Global energy demand continues its remarkable growth, driven by China and other emerging markets. Yet this era of increasing demand is also one of robust energy supply, according to Wood Mackenzie’s long term analysis of global energy trends out to 2030.
North America’s revolutionary supply growth, with its abundance of oil and gas, will redefine global energy markets. Markets are increasingly interconnected and supplier-consumer relationships are increasingly dependent, as reflected by Russia’s gas trade links with Europe.
Paul McConnell Principal Analyst for Wood Mackenzie’s Global Trends Service explains: “Global energy markets are reaching a new equilibrium. As demand shifts East it will expand to extraordinary proportions, but this era is also one of robust energy supply. As a result, we see few, if any, strong upside signals for oil, gas and coal prices. Investors are wary, and shareholder pressure is pushing down spend and forcing an emphasis on short-term cash flow. This shift from volume to value means a rebalancing towards a supply outlook more appropriate to a world in which demand growth, while still remarkable in the context of history, is somewhat softer than was expected only a few years ago. As the energy industry adjusts and settles into this new equilibrium, cost pressures will remain at the forefront of executive concerns. However the expansion of developing markets, the impact of new techniques and technology on the supply mix, and the increasingly interconnected character of global energy trade, provides an endless spread of opportunities for growth over the long term.”
“This will be an era of huge demand growth, China is already the world’s largest energy consumer; its vast size and continued development ensure its importance as a current and future driver of global energy demand. By 2030 China’s energy consumption will be unrivalled and the centre of gravity for global energy demand will have decisively shifted East.” McConnell continues; “India and the other developing economies of Asia Pacific are also of huge importance. India and China will cement their positions as compelling destinations for exporters of coal, oil and gas. And between 2014 and 2030, energy demand growth in the region will outpace that of North America by five times. On average, the effect is to add a new Brazil to global energy demand, every year between now and 2030.”
The world’s increasing energy needs will, in part, be met by the emergence of North America as an energy export province for oil and gas. “The renaissance of North American gas and oil production is the critical supply-side trend affecting global energy markets in the long term,” states McConnell. “Energy production has undergone an abrupt reversal, which will make the region a net exporter of energy before the 2020s and will redefine global energy markets as it provides a robust and stable energy supply. It will also facilitate the global rebalancing of energy demand towards Asia, providing increased supply in a period of long-term demand growth, as well as reshaping commodity trading patterns across the world.”
In fact, by 2020, Wood Mackenzie says the growth of North American oil production will outpace the Middle East by four barrels to one, and by 2030, North American output will have grown by 390 Million tonnes of oil equivalent (Mtoe) – from 2009’s levels of of 650 Mtoe. This growth rivals an increase of 430 Mtoe in the Middle East where oil production will accelerate, mainly driven by growth in Iraq, while North American tight oil supply growth plateaus post-2020. North American gas production will also continue to expand rapidly, doubling to 1000 Mtoe in 2030 from the beginning of the energy boom in 2005. The growth in oil and gas production is occurring in an environment of locally weakening demand, and by 2018 North America will become energy independent with energy exports exceeding imports. By 2018 North America will also have overtaken the gas output of Russia and the Caspian, and will grow to be the world’s largest gas producing region by 2030.
Ann-Louise Hittle, Head of Macro Oils research at Wood Mackenzie comments; “The growth in North American supply has introduced a new dynamic to global oil prices, with US tight oil providing a price floor for global oil prices. Increasing US tight oil supplies and Canada’s growth in oil sands production are expected to continue to add stability to the international oil market, rather than remove it.”
So what of Europe? Wood Mackenzie’s analysis illustrates how, as North America becomes energy independent, Europe will become increasingly import dependent, exposed to high fuel costs and energy insecure. A growing reliance on imported natural gas will prevail, with imports set to increase by 50% between 2014 and 2030, from 215 to 320 Mtoe.
Massimo Di-Odoardo, Principal Analyst- European Gas and Power for Wood Mackenzie explains: “The ongoing crisis in the Ukraine has focused attention on Europe’s reliance on Russian natural gas. Russian gas remains competitive against other alternatives and will continue to be the cornerstone of European gas supply. It also represents a major market for Russian gas, even in light of the recent signing of a gas pipeline deal to export Russian gas to China. Therefore, our long term view is that the Europe-Russia gas relationship will continue out of necessity.”