North America’s oil ‘supply shock’

The shale boom in the United States is creating a "supply shock" that will ripple through global oil markets over the next five years and redraft how oil is transported, stored and refined, the International Energy Agency said in closely-watched report released on Tuesday.

Following several years of stronger-than-expected North American supply growth, the "shockwaves of rising" U.S. shale gas and light tight oil and Canadian oil sands production are reaching virtually all recesses of the global oil market, the Paris-based group said, noting the effects will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15.

“North America has set off a supply shock that is sending ripples throughout the world,” IEA Executive Director Maria van der Hoeven said in a statement. “The good news is that this is helping to ease a market that was relatively tight for several years."

The group said it expects global demand to reach 96.7 million barrels per day (bpd) by 2018 with most of that demand met by non-OPEC production, which is forecasted to rise to 59.31 million bpd for the same period.

The agency forecasts North American supply to increase by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d, the group said.

World liquid production capacity is expected to grow by 8.4 mb/d, which is projected to expand by 6.9 mb/d. Led by China and the Middle East, global refining capacity will post even steeper growth and surge by 9.5 mb/d.

That growth is a mixed blessing.

"With large-scale North American crude imports tapering off and with excess US refining output looking for markets, the domino effects from this new supply will continue," IEA said.

"Having helped offset record supply disruptions in 2012, North American supply is expected to continue to compensate for declines and delays elsewhere, but only if necessary infrastructure is put in place. Failing that, bottlenecks could pressure prices lower and slow development."

While OPEC oil will remain a key part of the oil mix, OPEC production capacity growth will be adversely affected by growing insecurity in North and Sub-Saharan Africa, IEA added.