x Abu Dhabi, UAEMonday 24 July 2017

US oil cuts challenge producers

Exporters in the Middle East risk boosting capacity only to end up with lower sales

Rising petrol prices in the US, the world's largest oil consumer, will reduce the country's fuel thirst for years to come, presenting challenges to oil exporters investing tens of billions of dollars to raise exports. Fuel use would normally expand with the current economic recovery, but the rise would be countered by the US government's green-energy policies and rising petrol prices, which encourage motorists to drive less and switch to more fuel-efficient cars, says a forecast by the Japanese investment bank Nomura Securities.

"A return to positive economic growth and reduction in US unemployment will likely lead to positive growth in gasoline demand," Nomura analysts said in a report released yesterday. "However, offsetting the potential increase is the long-term shift away from gasoline with better vehicle mileage, as well as the substitution of ethanol and the increasing popularity of hybrid cars." Total oil consumption in the US dropped by almost 2 million barrels per day (bpd), or 9.2 per cent, from 2007 to last year, according to the Paris-based International Energy Agency (IEA), and many analysts predict the country's oil demand may never again reach 2007 levels.

Nonetheless, the US oil market still towers over that of other countries, and expectations of future US oil needs weigh heavily in the plans of government leaders in OPEC countries who are considering investing billions of dollars to expand their output capacity. Petrol consumption across North America will remain flat through 2012, Nomura said, largely as a result of higher petrol prices. The average price at the pump across the US increased 39 per cent in the past 12 months, to US$2.89 a gallon, according to the US government's energy information agency (EIA).

The EIA expects prices to reach an average of $2.96 next year, a rise of nearly 2.4 per cent. In the long term, as consumers replace their cars with more fuel-efficient vehicles or choose to live in areas with lower transport costs, every 10 per cent increase in the petrol price will reduce total US consumption by 4 per cent, Nomura estimated. Government policy also plays a key role in the longer run in reducing petrol use, analysts say. The US government under the president Barack Obama tightened vehicle fuel-efficiency standards last year and created tax credits and other incentives for electric cars, which use barely any oil-based fuels.

The new measures came on top of existing rules enacted in 2007 requiring fuel retailers to blend huge quantities of biofuels into petrol as a substitute for crude oil. Together, the different policies are already likely to have a big effect on US oil use, according to the IEA. Even with no additional legislation, US oil demand will shrink from 18.5 million bpd in 2008 to 17.9 million bpd in 2015 and 17.2 million bpd in 2030, the IEA said in its long-term energy outlook last year.

In a scenario in which the government takes significant measures to battle climate change, oil demand would shrink an additional 7 per cent by 2020 and 19 per cent by 2030, the IEA said. Other projections go even further. The most aggressive US effort to encourage the roll-out of electric cars could reduce total US oil consumption by 42 per cent by 2020, according to a study to be released this year by the James A Baker III Institute for Public Policy at Rice University in Texas.

That reduction would be equal to the total increase in consumption that the IEA forecasts for China for that period. cstanton@thenational.ae