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Monday, September 24, 2018

High oil prices to curb long-term demand growth?

In our article in last week’s Weekly NEWS we reported on the main findings of the 2004 World Energy Outlook by International Energy Agency (IEA) and the outlook for various energy markets. This week we will focus on the IEA’s predictions for the oil markets up until 2030.

A key message of the document is that short-term risks to energy security will grow. Major oil and gas importers – including most OECD countries, China and India – will become ever more dependent on imports from distant, often politically unstable parts of the world. Flexibility of oil demand and supply will diminish. Rising oil demand will have to be met by a small group of countries with large reserves, primarily Middle East members of OPEC and Russia. Booming trade will strengthen the mutual dependence between exporting and importing countries, but will also exacerbate the risks that wells or pipelines could be closed or tanker movements disrupted by piracy, terrorist attacks or accidents. Rapid worldwide growth in natural gas consumption and trade will foster similar concerns.

According to the IEA reference scenario, global economic growth is assumed to average 3.2% per year in the period 2002-2030. The world population is assumed to expand from 6.2 billion in 2002 to over 8 billion in 2030. The average IEA crude oil import price is assumed to fall back from current highs to USD 22 (in year 2000 dollars) in 2006, remain flat until 2010, and then begin to climb steadily to USD 29 in 2030.

Global primary oil demand will grow by 1.6% per year, from 77 mbd in 2002 to 121 mbd in 2030, continuing to grow most quickly in developing countries. Most of the increase in oil demand in all regions will come from the transport sector. Non-OPEC countries are expected to meet most of this demand increase over the rest of the current decade, with West Africa and Latin America expected to contribute most of the non-OPEC production increase. Russian output, which has soared in the last six years, will continue to rise, but at a slower rate.

In the longer term, however, production in OPEC countries, especially in the Middle East, will increase more rapidly. OPEC’s worldwide market share will rise from 37% in 2002 to 53% in 2030 – slightly above its historical peak in 1973 (see graph below). The IEA notes, however, that higher oil prices would lower OPEC’s market share by stimulating non-OPEC and non-conventional oil production. Should oil prices average a higher USD 35 over the projection period, global oil demand would be around 15% lower (18 mbd) in 2030 as compared to the reference scenario.

Looking at the shorter term, the IEA predicts strong growth in world oil demand next year as well as this, but the forecast 1.45 mbd is not as strong as 2004’s 2.71 mbd. In particular, Chinese oil demand is estimated to grow by 0.81 mbd this year, which may slow down to 0.36 mbd in 2005. North American oil demand growth this year is estimated at 0.5 mbd with a predicted slowdown to 0.22 mbd in 2005. The main reason for the slowdown in oil demand growth is the impact of current high oil prices on demand and the economy, and expectations of slower economic growth. The graph below outlines the growth in oil demand for the different regions in the period 2000 to 2005.

Statistics on world oil supply and demand (tables and graphs), including the IEA 2005 predictions, can be found on the following link on the INTERTANKO website.

Contact: Jan Svenne