lead through 2040. Coal demand is projected to level out toward the end of the forecast period if India and China’s reliance on the fuel begins to wane in favor of other fuels, such as natural gas.

Growth in energy demand is set to take place in the developing world—i.e., countries outside of the Organization for Economic Cooperation and Development (OECD) group of nations, where population and economic growth are increasing. Developing Asia and the Middle East are expected to account for 85% of the demand increase.

This higher energy use will translate into demand growth for crude oil of 33 MMbpd. This additional oil must come from non-OPEC sources, such as US shale oil plays. At present, 4 MMbpd of the US’ total oil production of 8.6 MMbpd comes from shale plays, and more than half of the US’ gas output comes from shale formations.

US production growth offsets outages. Mr. Sieminski explained that tight oil production in the US is following the high oil and gas resource case from the EIA’s 2012 forecast. Global tight oil production is anticipated to rise to almost 8 MMbpd by 2025, and tight oil output will spread to countries outside of the US and Canada through 2040. Tight oil is a phenomenon that can get much bigger, globally, the administrator said.

High US oil production growth is helping offset unplanned outages of over 3 MMbpd in Middle Eastern and African oil producers. This volume of outages is unusual, the administrator noted; historically, unplanned outages have averaged just 2 MMbpd to 2.5 MMbpd.

Meanwhile, US shale gas is expected to lead the growth in gas production through 2040, as more gas is consumed by the electrical power, industrial and transportation sectors. The US is expected to become a net exporter of gas toward the end of 2016, although these projections will depend on assumptions regarding resources and future technology advances.

Developing factors. Other areas of uncertainty in the international and US energy outlooks, Mr. Sieminski said, include oil prices, which can always move up or down, and China’s energy demand growth, particularly in the transportation area.

Additional influencing factors are the increasing global trade of natural gas and NGL in addition to oil, the global development of tight oil and shale gas resources, policy decisions on crude oil exports (especially in the US), the impact of geopolitical tensions on energy supplies, and increasing constraints on CO₂ emissions.