AN interesting, new, phenomenon is banging on the global energy horizon. The energy world is no longer unipolar. Saudi Arabia, often regarded as the main player in this market, is in controls of hardly 12.7 per cent of the total global crude consumption. It is no more wielding near-unilateral control over global oil markets — it once enjoyed.

The energy world is now tripolar. Russia has been a part of the global crude balance for some time now. Over the last few years, the United States too gate-crashed into the exclusive club with equal, if not higher, stakes.

The oil market today is dominated by the “Big Three,” the Paris based International Energy Agency (IEA), underlined in a recent report, referring to Russia, Saudi Arabia and the US. Combined these three countries control 40pc of global supplies.

With its domestic output leaping upward, the US dependence on crude imports has gone down significantly. In recent months, the US exported more oil and refined products than it imported.

For much of 2018, the US imported an average of 3.1mbpd of crude, the IEA reported.

In the last week of November, the US had a net export tally of 211,000bpd. This is vastly lower than more than 11mbpd crude, the United States had to import on a regular basis, a decade ago.

“As (US) production grows inexorably, so will net imports decline and rising US exports will provide competition in many markets,” the IEA emphasised.

Opec oil producers are thus faced with a grim battle. In their bid to put a floor beneath the falling oil markets, so as to plug their galloping budgetary gaps, they had little option, but to cut output and tighten the markets. Yet their endeavours are faced with a major challenge; the rising non-Opec supply.

The IEA is now forecasting the non-Opec supply to grow in 2019 by much more than the total global demand growth. As per the IEA, the output from non-Opec producers (mainly the US), is now set to grow by 2.4mbpd in 2019, while demand is expected to rise by 1.4mbpd only.

And this means Opec and its allies will have to strive to cover for this additional 1mbpd gap for the entire next year.

And challenges to Opec oil producers continue to deepen. The pace of shale growth in the US is unprecedented. This year only shale output is set to exceed initial estimates by some 1mbpd.

While bottlenecks in areas such as the Permian basin of West Texas and New Mexico pose a risk to future growth, new pipelines coming online in late 2019 and 2020 should ease that congestion.

Once Permian producers are able to iron out distribution snags by adding the three pipelines, as much as 2mbpd of oil could be added to the US domestic output.

As per the EIA, US oil producers will pump an average 12.06mbpd next year, up from 10.88mbpd in 2018. Growth is already speeding up, many in Houston, the US oil capital are insisting. Some are equating it with “Tsunami.”

Others are calling it, a “flooding of biblical proportions” and “onslaught of supply”. You’ve got “an awful lot of production that can come in very economically,” Patricia Yarrington, Chevron’s chief financial officer, was quoted as saying in the press.

This is in stark difference to recent past. Only a few months ago, the consensus was that the Permian and US oil production was going to hit a plateau this summer.

Instead, August saw the largest annual increase in US oil production in 98 years. And now the EIA is saying that by the end of 2019, total US oil production — including the NGLs (natural gas liquids used as feedstock in the petrochemical industry) — would rise to 17.4mbpd.

In early 2017, the Saudi Oil Minister Khalid Al-Falih had said at an industry forum that Riyadh has learned the lesson that cutting production “in response to structural shifts is largely ineffective.” Nearly two years later, by opting to restrain output, Falih has seemingly taken a U-turn. Despite structural issues, he has opted for the ‘ineffective’ short-term, output cut route.

The swift growth in the US shale output has complicated efforts by Opec and its allies to trim supply and support the global market prices.

The goal post is continuing to change its position — in this unending battle.

Published in Dawn, December 16th, 2018