The International Energy Agency said last week the United States is set to pass Russia as the largest oil producer outside of OPEC. New drilling technology for shale deposits in the United States have led to exponential gains in oil production. For OPEC, crude oil supplies are at their lowest levels in years, fed largely by ongoing struggles in Libya. That shift means the global energy center is migrating away from the Middle East and North Africa. It’s China, however, that’s making its presence known on the international stage despite the ongoing sea change in production trends.
The Energy Information Administration, the U.S. Energy Department’s statistical arm, said in a market report last week it expected U.S. oil production next year will average 8.5 million barrels per day. Most of the gains are expected to come from the Permian basin in western Texas and the Williston basin spread out over the Great Plains states. Oil services company Baker Hughes Inc. said the activity in the Williston and Permian basins was on the rise when compared to the second quarter of 2013.
OPEC in its monthly market report said Russia oil production averaged 10.5 million barrels per day, up slightly from the previous report. That’s a record high for Russia, though the International Energy Agency said it’s the United States that’s “in the driver’s seat of growth.” The Paris-based IEA said the United States is on pace to become the largest producer outside of OPEC by the middle of next year. OPEC, meanwhile, saw its supplies drop below 30 million bpd because of production problems in Libya and Iraq.
On the consumption side, however, the EIA said it expects China to be among the largest in the world. EIA estimates Chinese liquid fuels consumption will increase by 430,000 bpd next year, fed by its expanding economy. In its report, OPEC said China should get most of its oil from Saudi Arabia, Angola Russia, Iraq and Iran respectively. U.S. legislation enacted in the wake of the 1973 oil embargo restricts its export capacity. The EIA said China is the largest net oil importer in the world, passing the United States in September. It expects that trend to continue through 2014.
China is already the world’s leader when it comes to purchases of coal, copper and iron ore. OPEC said oil imports from August to September declined by 21 percent but increased for the year by 15 percent. The Chinese economy should grow by 7.7 percent next year, compared with a global expectation of 3.5 percent for 2014. With its own oil production short of annual demand, China isexpected to look to take over oil and natural gas companies overseas. In February, state-owned China National Offshore Oil Corp. spent $15.1 billion to acquire Canadian oil and gas company Nexen. CNOOC may have a tough time getting oil overseas from Alberta oil plays but it may have help from a Canadian government eager to diversify an export market that relies almost exclusively on the United States. Canadian Natural Resources Minister Joe Oliver visits China this week to let investors know his country is open for business. While the United States is taking the lead in energy production, its oil is isolated from most of the international market. With dynamics in the energy market shifting, China has the capital to take control.
This piece is cross-posted from OilPrice.com with permission.