A surge of oil production is coming, whether the world needs it or not.The New York Times, by Clifford Krauss, Nov. 3, 2019
HOUSTON — The flood of crude will arrive even as concerns about climate change are growing and worldwide oil demand is slowing. And it is not coming from the usual producers, but from Brazil, Canada, Norway and Guyana — countries that are either not known for oil or whose production has been lackluster in recent years.
This looming new supply may be a key reason Saudi Arabia’s giant oil producer, Aramco, pushed ahead on Sunday with plans for what could be the world’s largest initial stock offering ever.
Together, the four countries stand to add nearly a million barrels a day to the market in 2020 and nearly a million more in 2021, on top of the current world crude output of 80 million barrels a day. That boost in production, along with global efforts to lower emissions, will almost certainly push oil prices down.
Lower prices could prove damaging for Aramco and many other oil companies, reducing profits and limiting new exploration and drilling, while also reshaping the politics of the nations that rely on oil income.
The new rise in production is likely to bring economic relief to consumers at the gas pump and to importing nations like China, India and Japan. But cheaper oil may complicate efforts to combat global warming and wean consumers and industries off their dependence on fossil fuels, because lower gasoline prices could, for example, slow the adoption of electric vehicles.
Canada, Norway, Brazil and Guyana are all relatively stable at a time of turbulence for traditional producers like Venezuela and Libya and tensions between Saudi Arabia and Iran. Their oil riches should undercut efforts by the Organization of the Petroleum Exporting Countries and Russia to support prices with cuts in production and give American and other Western policymakers an added cushion in case there are renewed attacks on oil tankers or processing facilities in the Persian Gulf.
Daniel Yergin, the energy historian who wrote “The Prize: The Epic Quest for Oil, Power and Money,” compared the impact of the new production to the advent of the shale oil boom in Texas and North Dakota a decade ago.
“Since all four of these countries are largely insulated from traditional geopolitical turmoil, they will add to global energy security,” Mr. Yergin said. But he also predicted that as with shale, the incremental supply gain, combined with a sluggish world economy, could drive prices lower.
There is already a glut on the world market, even with exports from Venezuela and Iran sharply curtailed by American sanctions. Should their production come back, that glut would only expand.
Years of moderate gasoline prices have already increased the popularity of bigger cars and sports utility vehicles in the United States, and the probability of more oil on the market is bound to weigh on prices at the pump over the next few years.
The oil-supply outlook is a sharp departure from the early 2000s, when prices soared as producers strained to keep up with ballooning demand in China and some analysts warned that the world was running out of oil.
Then came the rise of hydraulic fracturing and drilling through tight shale fields, which converted the United States from a needy importer into a powerful exporter. The increase in American production, along with a choppy global economy, shaved oil prices from well over $100 a barrel before the 2007-9 recession to about $56 on Friday for the American benchmark crude.
Those low prices have forced OPEC and Russia to lower production in recent years, and this year many financially struggling American oil companies have slashed their exploration and production investments to pay down their debts and protect their dividends.
An Era of Cheaper Oil
The new oil will accelerate those trends, energy experts say, even if only for a few years as production declines in older fields in other places.
“This could spell disaster for every producer and producing country,” said Raoul LeBlanc, a vice president at IHS Markit, an energy consultancy, especially if the United States and Iran come to some sort of nuclear deal.
Like the shale boom, the coming supply surge is a sudden change in dynamics. Guyana currently produces no oil at all. Norwegian and Brazilian production has long been in decline. And in Canada, concerns about climate change, resistance to new pipelines and high production costs have curtailed investments in oil-sands fields for five consecutive years.
Production of more oil comes at a time when there is growing acknowledgment by governments and energy investors that not all the hydrocarbons in the ground can be tapped if climate change is to be controlled. But exploration decisions, made years ago, have a momentum that can be hard to stop.