WASHINGTON, D.C., August 18, 2014 – Platts – Surging U.S. oil production is sending ripples through the crude oil market -- in prices, trade flows and the downstream, the International Energy Agency's (IEA) top oil official said Sunday on Platts Energy Week.

U.S. production is expected to reach 8.5 million barrels per day (b/d) this year and 9.3 million b/d in 2015, almost double 2008's output of 5 million b/d, said Antoine Halff, the head of the IEA's oil industry & markets division.

"On prices, the surge in production has really offset the production [loss] we've experienced in places like Libya, Iran, and so on," he said. "So that's why prices have not risen more than they have. They've been fairly stable, remarkably stable, given all the turmoil in the Middle East and elsewhere."

Crude oil that had been imported into the U.S. can now be imported by other countries, Halff said.

"There's been a tremendous remapping of the oil trade flows, if you like," he said. "And now Asia is supposed to really become the magnet for global crude traded internationally. That's a big change. China is now importing more crude than the U.S., for instance."

Downstream, new refineries under development in the U.S., increased refinery runs and the installation of more and more modern processing units, have resulted in a surge in output of U.S. product exports, Halff said.

"In U.S. refining, it's really been a revolution in a way," he said. "But these changes have taken place against a background of changes elsewhere as well for other reasons. Rapid growth in refining capacity in the Middle East, in India, in China, and so on."

Upstream, about 60% of the Organization of Petroleum Exporting Countries’ (OPEC) incremental capacity growth over the next five years is supposed to come from Iraq, the cartel's second-largest producer, according to the IEA. But that growth is "seriously at risk" because of the uncertainty and political strife in Iraq, Halff said.

"We have to wait and see," he said. "We took down our forecast of Iraqi production even before the surge in violence started earlier last month. So we've reduced our forecast of Iraqi production for the next five years by about half a million barrels."

The forecast does not take into account jihadist group Islamic State's campaign in Iraq, but "reflects other problems that Iraq has -- red tape, corruption, bottlenecks, lack of infrastructure, and so on," Halff said.

Should the expected Iraqi output not materialize, Saudi Arabia could step in, Halff said, but noted the country's current plans for capacity development likely won't result in higher net capacity for OPEC's largest producer, Halff said.

"What we've seen, our assessment of Saudi plans at this point, is that all the new capacity that will come online will essentially replace capacity that's being mothballed or that's being allowed to rest," he said. "But if Saudi chose to increase capacity, it would be able to do so."

While the IEA sees "some growth" in the United Arab Emirates, "elsewhere in OPEC we see problems," Halff said. "We see flat production growth. Or we see even declines in places like Algeria and Kuwait."

The "real game changer" has been oil production from shale reserves, starting with the U.S., Halff said.

"I think the shale revolution could not have happened anywhere else than in the U.S.," he said. "It's no accident that this happened in the U.S. Because the U.S. has a unique combination of assets, not only geological resources, but also business culture, enterprising spirit, infrastructure in place, a lot of technological know-how, skilled labor, the right environmental structure, the right investment climate. All these factors could not be found in the same combination in any other country.

"But there's nothing that prevents other countries now that the technology has been developed to adopt it and to try to replicate the success of the U.S.," he continued.

"Chief among them is Canada, of course," Halff said. "Mexico is a candidate. But [that would] probably be more in the next decade than in the next five years. We see a little bit of growth in the next five years. But not so much. We see more growth probably in Argentina, more growth in Russia and probably a little bit of growth in Australia towards the end of the decade."

The IEA sees U.S. crude oil production hitting a plateau over the next five to seven years, Halff said, adding that the surge in U.S. production is not going to be the answer to the world's energy needs.

"There's a need for investment in OPEC," he said. "There's a need for investment in the Middle East. So there's no room for complacency. This surge in production is phenomenal. It's a game-changer in many ways. But that doesn't mean that we don't need the traditional suppliers anymore. We need them very much."

Other Program Highlights

Also on the program, Katherine Hammack, the U.S. Army’s assistant secretary for installations, energy and environment, joined the program for an extended discussion on the dramatic transformation of the U.S. Army's energy consumption. View part 1 here and part 2 here.

During Sunday’s “Market Spotlight” segment, Platts Senior Managing Editor Richard Capuchino Jr. discussed the growing popularity of Vasconia, one of Colombia’s top-exported crude oil grades.

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