‘Oil abundance’ not on the way, IEA warns

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Just when you think that surging U.S. energy production is bound to have a big and lasting impact on the global energy sector, along comes a twist. Yes, the U.S. is on track to become the world's biggest oil producer by 2016. But by 2020, U.S. production will have peaked, returning emphasis to foreign production soon after.

So says the International Energy Agency in its 2013 World Energy Outlook, released on Tuesday. The IEA recognized the combined impact that high prices and new technology is having on energy extraction but warns that "this does not mean the world is on the verge of an era of oil abundance."

It estimates that the rise of unconventional oil and natural gas liquids will reduce the role of OPEC countries in meeting global energy demands over the next decade. But by the mid-2020s, non-OPEC production will start to decrease, and Middle East producers will be relied upon to provide the increase in global supply.

What does it mean for Canada? Right now, the sector is struggling with relatively low prices and the overhanging concern that its biggest export market, the United States, is losing interest as its own production grows rapidly. But as the IEA asserts, U.S. production can't grow forever, while global energy demand is anything but sated. China is set to overtake the United States as the world's biggest oil consumer by 2030, the Middle East's oil consumption is set to overtake the euro zone's at around the same time, and India's consumption will be the biggest source of growth after 2020.

"The new geography of demand and supply means a re-ordering of global oil trade flows towards Asian markets, with implications for co-operative efforts to ensure oil security," the IEA said.

"Asia becomes the unrivalled centre of global oil trade as the region draws in – via a limited number of strategic transport routes – a rising share of the available crude oil. Deliveries to Asia come not only from the Middle East (where total crude exports start to fall short of Asian import requirements) but also from Russia, the Caspian, Africa, Latin America and Canada."

The investment implications? That's not the IEA's forte. But if their forecasts pan out, it sounds as though Canada's energy resources will be in high demand as long as exports can shift from the U.S. market to Asia.

Right now, though, there is little optimism in Canada. The S&P/TSX energy sector has been moving sideways for four years (apart from a brief blip in 2011), and the price of Western Canada Select oil trades at a steep discount to North American benchmark oil, West Texas Intermediate, amid a glut of Canadian crude.