US oil to equal Saudi, Russia total in 2025: IEA's Birol

The growth of the U.S.' crude oil production is estimated to become equivalent to the total of Saudi Arabia and Russia by 2025, Fatih Birol, the executive director of the International Energy Agency (IEA) told Anadolu Agency on Friday.

"There is a huge increase in U.S. shale oil and it is changing the balance in the oil market," Birol said in an exclusive interview hosted by Anadolu Agency's energy desk.

"A few years ago, Russia and Saudi Arabia were competing with one another as the biggest crude oil producers in the world, then the U.S. came to take the top spot," he said.

Saudi Arabia and Russia both saw their crude oil output reach record high levels in October, with 10.7 million barrels per day (mbpd) and 11.4 mbpd, respectively.

However, the U.S.' crude production rose to 11.7 mbpd in November to surpass the two countries, thanks to the shale oil revolution that started in the country in 2008.

"The growth in U.S. shale oil surprised many people, but not us [the IEA]. We said that before. There is a huge amount of supply coming from the U.S.," Birol said.

"We are entering a period where crude oil prices will not be determined only by Russia and countries in the Middle East. Oil prices are no longer shaped by the decisions in Vienna [OPEC headquarters], but in Texas as well. Most importantly, we will see volatility in prices like we have never seen before," he said.

- Low prices provide relief for Turkey

OPEC members led by Saudi Arabia and non-OPEC producing countries, including Russia, met on Dec. 7 at OPEC's headquarters in Vienna to discuss the dynamics in the global oil market.

The group, dubbed as OPEC+, agreed to curb their total production by 1.2 mbpd starting from January 2019 for six months in order to boost low oil prices that fell by around 30 percent since October.

The production cut agreement, however, did not generate much impact on the market as prices have continued their decline since then due to the glut of supply along with forecasts of low economic growth and global demand for next year.

"The decline in oil prices has provided some relief for Turkey, India, China, and European countries, In Turkey, natural gas prices are mostly indexed to oil prices, and this has provided some comfort. We do not expect a significant increase in oil prices in the short term - this is very important for Turkey," Birol said.

The executive director, however, warned that most oil producing countries' economies in the Middle East depend on oil revenues, which he said was "a very risky economic model" for two reasons.

"First, their export volumes could decline and they would fail to determine prices like they want. Second, on the demand side, growth in oil demand will weaken through the adoption of new technologies. When we look at these two factors, I think it is very risky for many countries that index their economic growth to oil," he said.

He warned that if these countries fail to diversify their economies as soon as possible and prioritize non-oil sectors for their economies, they may face very serious risks in the future.

-LNG to rival pipeline gas

An example of a country that is diversifying its economy is Qatar, the world's liquefied natural gas (LNG) champion for 12 consecutive years. The country has also made investments in non-oil sectors to create global brands such as Qatar Airways and the Al Jazeera television network.

The small Gulf country announced on Dec. 3 that it would quit OPEC after 57 years, effective on Jan. 1, stating it wants to focus more on gas production and LNG exports.

"Qatar is the most trusted and the most significant actor of LNG in the world right now. It has announced that it wants to increase its LNG capacity as well," Birol said.

On the demand side, Birol stressed that gas consuming countries could diversify their portfolios by focusing more on LNG.

He envisages greater competition between Russia's pipeline gas versus LNG from the U.S., Canada, Qatar and other countries.

"Today, the European Union mostly receives its gas from Russia via pipelines, but their focus on American and Qatari LNG is rising," he said, adding that this is because of two reasons.

"First, they do this to increase supply security, not putting all their eggs in the same basket. Second, while the price of pipeline gas is being negotiated, they can use LNG as an alternative, as a leverage," he explained.

Birol affirmed that competition between pipeline gas and LNG would also benefit Turkey as a gas consumer.

-Turkey's gas objectives

The executive director said global LNG production is set to have a new and major surge, in which Turkey could exploit to become a gas-trading center for its domestic consumption and energy security.

He outlined the three objectives that Turkey should aim for to become a gas-trading center.

"First, gas pipelines are significant. I believe the Trans Anatolian Natural Gas Pipeline (TANAP) is a very important project from every aspect. Second, Turkey's LNG share in its total gas imports is 20 percent, and this could be raised," he said.

"And third, Turkey should focus on gas storage. Today, Turkey's gas storage capacity constitutes 10 percent of its gas consumption. This should increase. That level is 25 percent on average in the world," he added.

He asserted that Qatar, the U.S. and Australia would lead the world in LNG around 2025, with the global shift from pipeline gas to LNG.

"LNG provides more flexible and short-term contracts, unlike pipeline contracts that are based on 20 or 30 years. This strengthens the hand of gas buyers," he said.

The executive director noted that there were only five LNG importing countries in 2000, but this number is expected to reach 49 in 2019.

By Ovunc Kutlu, Nuran Erkul Kaya, Elif Ferhan Yesilyurt

Anadolu Agency

energy@aa.com.tr