Neil Atkinson, Head of the Oil Industry and Markets Division at IEA, spoke to Pipeline Magazine’s Julian Walker about the key findings from IEA’s March Oil Report 2017 and possible impact of the drop in upstream investment
With the oil price crash and then slow recovery - how has your five-year forecast changed since the 2016 report?
Our Oil Report 2017 shows relatively modest changes versus the 2016 edition. One major factor, though, that has changed and might affect the end of our forecast in 2022 is the big fall-off in upstream oil and gas investment seen in 2015 and 2016. In 2017 we are seeing little sign of a major rebound and the consequence of this is that with global demand rising steadily and production capacity growing by less, there could be very little spare production capacity in 2022 and this creates the conditions for a possible sharp upward move in prices.
Do you feel a kind of balance has returned to the oil market?
In 1Q17 there is an implied deficit of 0.2 mb/d in the oil market following the successful implementation of OPEC’s supply cuts. This implied deficit widens to close to 1 mb/d in 2Q17. This suggests that the market is re-balancing now and that stocks are falling. However, movements in observed stocks do not yet match the implied change. This is partly due to lags in receiving up to date stocks data and also because demand and supply numbers will be revised. So we won’t know the full picture until later. But, for sure, re-balancing is on the way.
Why do you see global oil demand as slowing down?
Global demand growth remains very solid for the next five years at about 1 mb/d on average. It is true that the rate of growth is slowing but there is no peak in sight for oil demand. Factors behind the slowing growth include improved vehicle efficiency standards and the reduction or elimination of fuel subsidies in some developing economies.
What impact has the recent commitment by OPEC countries and non-OPEC countries to cut production caused?
The OPEC countries that are party to the output cut deal have achieved a near-perfect rate of compliance – 99 per cent in the first quarter of 2017. This means that about 1 mb/d has been removed from the market. This is making a significant contribution to the process of market re-balancing.
Who within the Middle East region will see the biggest gains over the next five years?
I assume this refers to production capacity growth. In this case, Iran and Iraq are the two countries that are likely to see the biggest growth in capacity in the five year period of our forecast. However, this depends on them being able to attract sufficient investment and, of course, on the maintenance of political security.
In your long-term outlook what role will Middle East producers play?
As they sit on nearly 50 per cent of global proved oil reserves the Middle East producers are certain to have an important role to play in the long term. Oil demand will continue to grow for many years and even when it does peak and start to decline there will still be a significant call on these countries to supply oil.
What do you see as the main hurdles facing the global oil industry?
The main hurdles include: access to major reserves in the Middle East and Russia; the prospect, in the longer term, of oil demand reaching a peak; the ability to invest at oil prices that are likely to be lower for longer; and finally, the ability to attract talent.
With U.S production bouncing back how much of key differential will this be going forward?
It all depends on price. Even in a $55-60/bbl world we anticipate US crude production rising by 1.4 mb/d to 2022 and if prices move higher so will production growth. Recently, the US increased their estimate of proved reserves from 80 billion barrels to 100 billion barrels and if technology does improve so will the recovery rate. US production will remain a key factor for many years to come.
Neil joined the IEA in January 2016, as Head of the Oil Industry and Markets Division. His main responsibility is to edit the IEA’s flagship monthly Oil Market Report and the Market Report Series on Oil. He is also responsible for liaising with the IEA’s member governments on oil market issues and representing the Agency’s oil market views to the wider energy community. Prior to joining the IEA, Atkinson worked in a variety of oil market analysis roles for more than thirty years.
This interview appeared in the May issue of Pipeline Magazine