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Sunday, December 17, 2017

International Energy Outlook 2007 reference case positive for the tanker market

The U.S. Energy Information Administration (EIA) has just released its International Energy Outlook 2007 (IEO2007). The outlook contains three scenarios depending on oil price. The reference case looks rather positive for tanker shipping. Liquid energy demand is projected to increase by 35 million barrels a day (mbd) between now and 2030, which is a 1.4% annual increase. 


The consumption pattern is not projected to change much. China is projected to represent 26% of the increase in consumption or 9.3 mbd 2004-2030; the U.S. is forecast to represent 17% of the increase or 5.9 mbd since 2004; the Middle East is projected to represent 12% of the increase in consumption or 4.1 mbd since 2004; and India is forecast to represent only 5% of the increase or 1.9 mbd since 2004. This means that the four areas with the greatest consumption increases represent 60% of the forecast increase or 21.2 mbd. Other significant increases in consumption are mainly expected to come from oil producing areas such as Brazil 1.6 mbd, other Central and South America 2.7 mbd, Africa 2.1 mbd and Mexico 0.9 mbd.


Looking at the growth in consumer numbers, the U.S. population is forecast to increase by 0.8% per annum to 365m in 2030, the Indian by 1.1% to 1,449m and the Chinese by 0.4% to 1,446m. The strongest percentage increase is forecast to be in the Middle East (1.8% to 301m people in 2030) and Africa (1.9% to 1,463m). All in all this means a 1% annual world population increase from 6,388m in 2004 to 8,203 m in 2030.


In most regions of the world, the role of liquid fuels outside the transportation sector continues to be eroded. Liquids remain the most important fuels for transportation, because there are few alternatives that can compete widely with petroleum-based liquid fuels. On a global basis, the transportation sector accounts for 68% of the total projected increase in liquid energy use from 2004 to 2030, followed by the industrial sector, which accounts for another 27% of the increase.


Conventional liquid energy production by members of the Organization of the Petroleum Exporting Countries (OPEC) contributes about 21 mbd to the total production increase required to satisfy consumption, and conventional liquid energy production in non-OPEC countries adds another 6 mbd. The energy supply gap will be filled by unconventional resources (including biofuels, coal-to-liquids, and gas-to-liquids) from both OPEC and non-OPEC sources, which are expected to become increasingly competitive. World production of these unconventional resources, which totalled only 2.6 mbd in 2004, is projected to account for 9% of the total world liquid energy supply in 2030, on an oil equivalent basis, in the IEO2007 reference case. 



What happens in China in terms of the demand for liquid energy may have a substantial impact on world oil markets. China, with a rapidly expanding transportation sector, is the world’s fastest-growing oil consumer. In the past two years, China alone accounted for more than 30% of the world’s incremental consumption of liquid fuels. Transportation use is likely to define much of the growth in China’s liquid energy consumption. China is projected to account for 28% of the total increase in world liquid energy consumption from 2004 to 2030 and for 14% of the world’s total energy consumption in 2030 - nearly double its share in 2004. As China’s per-capita income rises, cars are expected to be the mode of choice for an increasing share of passenger travel, as has been observed in other developing economies.


To meet the increase in liquid energy consumption in the IEO2007 reference case, liquid energy production is projected to increase by 14 mbd from 2004 to 2015 and by an additional 20 mbd from 2015 to 2030. OPEC producers are expected to provide more than half of the additional production in 2015 (8 mbd) and more than two thirds in 2030 (23 mbd).


In the reference case projections, sustained high world oil prices support a substantial increase in non-OPEC liquid energy production. Non-OPEC production in 2030 is projected to be 12 mbd higher than in 2004, representing 35% of the increase in total world production over the 2004 total. These estimates of production increases are based on current proven reserves and a country-by-country assessment of ultimately recoverable petroleum, as well as the potential for unconventional liquids production.


The world oil prices in the IEO2007 reference case—and in the high world oil price case—are projected to make previously uneconomical, unconventional resources available. In 2004, world production of unconventional liquid energy totalled only 2.6 million barrels per day; in 2030, in the reference case, unconventional liquid energy production totals around 10 mbd and accounts for nearly 9% of total world liquids production.  



The investment that several OPEC members are currently making to expand their oil production capacity is expected to more than offset the slower expansion of non-OPEC supply. Saudi Arabia is forecast to produce 9.5 mbd (8.3 mbd today) in 2010 and 16.4 mbd in 2030. Saudi Arabia’s maximum production since 1989 has been 9.3 mbd; its historic maximum was 9.9 mbd in 1980. Angola is forecast to produce 4.0 mbd in 2030, up from 1.6 mbd today. Iraq’s role in OPEC in the next several years will be of particular interest. In the IEO2007 reference case, Iraq’s oil production is projected to reach 3.3 mbd in 2015 and 5.3 mbd in 2030.


U.K.’s oil production is projected to decline to 0.5 mbd in 2030, down from 1.7 mbd today, and OECD-Europe’s total oil production is forecast to decline from 5.2 mbd today to 1.4 mbd in 2030. In non-OECD Europe, Caspian oil production is forecast to increase to 15 mbd by 2030, but will not compensate for the decline in production in OECD-Europe, which will have to import more oil from other regions – which is positive for tanker tonne-miles.


The variation between the high price scenario and the low price scenario (straddling the reference scenario) means that the high price scenario forecasts some 10 mbd less oil production in 2015 than in the reference case, whereas the low price scenario forecasts some 8 mbd higher production in 2015 than in the reference case.


All things considered, the IEO2007 reference case is positive for tanker shipping when considering the demand increase projection, the location of the oil reserves, and the expected increased dependence on the Middle East.


Click here for the full report.


Contact: Erik Ranheim