LONDON -- Shock waves from the gush of unconventional North American oil and gas are rippling through global energy markets at a pace faster than anticipated just a few months ago.
The impact of U.S. tight oil and Canadian oil sands is setting off a chain reaction in the market from top to bottom. Investments, refining, storage, trade -- all are being redefined by the shift in production and demand.
The worldwide oil industry is evolving so rapidly that the International Energy Agency updated its annual five-year forecasts just seven months after releasing its previous report. While the general trends were known, they now stand out "in even sharper relief," says IEA Executive Director Maria van der Hoeven.
"North American supply is an even bigger deal than we thought," said Van der Hoeven, releasing the report yesterday.
Markets have undergone upheavals before, "but this is different," said Antoine Halff, the head of IEA's oil industry and market division. "This is growth unlike any other."
It is not only the sheer volume of North American crude, but its distinctive light quality, the nature of the tight oil plays and the technologies used to unlock them, he said.
While shale is unlikely to be developed elsewhere to the same extent as in the United States, the techniques will be deployed to extend the life of mature fields. Companies operating in Russia, China and Saudi Arabia have reported a revival of tired wells with fracturing technology, and this likely will trigger a bonanza in reassessed reserves.
Other market shifts are primarily driven by developing countries. Emerging economies will overtake the traditional industrial nations in the consumption of oil products in the second half of this year and will climb to 54 percent by 2018, said the "Medium-Term Oil Market Report."
"The idea that the emerging market and developing economies would eventually overtake the OECD in oil demand is nothing new. Now this is actually happening, however. It is happening fast -- faster than expected," Van der Hoeven said.
As U.S. production increasingly satisfies domestic needs, developing countries will import more than half the world's traded oil products within five years. Refining also is gravitating to developing countries, in what the IEA report called the oil industry's equivalent to outsourcing.
One effect of the growth in U.S. supplies is to give a measure of stability to the international market. But that is partially offset by heightened risks in the Middle East and North Africa. These areas are still shaken by the turmoil of the Arab Spring, sanctions against Iran, uncertainties in Iraq despite growing production, and the civil war in geographically strategic Syria.
Gas and oil sands inroads
Although the report focused on the oil industry, it noted that natural gas is making inroads in U.S. oil consumption. Gas already has transformed the way Americans heat their homes and produce electricity, and transportation may be next.
Truck and bus fleets have begun converting to gas, and shipping and railroads are considering it, said Halff, the report's primary author. In five years, gas will power 2.5 percent of U.S. transportation, nearly double the 2010 figure, he said. The transition will be a slow process, but the coming years will see the creation of an infrastructure.
Similar movements are underway in other gas-producing countries like Australia and China, which sees transportation gas as a way to reduce the choking pollution of its cities.
The report predicted a burst of production from Canadian oil sands by 1.3 million barrels per day, increasing production to 5 million barrels per day by 2018, which may outstrip the nation's transport capacity.
It carefully sidestepped the political issues of piping the gas across the United States via the Keystone XL pipeline, which awaits approval or rejection from President Obama. Halff said the oil may be exported via Canada's Pacific coast if the way south is blocked, but transportation will be a constraint in the near term.
The Paris-based agency, which monitors energy developments on behalf of its 28 member countries, cautioned that the boom in U.S. unconventional energy faces challenges from massive logistical and infrastructure requirements. It also may be held up by environmental concerns, particularly over flaring and wastewater treatment.
Legislative issues also remain cloudy. Van der Hoeven said she hoped the U.S. government would decide soon on an export policy to clear away the uncertainty.
Priorities in global energy investments are shifting in light of the unconventional oil surge. More money is being deployed in old producing regions at the expense of developing new areas, particularly Africa.
The traditional oil producers of OPEC may see their role in the energy markets decline, but not disappear, as the world grows slightly less dependent, said Van der Hoeven.
"OPEC oil will still very much be needed," the Dutch director said. "This new supply does not spell the end of OPEC. The latter will remain an essential part of the oil mix for as long as we can tell."