Below are highlights from the statement given by Adam Sieminski, Administrator, EIA, before the Committee on Energy and Commerce on 21st Century Energy Markets.
“Since the middle of last year, the global supply of crude oil and petroleum products has exceeded consumption, leading to growth in global oil inventories. From their 2014 high point in June, prices fell as the worst fears of the impact of the so called Islamic State on Iraq’s oil production failed to materialise, US production continued to grow robustly, and significant Libyan supplies unexpectedly returned to the market for several months starting in late summer. At the same time, global oil demand growth and expectations for future demand growth were reduced as data from key markets, including China, showed economic growth coming in below consensus expectations at the start of 2014. EIA estimates that commercial oil inventories help by countries in the Organisation for Economic Cooperation and Development (OECD) at the end of January were 203 million bbls (3%) higher than the same time lat year, the largest year over year increase in at least the last three decades. Put in historical context, this recent inflexion point in oil markets is not the first. The global oil market has experienced a number of significant upward and downward price movements over the last 40 years.”
Global oil supply
“Global supply of crude oil and other liquids grew 2.1 million bpd in 2014 despite unchanged total production from member countries of the Organisation of the Petroleum Exporting Countries (OPEC). The US was the main contributor to global supply growth, adding 1.6 million bpd including 1.2 million bpd of increased crude oil supply. In 2015 and 2016, non-OPEC supply continues to grow under EIA’s price forecast, but more slowly than in recent years, with year over year growth averaging 0.8 million bpd/y. The slower growth in non-OPEC supply is largely attributable to slower production growth in the US, Canada and South America.”
“EIA estimates that OPEC crude oil production averaged 30.1 million bpd in 2014, unchanged from the previous year. Crude oil production declines in Libya, Angola, Algeria, and Kuwait more than offset production growth in Iraq and Iran. EIA expects OPEC crude oil production to fall by 0.1 million bpd in 2015, and to fall by 0.4 million bpd in 2016. Iraq is the largest contributor to OPEC production growth over the forecast period, but its growth is expected to be offset by production declines from other OPEC producers.”
Global oil consumption
“EIA estimates that global oil consumption grew by 0.9 million bpd in 2014, averaging 92.1 million bpd for the year. EIA expects consumption to grow 1 million bpd in both 2015 and 2016. Projected global oil consumption weighted real GDP, which increased by an estimated 2.7% in 2014, is projected to grow by 2.8% in 2015 and 3.2% in 2016.
“Non-OECD Asia accounts for more than 50% of forecast oil consumption growth over the next two years. Chinese oil consumption, the main source of the growth, is projected to increase in 2015 and 2016, but at a lower rate than in 2014. Projected declines in Russia’s oil consumption because of its economic downturn also contribute to lower non-OECD consumption growth over the forecast period compared with 2014.
“OECD consumption, which fell by 0.3 million bpd in 2014, is expected to rise modestly in 2015 before declining slightly in 2016. The US is the leading contributor to projected OECD consumption growth, with US consumption increasing by 0.3 million bpd in 2015 and 0.1 million bpd in 2016. Demand in Japan and Europe is expected to continue declining over the next two years, albeit at a lesser rate than in 2014.”
The economy and consumers
“EIA’s energy forecast reflects a US economic growth outlook for 2015 – 2016 that is somewhat stronger than the 2013 – 2014 experience. Energy expenditure as a share of GDP are forecast at 6.2% in 2015, their lowest level since 2002, reflecting both lower oil prices and ongoing increases in energy efficiency. Consumers are receiving a direct benefit from lower oil prices.”
Linkages between US and global energy markets
“As we work to keep up with rapidly changing energy markets, one set of questions we face involves the relevance of international energy markets to the US as our oil and natural gas production surges, and our net dependence on energy imports declines. Despite these trends, the connectedness of the US to global energy markets is actually increasing in some important respects.
“Notwithstanding declining US net oil imports, producers in the countries of the Persian Gulf region, who hold very large reserves of easy to develop oil, will continue to play a central role in oil markets. Developments in that region and decisions made by producers affecting both production levels and the development of their resources have a direct effect on oil prices that in turn affect producers and consumers everywhere, including the US. Global interconnections are also readily apparent on the demand side of oil markets. The US, already the world’s largest exporter of petroleum products, has a keen interest how overseas demand for various petroleum products will evolve. More broadly, future trends in global oil demand largely hinge on the rate of consumption growth in the Middle East and non-OECD Asia, including but not limited to China and India. Demand as well as supply will be a key influence on future oil prices, with outcomes having direct implications for both US producers and consumers.
“Natural gas markets are also increasingly interconnected. Not long ago, the North American natural gas market, dominated by the US, was largely isolated from other global regions. The advent of shale gas, which greatly increases the US resource base, could allow the US to be a significant exporter of LNG. The extent to which this actually happens will depend significantly on natural gas demand, supply, and price conditions throughout the world, as well as on future oil prices, given competition among fuels and the use of oil linked price contracts. Provided that market conditions favour investment in liquefaction capacity to support higher levels of US LNG exports, decisions by policymakers regarding the approval of proposed projects will also come into play.”
Edited from statement by Claira Lloyd