Guesswork takes priority in latest IEA outlook

GARY PARK

For Petroleum News

During more than 40 years of forecasting, the International Energy Agency has periodically caused head-scratching.

But seldom has the IEA baffled Canadian observers more than in its latest World Economic Outlook, projecting that Canada will increase its crude oil output by another 2.5 million barrels per day over the next 25 years.

The Paris-based independent organization, whose primary mandate is to ensure reliable, affordable and clean energy for its 29 member countries, including Canada and the United States, has a record of shot-in-the-dark forecasting which even it casually acknowledges.

“It will be no surprise to find, in five or 25 years’ time, that the outcome doesn’t match (the latest WEO) figures,” said IEA Executive Director Faith Birol, in the report forward.

“So why do we bother? I can answer this confidently: The reason that we look into the future is to trigger key policy changes in the present.”

Having virtually undercut the basis of its own predictions, the IEA suggests that the world will continue using crude oil and natural gas for decades to come, regardless of how much progress is made in producing renewable energy that will challenge the fossil-fuel sector in attracting investment dollars.

The WEO predicts that Canada will be the third largest global source of new crude by raising its output to 6.8 million bpd by 2040. Although that is down 600,000 bpd from earlier WEO targets, it remains the third largest global source of production growth, trailing only Iraq’s addition of 4.5 million bpd and Brazil’s incremental gain of 3 million bpd.

Even so, the IEA warns that the province of Alberta, by far the largest source of any new volumes in Canada, will have difficulty accessing new global and domestic markets, adding to the constraints resulting from carbon taxes and a shortage of pipeline capacity that it says are likely to drive potential investors away from the oil sands.

In that context, the WEO fails to identify how Canada will find new markets to achieve a 37 percent rise in Canadian output by 2040.

On the LNG front, the WEO said new greenfield export terminals and pipelines will be challenged to proceed in the face of the current pricing and supply environment.

It said that means such projects are unlikely to reach “maturity until well into the 2020s” - a prediction that extends beyond the industry and British Columbia government belief that at least one major plant should come onstream by early next decade.

With Canadian gas exports to the United States down by 20 percent as a result of growing U.S. self-sufficiency, the need for Canada to establish LNG export links to Asia has acquired an even more urgent dimension, the WEO said, without offering any specifics.

Using the IEA’s base-case scenario, the report said U.S. oil production should rise to 13.2 million bpd by 2020, up 1.4 million bpd from 2014, before slipping back to 11.7 million bpd within 15 years as tight oil output shrinks.

On the consumption side, the U.S. demand for oil is expected to contract by 4.2 percent over the next 25 years, with Europe declining by 4 percent and Japan by 1.8 percent, offset by fast growth in China, Japan and other emerging economies.