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Sunday, September 23, 2018

EIA – massive increases in oil supply but increase in world oil prices to dampen world demand

In the International Energy Outlook 2006(IEO2006 from the US EIA/IEA) reference case, world oil demand grows from 80 million barrels per day (mbd) in 2003 to 98 mbd in 2015 and 118 mbd in 2030. Demand increases strongly despite world oil prices that are projected 35% higher in 2025 than in last year’s outlook. Much of the growth in oil consumption is projected for the nations of non-OECD Asia, where strong economic growth is expected. Non-OECD Asia (including China and India) accounts for 43% of the total increase in world oil use over the projection period. 

To meet the projected increase in world oil demand in the IEO2006 reference case, total petroleum supply in 2030 will need to increase by 38 million barrels per day, to 118 million barrels per day, from the 2003 level of 80 million barrels per day. OPEC producers are expected to provide 14.6 mbd of the increase – a significant reduction from previous forecasts. Higher oil prices bring about a substantial increase in non-OPEC oil production - 23.7 million barrels per day, which represents 62% of the increase in total forecast world oil supplies over the projection period. The estimates of production increases are based on current proven reserves and a country-by-country assessment of ultimately recoverable petroleum. 

The oil price path in the IEO2006 reference case reflects a reassessment of the willingness of oil-rich countries to expand production capacity as aggressively as envisioned in last year’s projection. It does not represent a change in the assessment of the ultimate size of the world’s petroleum resources but rather a lower level of investment in oil development in key resource-rich regions than was projected in IEO2005. Factors contributing to the expectation of lower investment and oil production in key oil-rich producing regions include various restrictions on access and contracting that affect oil exploration and production companies’ costs. 

In IEO2005, OPEC production was projected to increase by 24.0 mbd between 2002 and 2025. IEO2006 projects an increase in OPEC supply of only 11.8 mbd over the same period. The resulting increase in world oil prices dampens world demand in the mid-term and makes previously uneconomical resources in non-OPEC regions more likely to be produced. Non-OPEC supplies of both conventional and unconventional resources (including biofuels, coal-to-liquids, and gas-to-liquids) are expected to increase as a result. For example, in 2003, world production of unconventional resources totaled only 1.8 million barrels per day; in the IEO2006 reference case, unconventional resource supplies rise to 11.5 mbd and account for nearly 10% of total world petroleum supply in 2030. 

World oil trading patterns change substantially over the projection horizon, as China and the other countries of non-OECD Asia fuel their growth in oil demand by taking an increasing share of the world’s oil imports. China’s petroleum imports are expected to grow fourfold from 2003 to 2030, with much of the increase coming from Middle East Gulf (MEG) suppliers. In 2003, China imported 0.9 mbd of oil from MEG’s OPEC members, while in 2030 its MEG imports are forecast to total 5.8 million barrels per day. The rising dependence of China on Middle Eastern oil supplies has geopolitical implications both for relations between the two regions and for the oil-consuming world as a whole.