Canada may face an oil supply glut as demand for oil declines

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Canada and other non-members of the Organization of the Petroleum Exporting Countries will lead oil supply growth by the end of the decade, even though global demand for fossil fuels is expected to decline by 2030, according to a new outlook by the International Energy Agency.

The agency’s World Energy Outlook said that near-term oil import growth will come mainly from Canada, the United States, Brazil and Guyana, although a drop in demand and a drop in energy prices are imminent given the expected global growth in electricity consumption and increase. of electric vehicles (EVs).

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Global oil demand rose by two million barrels per day (mb/d) in 2023 to 99 mb/d, but the IEA predicts a sharp slowdown in demand growth next year to an increase of just one mb/d.

“The rise in electricity, led by China, is wrong-footed by oil producers,” the report said. “The slowdown in oil demand growth … puts major resource owners in a bind as they face a massive supply glut.”

The rise of electricity, led by China, is a negative pedestrian oil producer

Report of the International Energy Agency

Crude prices could continue to trade around US$75 to 80 per barrel, but only if OPEC and its allies curb output further, according to the report.

Crude production from OPEC and Russia peaked at around 47 mb/d in 2018, but has been falling as output from other countries, including Canada, has increased, thus putting pressure on prices as output sometimes outstrips demand.

Led by Saudi Arabia, OPEC+ is already holding a record output of nearly six million barrels a day following a series of production cuts, a level the IEA expects will reach eight million barrels by 2030.

“The world will enter a new energy market in the second half of this decade because the oil and gas market balance is declining,” IEA director Fatih Birol told Bloomberg. “Barring major international conflicts, we will enter a period where prices will see a significant drop in pressure.”

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We have seen the Age of Coal and the Age of Oil, and now we are rapidly entering the Age of Electricity.

Fatih Birol

Electricity consumption has grown twice as fast as total energy demand over the past decade, and, driven by China, will increase six times faster over the next 10 years, according to the IEA. Electric vehicles will account for 50 percent of new car sales worldwide by 2030, up from 20 percent currently, it predicted.

“In the history of energy, we have seen the Age of Coal and the Age of Oil, and now we are rapidly entering the Age of Electricity,” said Birol.

The IEA report also said Canada and other liquefied natural gas (LNG) exporters may struggle to reinvest in export capacity due to a “wave” of new LNG projects on the horizon.

A “massive” 270-billion-cubic-met increase in LNG capacity is currently scheduled to come online by 2030, mostly from projects in the United States and Qatar, with Canada’s first export destination, LNG Canada, reportedly ahead of that. . planning its plan to deliver its first cargo in mid-2025.

A potential 50 percent increase in global LNG export capacity would have a ripple effect that would put downward pressure on prices, the IEA said.

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The decrease in prices will be from the first half of the decade, when the cost of electricity following the Russian invasion of Ukraine in 2022 helps to reduce fuel inflation. Prices have since fallen slightly, with crude futures down 20 percent from this year’s highs to below US$75 a barrel despite rising tensions in the Middle East.

Notably, the IEA slightly increased its estimates for the share of fossil fuels that will make up the world’s electricity supply by 2030 to 75 percent, from the 73 percent predicted in last year’s report. The agency continues to project that fossil fuels will make up less than 60 percent of the world’s energy supply by 2050.

The IEA report has attracted its share of criticism for its timelines for the transition away from fossil fuels.

Oil production forecasts released by OPEC and the US Energy Information Administration (EIA) have generally been less optimistic about the supply of renewables for the rest of the decade.

The forecast growth of Canadian oil supply published by the EIA is about two to three times the amount predicted by the IEA in 2024 and 2025.

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While the IEA’s predictions of lower oil demand this year look increasingly vindicated, some of its past forecasts have missed the mark, such as its inflation expectations for the past decade and predictions that Russian output will drop after the invasion of Ukraine.

– Via files from Bloomberg

• Email: mpotkins@postmedia.com

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