[Graeme]

IEA Chief Economist: Middle East Remains Central to Oil Markets

Long held tenets of the oil and gas sector are being rewritten, but the Middle East remains central to the wider market, according to Dr Fatih Birol, Chief Economist and Director of Global Energy Economics at the International Energy Agency (IEA).

The IEA expert has lent his voice to market assumptions about US oil production being almost exclusively used domestically, despite recent moves and industry noises to the contrary. Speaking at UK business lobby group CBI’s recently concluded 2014 Energy Conference in London, Birol opined that attention ought to be paid to the words “almost exclusively.”

While US crude oil might enter the global supply pool in minor volumes at some point, he said, “The world would need Middle Eastern oil for many decades to come. However, trade-flows and energy policy frameworks of several countries, including the US, will see fundamental changes.”

The US for one has predicated its energy policy in recent decades on the basis of it being an oil and gas importer. “But within a short space of seven years, this has been turned on its head in a positive way. With more domestic tight oil and shale gas factored in, the US government now has to worry about calls for exporting rather than importing.

“Invariably, the country’s energy policy choices will be influenced by the new reality of its richer resource base, with implications for the world. It is why the US shale revolution’s impact extends beyond physical barrels – its influence on the global energy landscape, economy and geopolitics is unprecedented,” Birol said.

And there are profound changes all around. For instance, while it can meet its current needs, the Middle East is actually becoming a major oil and gas demand zone. “Importers are becoming exporters, and exporters are becoming major centres of demand while some supply nations are rethinking. For instance, exporting crude oil was a lot simpler for Canada before the US bonanza. Now, the US is becoming less of an import market for exporters of Canadian oil, who are looking to Asia.”

Later on, at the sidelines of the conference, I got a chance to quiz Birol about the perceived abundance of natural gas and its impact on gas pricing plus the recent supply deal between Russia and China. “Regardless of how much is out there, regional natural gas price variations will continue. For example, gas prices in Europe are likely to remain at twice level of the US as far as I can see into the medium-term. As for Russia, it will remain crucial to the global oil and gas markets,” he told me.

forbes

[westexas]

I estimate that Saudi Arabia shipped about 37% of their post-2005 CNE (Cumulative Net Exports) in the seven year period from 2006 to 2012 inclusive:

[Graeme]

How do other ME countries (e.g. Iraq and Iran) compare?

[westexas]

The following chart shows the 2005 to 2012 rates of change for each of the ECI Ratios* for each of the (2005) Top 33 net oil exporters. Iran had a declining ECI Ratio, while Iraq showed an increasing ECI Ratio. Any country with a declining ECI Ratio is, mathematically, trending toward zero net exports (at an ECI Ratio of 1.0, production = consumption and net exports = zero).

As you can see, Saudi Arabia is actually pretty much the median case history for the Top 33 group.



*Ratio of production (total petroleum liquids + other liquids, EIA) to liquids consumption

[Graeme]

Thanks for posting the above figure which I see comes from this report. I found your remark "consuming 100% of Global Net Exports of oil in the year 2030" just before figure 21 to be quite interesting. Why do you believe it won't actually happen?

I just seen this report which I think is relevant..

China's oil imports from Iran rise nearly 50 pct Jan-June

China's crude imports from Iran in the first half of the year were up nearly 50 percent, although shipments in June dropped nearly a third from May to the lowest level in four months.

China, Tehran's largest oil client, began stepping up purchases from the OPEC member after a preliminary nuclear deal in November of last year eased some sanctions on Iran. China has been making up the main portion of Asia's higher Iranian oil imports since then.

Iran and six world powers have failed to negotiate a final resolution to a decade-old standoff over Tehran's atomic activities, but talks have been extended for another four months past the July 20 deadline.

Mostly owing to China's increases since the interim deal was agreed, Asian buyers are expected to import about 1.25 million to 1.3 million barrels per day (bpd) of Iranian oil in the first half of the year, industry and government sources have said.


Iran ranks No.3 among China's top suppliers, according to customs, with growth in the January-June period the fastest among China's top suppliers, outpacing that of Iraq, Oman, Angola, Russia and Saudi Arabia.

reuters

[westexas]

Note that the above ECI chart is an updated version of the one in the Export Capacity Index Paper.

Regarding Available Net Exports (Global Net Exports, GNE, less Chindia's Net Imports, CNI), the key metric is the GNE/CNI Ratio. The following chart shows the 2002 to 2012 data, with the extrapolation based on the 2005 to 2012 rate of decline.



The problem is that I can't see how the world economy can stand anything remotely close to only two countries consuming anywhere close to 100% of GNE, but in 2013 I estimate that the GNE/CNI Ratio fell to between 4.6 and 4.7, so we probably continued to fall to a point in time (GNE/CNI = 1.0) that cannot arrive at.

However, given an inevitable ongoing decline in GNE, unless the Chindia region cuts their consumption of GNE at the same rate as the rate of decline in GNE, or at a faster rate, the resulting ANE decline rate will exceed the GNE decline rate and the ANE decline rate will accelerate with time (year over year).

[Graeme]

According to BP, the world has 53 years of oil left to consume.

Total world proved oil reserves reached 1687.9 billion barrels at the end of 2013, sufficient to meet 53.3 years of global production. The largest additions to reserves came from Russia, adding 900 million barrels and Venezuela adding 800 million barrels. OPEC members continue to hold the majority of reserves, accounting for 71.9% of the global total.

According to wiki, America is the world's largest consumer but China is expected to overtake it by 2030:

Despite this growth, the US remains by far the largest user of oil, consuming more than China in 2010. China may overtake the US around 2030. "BP Energy Outlook 2035". p. 38.

In your opinion, are these numbers reasonable? Too big? or too small? Do we have more or less than 50 years of "oil and gas" left? Perhaps I'm asking the wrong question. Maybe others forms of transport "fuel" will become dominant within a few decades. It's hard the predict the future, isn't it?

[westexas]

One advantage of focusing on "Net Export Math," is that what counts is the volume of oil that is net exported, and while fluctuations in production and consumption in net oil importing countries/regions like the US and the UK certainly affect the demand for Global Net Exports of oil (GNE), said fluctuations--by definition--have no direct impact on the supply of GNE.

Also, by definition, the remaining supply of post-2005 Global CNE (Cumulative Net Exports of oil) is declining, but of course, the question is, what is the volume of post-2005 Global CNE?

My approach to estimating post net export peak CNE is to take the annual volume of net exports at peak times the estimated number of years that it would take for the ECI Ratio to hit 1.0 (zero net exports), then multiply that number times 0.5 (to get area under a triangle) and then subtract annual net exports at peak. Based on the seven year 1995 to 2002 rate of decline in the ECI Ratio for the Six Country Case History, estimated post-1995 CNE were 9.0 Gb. The actual value turned out to be 7.3 Gb.



Based on the seven year 2005 to 2012 rate of decline in the (2005) Top 33 Net Exporters ECI Ratio, estimated post-2005 Global CNE are about 540 Gb, and I estimate that globally we burned through about one-fifth of that amount from 2006 to 2012 inclusive. And of course, as noted above, the developing countries, led by China were, so far, through 2013, consuming an increasing share of a post-2005 declining volume of GNE.

[Graeme]

There is little doubt that your analysis provides additional insight (apart from Hubbert) into estimating the global reserves and rate of decline of these reserves. I have been tempted to deviate from the theme of the thread which is that the ME is central to the oil markets as pointed out by the IEA and BP (probably others too). At the moment, KSA is still producing and exporting as pointed out in the following:


Saudi Arabia’s oil output seen to rise in third quarter

The summer peak season and a sustained recovery in the U.S. economy plus steady growth in China will push global oil demand consumption growth to 1.1 mbpd in 2014, Jadwa Investment said on Sunday in a new industry report.

Global oil demand in Q2 2014 increased by 1 million barrels per day (mbpd) year-on-year, supported by economic uplift in the U.S., while falls in OPEC production saw global supply limited to increases of 0.4 mbpd, year-on-year, the report noted.

The study further said non-OPEC supply will exceed global demand growth in 2014, but this will not translate to lower brent prices, as geopolitical issues in Ukraine, Libya and Iraq keep a floor on prices. As a result, Jadwa revised its brent oil forecasts upwards from $105 per barrel previously, to an average of $109 per barrel in 2014.

Jadwa also revised Saudi crude production to 9.7 mbpd for 2014, up from 9.4 mbpd previously. The main factors for the revision include, lower than anticipated output from other OPEC members, faster upturn in the U.S. economy, and continued higher year-on-year domestic Saudi consumption.

Saudi Arabian crude production was up by 2 percent in Q2 2014, year-on-year, bringing the first half 2014 production average to 9.7 mbpd, up from 9.3 mbpd over the same period in 2013. We had previously forecast full year 2014 average Saudi production at 9.4 mbpd, but we are now revising this upwards to 9.7 mbpd. A number of factors have led us to revise our production forecast, including continued outages and slower growth in output from other OPEC members, faster than expected upturn in the US economy resulting in higher demand for Saudi crude, and higher year-on-year domestic Saudi consumption.

middleeastoil

[Graeme]

Whose Oil Will Quench China’s Thirst?

In September 2013, China became the biggest net importer of crude, beating out the U.S. for the first time. This came as no surprise, given how rapidly China’s thirst for oil has grown, although landing in top place happened a little ahead of U.S. Energy Information Agency (EIA) predictions that it would take place in 2014. However, where the U.S. has been shoring up its own internal production, China has lagged behind. Between 2011 and 2014, U.S. oil production rose by 31 percent, as opposed to China, which saw its own production increase by a little more than 5 percent over that time. This leaves China utterly dependent on oil imports, a vulnerable position to be in at a time when its economy is beginning to wobble.

China’s demand for black gold is only set to increase, causing it to spend a staggering $500 billion a year on imports by 2020, according to Wood Mackenzie. This increase is being fueled largely by an explosion in car ownership. But who will be the faithful bartender, refusing to cut China off?

In the first six months of 2014, Iran’s oil exports to China shot up by 48 percent over 2013, reaching 630,000 barrels a day (bbl/d). This might represent only 10 percent of the country’s international crude imports, but it sends a clear message. Unburdened by the need to look tough against unsavory regimes, China has made it clear that it will continue to rely on Tehran for the foreseeable future. This is a stunning reversal from 2010-2011, when China tried in vain to fight sanctions on Iran at the United Nations’ Security Council. It ultimately relented under pressure from Russia, when even Moscow could no longer deny the seriousness of Iran refusing to provide guarantees about its nuclear program.

oilprice

[Graeme]

The US Faces An Awkward Rival In The Crude Oil Export Market

The United States faces an awkward rival in its first attempts in 40 years to export crude oil – Iran.

Iran, whose economy has been throttled by Western sanctions that have halved its crude shipments, is now selling higher quality and cheaper oil to China that leaves little room for the U.S. crude to enter the world’s top energy consumer.

While buyers in Japan and South Korea have been willing to trial a U.S. grade of the super-light crude known as condensate, China has already locked in annual contracts with Tehran and is not expected to take any U.S. oil in the short-term.

With U.S. producers looking to open a trade route to sell surplus condensate from the U.S. shale boom, worries about quality and legal issues have added to doubts about how much of the oil the rest of Asia can take.

“China gets condensate from Iran, which is much cheaper than that from the U.S.,” said a Singapore-based trader with a European trading company. “They might get involved at a later stage but they will not be at the forefront.”

businessinsider

[Graeme]

An Impending Oil Shortage?

An uncertain investment climate in oil-exporting Middle Eastern countries may lead to a two million bpd shortfall and a $15 jump in oil prices by 2025.

Forget North America’s shale revolution, the world needs Middle East oil for long-term sustainability and to quench growing global demand for fossil fuels.

The International Energy Agency’s (IEA) latest report on global energy investments notes that while unconventional crude oil and natural gas reserves from North America have snared the majority of investments over the past decade, the Middle East will be crucial to meet the energy demand of a fast-growing world.

“We look at the Middle East, where increased investment remains absolutely critical to the longer term outlook for oil markets, once the current surge in non OPEC production starts to plateau in the 2020s; if investment does not pick up as needed, this will mean much tighter and more volatile oil markets in the 2020s,” Maria van der Hoeven, executive director of the International Energy Agency said in a speech unveiling the report in June.

The IEA is worried that an uncertain investment climate in oil-exporting Middle Eastern countries may lead to a two million bpd shortfall and a $15 per barrel jump in oil prices by 2025.

And it has every reason to be concerned. The rapidly deteriorating situation in Iraq, where a sectarian group has rapidly taken over key towns, shows the fragility of peace in the country and the wider region.

gulfbusiness

How the Kingdom of Saudi Arabia Could Rule Energy for the Next 100 Years

Last month, Saudi Arabia announced that it planned to open its stock market to direct foreign investment for the first time, beginning in January 2015. The move is part of a concentrated effort to diversify the Kingdom's economy away from oil, and the government is counting on foreign investment to foster economic growth and speed up the transition. The Saudi government is planning to do its part as well, by issuing the most ambitious target for solar power generation in the world. If the country succeeds, energy innovation may gush from the Middle East similar to the way oil does today.

The oil problem
In 2013, Saudi Arabia's oil production reaped $274 billion for the country's coffers. The oil sold makes up 90% of the country's exports and accounts for 80% of its budget revenue. It is a textbook petrostate, and that is becoming a massive problem.

If Saudi Arabia continued to consume petroleum at the rate it did in the 1980s, we wouldn't be having this conversation, but its economy is burgeoning -- now one of the best performing G20 economies -- and oil consumption is climbing steadily while production is more or less holding flat:


Unlike the United States, Saudi Arabia is extremely dependent on petroleum to generate electricity. Approximately 50% of the nation's power is fueled by oil, compared to 1% in the U.S.

So while Americans look to solar to displace coal, and potentially power electric vehicles, Saudi Arabia desperately needs it to replace oil-derived electricity consumption with solar power in order to protect its export revenue, and in turn its ability to fund the government.

fool

[Graeme]

China now gets more oil from the Middle East than the US does

China is quickly overtaking the United States as the world's biggest importer of oil. Not only that, but China now buys more crude oil from the Middle East than the US does — a shift that some experts think could have big geopolitical implications in the years ahead.

Roughly half of China's imported oil now comes from the Persian Gulf, whereas America's reliance on Middle Eastern crude has been steadily shrinking in recent years. Here's a good map from Bruce Jones, David Steven, and Emily O'Brien of the Brookings Institution laying out China's situation:

Where China's oil imports come from

vox

[Graeme]

I saw this on the front page last night; it has to be here.

Saudi Arabia Expected to Cut Oil Production as Prices Slide

Saudi Arabia will have to cut oil production to keep prices above $100 a barrel, despite already lowering output, according to two leading French banks.

The world's biggest oil exporter reduced its daily output in August to 408,000 barrels a day in a bid to sustain oil prices as they fell below $100 this month.

Despite geopolitical tension in some the world's biggest crude producing hubs including Russia, Iran and Iraq, crude futures have fallen to their lowest levels since June 2013.

A combination of increased supply from the US, Nigeria, Iran and Libya and a weakening of global demand has weighed on the price of oil since August. Demand growth is expected to reach its lowest point since 2011 this year.

ibtimes

[Graeme]

Saudi Oil Output Seen Steady On Expected Rise In Demand

Saudi Arabia is likely to keep its oil output steady throughout the rest of the year as world oil consumption is expected to rise and domestic demand for crude eases during the winter.

Oil prices have slid on ample supplies and concern about weakening demand on slowing economic growth in Europe and China, raising the question of whether Saudi Arabia will curb output to support prices.

But industry sources in Saudi Arabia said the Kingdom will continue with its basic policy of supplying the market according to needs.

Riyadh had always said that it adjusts oil supply to accommodate its customers and not to drive the price.

The top exporter and holder of the world’s largest spare capacity cut its output by around 400,000 barrels per day in August.

But the amount of crude supplied to the market – both domestically and for export – inched up to 9.688 million bpd, compared to around 9.66 million bpd in July, indicating no change in Saudi oil supply policy.

“As we approach winter and with the end of the refinery maintenance season, global demand is likely to pick up therefore Saudi oil production is not expected to see a major change,” an industry source said on Thursday.

gulfbusiness

[Graeme]

Oil Futures Slide Sharply on Supply Worries

U.S. oil prices posted their largest drop in almost two years and the global Brent contract fell into a bear market on Tuesday after OPEC oil supplies reportedly exceeded demand.

Oil prices were also under pressure as traders squared up books with the last trading day of the month and the quarter, and on the expiration of contracts for refined fuels.

Analysts and traders said investment managers appeared to be capitulating after a rout in crude markets that has seen benchmark U.S. prices fall 13% and the global Brent contract lose 16% in the quarter that ended Tuesday. The steep decline has come as domestic and global supplies have ballooned, with output from the U.S., Libya and Iraq surging to the point where the market no longer responds to usual bullish drivers such as disturbances in Eastern Europe and the Middle East.

The decline in oil prices outpaced even the sharp decline in commodity markets, with the Bloomberg Commodity Index falling 12% in the same time period.

Tim Rudderow, chief executive and chief investment officer of $1.5 billion investment firm Mount Lucas Management in Newtown, Pa., said the developments in the crude markets reflect the classic response to the high prices that have prevailed for most of the last decade.

"Higher prices beget higher supply," Mr. Rudderow said. "You're getting to a situation where the market is oversupplied."

wsj

[Graeme]

OPEC Members’ Discord Adds to Slide in Oil Prices

Discord at OPEC is turning into an effective price war, loosening the cartel’s grip on oil markets and exacerbating a recent steep selloff.

Fissures have widened as Mideast turmoil frays political alliances, new U.S. oil floods world markets and growth in Asia slows.

“No one is telling anyone what they are up to,” one Gulf oil official said.

Saudi Arabia this week unilaterally lowered the price it charges for crude scheduled for delivery next month—without the typical consultation with other members of the Organization of the Petroleum Exporting Countries, according to OPEC officials. The decision surprised many market watchers, who were expecting the Saudis to cut output to help boost prices, and sent prices hurtling lower.

Brent, the global oil benchmark, slid 1.2% Friday to $92.31, the lowest price since June 2012. Prices have tumbled 20% from their mid-June high.

The U.S. benchmark, West Texas Intermediate, settled down 1.4% Friday at $89.74, the lowest settlement since April 2013. U.S. prices have fallen 16% from their mid-June high.

The Saudi decision followed a similar move by the kingdom and Kuwait to lower prices for delivery this month, without informing other OPEC members, according to OPEC officials, effectively undercutting fellow members.

“If members don’t cooperate, which is likely, everyone is in trouble and prices will drop even further,” said another OPEC official from a Persian Gulf state.

wsj

[Graeme]

World on the brink of oil war as Opec bickers over price

A secretive group of the world’s most powerful oil ministers will soon gather in Vienna to take arguably one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 per barrel, or keep open the spigots as winter looms among the biggest energy-consuming nations?

A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump.

Some members, led by Iran, have called for immediate action to stem the drop in oil prices, while the Arab sheikhdoms of the Gulf have so far argued that it could be another three months before it becomes clear whether the group should cut production for the first time since December 2008.

telegraph

[Graeme]

Saudis Make Aggressive Oil Push in Europe

Days after slashing prices in Asia, Saudi Arabia is now making an aggressive push in the European oil market, traders say.

The kingdom is taking the unusual step of asking buyers to commit to maximum shipments if they want to get its crude.

“The Saudi push is not just in Asia. It’s a global phenomenon,” one oil trader said. “They are using very aggressive tactics” in Europe too, the trader added.

This month, state-owned Saudi Aramco stunned the rest of the Organization of the Petroleum Exporting Countries by slashing its November prices to defend its market share in Asia’s growing market. The move, setting a price war in the oil-production group, was combined with a boost in the kingdom’s output in September.

But Riyadh is also moving to protect its sales to Europe, a declining market where it is facing rivalry from returning Libyan production.

wsj

[ROCKMAN]

Great news for the Rockman: Saudi Arabia says it may push oil prices down to as low as $80/bbl and hold it there for up to two years. One can only hope it knocks the bottom out of a lot of the shale players along with some of the more marginal oil sands projects. But this will require those operators to believe in the two cycle: projects don’t get delayed because of month to month changes in the dynamics. Could not have happened at a better time for Rockman’s company: it just entered an oil exploration JV that will take a couple of years to get much oil flowing out of the ground. In addition to a higher value for our oil reserves when we sell in several year it will hopefully significantly reduce our drilling costs since we would be completing with the Eagle Ford Shale players for drilling equipment. I can almost taste the steak lunches and single malt scotch the service company salesmen will be “forcing” on me. LOL.

Reuters - "Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch. But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations."

Now if the Canadians can just start opening up access to Asia markets for their oil sands production maybe the Rockman can actually retire instead of working until the day he assume room temperature. I really am getting too old/crippled for this sh*t. LOL.