IEA 2025 forecast analyzed
Posted: Wed Oct 09, 2019 5:36 pm
From IV Energy Investing mb:
Oil demand balance to 2025
I would like to visit some of the details in the IEA November 2025 forecast (https://www.iea.org/newsroom/news/2018/ ... shock.html).The IEA says that we need to bring online 35M barrels in new production between 2017 and 2025 to keep the market in balance (meeting demand growth and offsetting declines). This is where these barrels will come from according to the IEA:
Part of this 35 mb/d gap is filled by conventional projects already under development. There is also growth in conventional NGLs, extra-heavy oil and bitumen, tight oil in areas outside the United States, and other smaller increases elsewhere. In total these sources add around 11 mb/d new production between 2017 and 2025. Another portion of the gap would be filled by new conventional crude oil projects that have not yet been approved. Around 16 billion barrels of new conventional crude oil resources in new projects are approved each year in the New Policies Scenario between 2017 and 2025: these provide around 13 mb/d additional production in 2025.
11M conventional NGLs, extra heavy and bitumen, tight oil ex-US.
13M from from new conventional oil developments.
The total of the above is 24M barrels, this still leaves 11M missing, this is where we will get it them:
This leaves around 11 mb/d. In the New Policies Scenario, this is filled by US shale liquids – also known as “tight liquids” – which includes tight crude oil, tight condensates and tight NGLs. Shale liquids production in the United States in 2017 was just over 7.5 mb/d. If investment were to have stopped in 2017, shale liquids production would have fallen by around 4 mb/d to 2025. However, we have seen that investment and production has actually soared over the course of 2018, and average production in 2018 is set to be close to 9.5 mb/d.
In the New Policies Scenario, shale liquids grow by another 5 mb/d to 2025 (i.e. total growth of 7 mb/d from 2017). So from 2017, and including the production to offset declines, US shale liquids provide the additional 11 mb/d production that is required to fill the remainder of the supply-demand gap. This would represent a huge increase in oil production: the growth between 2015 and 2025 would surpass the fastest rate of growth ever seen previously over a 10-year period (Saudi Arabia between 1967 and 1977).
What does the above mean is that the US needs to bring in 5M barrels in net tight oil supply between 2018 and 2025, or 830K per year. (Due to the high decline rate, 11M barrels in new shale is required to generate a 5M barrels net increase.)
In 2019, the US all liquids growth will be 1.74M (EIA OCTOBER STEO), thus the US will exceed the 830K annual growth target, next year US liquids supply will be 730K, thus will only slightly undershoot the 830K per year target. Looking at these numbers one would say perhaps 830K per year growth until 2025 is perhaps doable, but there is a catch, for the call on shale to be 830K until 2025, conventional production approvals need to run at 16B in conventional oil resources per year. WE ARE NO WHERE CLOSE TO THAT. Again from the IEA:
It is worth looking in more detail at the assumption that 16 billion barrels resources are approved in new conventional crude oil projects each year from 2018 onwards. In the years since the oil price crash in 2014, the average annual level of resources approved has been closer to 8 billion. The volumes of conventional crude oil receiving development approval would therefore need to double from today’s levels, alongside robust growth in other sources of production, if there is to be a smooth matching of supply and demand in the New Policies Scenario.
What happens if conventional approvals don't pick up and stay at current levels? The IEA answers:
In this case, US tight liquids production would need to grow by an additional 6 mb/d between now and 2025. Total growth in US tight liquids between 2018 and 2025 would therefore be around 11 mb/d: roughly equivalent to adding another “Russia” to the global oil balance over the next 7 years.
What the above means is that US shale (all liquids) needs to add 6M barrels on top of the 5M barrels in net growth between 2018 and 2025, this would equate to 1.83M in annual growth for US (all liquids) EVERY YEAR between 2018 and 2025.
Long story short, the IEA is saying that if conventional investments double, US liquids need to grow by 830K per year until 2025, if conventional investments stay where they are, US liquids need to grow by 1.83M per year until 2025. Does anyone believe such growth in US shale is possible for the next 5 to 6 years? Does anyone believe conventional oil approvals will double anytime soon considering where oil prices are and in light of all the climate change pressures? I would say even the less dire scenario of 830K annual call on shale until 2025 is a stretch, let alone the 1.83M growth required if conventional investment don't pick up.
Oil demand balance to 2025
I would like to visit some of the details in the IEA November 2025 forecast (https://www.iea.org/newsroom/news/2018/ ... shock.html).The IEA says that we need to bring online 35M barrels in new production between 2017 and 2025 to keep the market in balance (meeting demand growth and offsetting declines). This is where these barrels will come from according to the IEA:
Part of this 35 mb/d gap is filled by conventional projects already under development. There is also growth in conventional NGLs, extra-heavy oil and bitumen, tight oil in areas outside the United States, and other smaller increases elsewhere. In total these sources add around 11 mb/d new production between 2017 and 2025. Another portion of the gap would be filled by new conventional crude oil projects that have not yet been approved. Around 16 billion barrels of new conventional crude oil resources in new projects are approved each year in the New Policies Scenario between 2017 and 2025: these provide around 13 mb/d additional production in 2025.
11M conventional NGLs, extra heavy and bitumen, tight oil ex-US.
13M from from new conventional oil developments.
The total of the above is 24M barrels, this still leaves 11M missing, this is where we will get it them:
This leaves around 11 mb/d. In the New Policies Scenario, this is filled by US shale liquids – also known as “tight liquids” – which includes tight crude oil, tight condensates and tight NGLs. Shale liquids production in the United States in 2017 was just over 7.5 mb/d. If investment were to have stopped in 2017, shale liquids production would have fallen by around 4 mb/d to 2025. However, we have seen that investment and production has actually soared over the course of 2018, and average production in 2018 is set to be close to 9.5 mb/d.
In the New Policies Scenario, shale liquids grow by another 5 mb/d to 2025 (i.e. total growth of 7 mb/d from 2017). So from 2017, and including the production to offset declines, US shale liquids provide the additional 11 mb/d production that is required to fill the remainder of the supply-demand gap. This would represent a huge increase in oil production: the growth between 2015 and 2025 would surpass the fastest rate of growth ever seen previously over a 10-year period (Saudi Arabia between 1967 and 1977).
What does the above mean is that the US needs to bring in 5M barrels in net tight oil supply between 2018 and 2025, or 830K per year. (Due to the high decline rate, 11M barrels in new shale is required to generate a 5M barrels net increase.)
In 2019, the US all liquids growth will be 1.74M (EIA OCTOBER STEO), thus the US will exceed the 830K annual growth target, next year US liquids supply will be 730K, thus will only slightly undershoot the 830K per year target. Looking at these numbers one would say perhaps 830K per year growth until 2025 is perhaps doable, but there is a catch, for the call on shale to be 830K until 2025, conventional production approvals need to run at 16B in conventional oil resources per year. WE ARE NO WHERE CLOSE TO THAT. Again from the IEA:
It is worth looking in more detail at the assumption that 16 billion barrels resources are approved in new conventional crude oil projects each year from 2018 onwards. In the years since the oil price crash in 2014, the average annual level of resources approved has been closer to 8 billion. The volumes of conventional crude oil receiving development approval would therefore need to double from today’s levels, alongside robust growth in other sources of production, if there is to be a smooth matching of supply and demand in the New Policies Scenario.
What happens if conventional approvals don't pick up and stay at current levels? The IEA answers:
In this case, US tight liquids production would need to grow by an additional 6 mb/d between now and 2025. Total growth in US tight liquids between 2018 and 2025 would therefore be around 11 mb/d: roughly equivalent to adding another “Russia” to the global oil balance over the next 7 years.
What the above means is that US shale (all liquids) needs to add 6M barrels on top of the 5M barrels in net growth between 2018 and 2025, this would equate to 1.83M in annual growth for US (all liquids) EVERY YEAR between 2018 and 2025.
Long story short, the IEA is saying that if conventional investments double, US liquids need to grow by 830K per year until 2025, if conventional investments stay where they are, US liquids need to grow by 1.83M per year until 2025. Does anyone believe such growth in US shale is possible for the next 5 to 6 years? Does anyone believe conventional oil approvals will double anytime soon considering where oil prices are and in light of all the climate change pressures? I would say even the less dire scenario of 830K annual call on shale until 2025 is a stretch, let alone the 1.83M growth required if conventional investment don't pick up.