Charting the future of crude oil – by Shawn McCarthy (Globe and Mail – October 13, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA — The world’s oil map is being redrawn in ways that will pose major challenges to Canadian crude producers, energy consumers and governments.

North America is now the fastest-growing source of crude outside of OPEC, but virtually all the demand growth is in Asia. The refining industry in the developed world is aged and inefficient, and forced to compete with new mega-refineries in China, India and the Middle East. And consumers are buffeted by shifting market forces that will result in tremendous volatility in gasoline prices.

That’s the picture painted Friday by the International Energy Agency, the Paris-based agency that advises rich countries on energy markets.

And it goes a long way toward explaining the upheaval on the Canadian oil scene: the battles over proliferating pipeline projects; the trade-promotion trips by Prime Minister Stephen Harper and his ministers to China and India; and the huge interest by Asian state-owned companies in acquiring assets in the oil sands. It also sheds some light on the seemingly inexplicable changes in retail gasoline prices.

“The global oil market is entering a period of major transformation on many levels – from the early stages of upstream through the downstream,” IEA executive director Maria van der Hoeven said in a conference call Friday, after the agency released its medium-term oil market report.

The most dramatic change to the global oil map is the boom in the United States, with the “light, tight oil” that is now being produced in North Dakota’s Bakken field and Texas’ Permian and Eagle Ford plays. The IEA forecasts that the U.S. will increase its production by 3.3 million barrels per day over the next five years to 11.4 million barrels, a level that exceeds the current output of Saudi Arabia.

And it expects Canada’s oil production to grow by 1.1 million barrels a day, primarily from the oil sands. Domestic oil production was about 3 million barrels a day last year.

But the agency warns that Alberta producers face major challenges, not the least of which is the twin threat in the U.S. market of sluggish demand and the surging American production filling up available pipeline space. The key message on its oil sands forecast: “Transport bottlenecks dent Canadian unconventional growth.”

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