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Houston outlook bright with U.S. shale set to dominate global growth for years

Forecasters at Royal Dutch Shell, the Anglo-Dutch oil major, have predicted that global oil demand could peak within a decade as electric cars and other clean energy technologies gain larger market shares.

March 5, 2018 Updated: March 5, 2018 8:42pm

Houston’s energy industry, which drives the local economy, has much brighter days ahead as global oil demand climbs, shale production booms and U.S. crude grabs larger shares of global markets, according to forecasts, industry officials and analysts.

The United States is already pumping oil at record levels above 10 million barrels a day, surpassing Saudi Arabia, and may take over from Russia as the world’s production leader by the end of 2018. Over the next five years, daily U.S. production is expected to climb 3.5 million barrels, or 35 percent, to more than 13 million barrels, according to a forecast by the International Energy Agency, which monitors the global oil industry.

U.S. crude is expected to meet more than 60 percent of the projected growth in global oil demand through 2023, said IEA Executive Director Fatih Birol at a briefing at CERAWeek by IHS Markit, an annual energy conference held in Houston. Much of the oil, piped from West Texas’ Permian Basin and other shale plays developed by Houston companies, will be exported from Gulf Coast ports like Corpus Christi and Houston, analysts said.

“We cannot ignore the growth coming from shale,” Birol said. “It is coming very strongly and it will affect not only the behaviors of the established producers, but others as well. It will affect everybody.”

The prognosis by Birol and other energy specialists lifts much of the gloom that has hovered over Houston and the U.S. oil industry in recent years, following the bust that began in 2014. The bust took nearly two years to hit bottom and drove hundreds of companies into bankruptcy. Overproduction by U.S. shale drillers was considered a primary cause of the worst industry downturn in a generation.

But Birol and other industry specialists at CERAWeek said this time is different. U.S. shale producers, which improved technology and drilling techniques to increase efficiency and lower costs, are kicking up output at the right time, they said.

Several factors have come together. OPEC and its partners, including Russia, forged an agreement to limit their output through the end of this year, helping to drain a global oil glut and boost prices above $60 a barrel from their 2016 low of less than $30 a barrel.

Global energy demand, led by China and India, is growing at a strong rate. Meanwhile, investments in new projects outside the United States needed to meet the new demand have lagged, providing an opening for U.S. producers in coming years.

“Are we seeing enough investments to provide the (supply) boosts?” said Birol. “Our answer is absolutely not.”

This would set the stage for potential supply shortages in coming years, said OPEC General Secretary Mohammad Barkindo, of Nigeria. Barkindo declined to comment on whether OPEC would further extend its production cuts of 1.8 million barrels a day.

In addition to supply gluts, the oil industry has had to contend with predictions that polices aimed at slowing climate change would erode oil demand by shifting energy production from fossil fuels. Forecasters at Royal Dutch Shell, the Anglo-Dutch oil major, have predicted that global oil demand could peak within a decade as electric cars and other clean energy technologies gain larger market shares.

The British oil company BP has projected the world could reach peak oil demand before 2040. But the IEA and other analysts discounted those predictions.

Factors, including population growth and the surge in petrochemicals, which use oil and natural gas as feedstocks, should support oil demand, they said. Even electric cars use plenty of parts made from plastic, usually a petrochemical.

Helen Currie, chief economist at Houston oil producer ConocoPhillips, said Monday her company had modeled electric car demand and other factors and “struggled with finding a peak (in oil demand) anytime within the next 20 to 30 years.”

“We readily acknowledge it’s plausible,” she said. “ But we really tend to see oil demand being fairly strong and robust.”

European oil companies such as Shell, BP and French energy major Total have invested much more in natural gas over oil in recent years, seeing gas as cleaner burning and the major source of global electricity generation for decades to come.

Total Chairman and CEO Patrick Pouyanne said Monday that Total is more “gas and oil” than an oil and gas company. Still, he hesitated to predict peak oil demand any time soon.

“I don’t want to make the same mistake that we made 10 years ago,” Pouyanne said, when the industry was predicting peak oil supplies rather than peak demand. “I don’t know. It depends on the scenario really.”

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