Non-OECD Asia to drive global oil demand growth to 2040
Opec World Oil Outlook 2014 forecasts total global oil demand will reach 111.1m b/d in 2040
Global oil demand will rise by 21 million barrels a day (b/d) between 2013 and 2040, driven by growth in non-OECD Asia, according to Opec's World Oil Outlook 2014. The report, which gives forecasts for global oil supply and demand for the medium-term (to 2019) and long-term (to 2040), forecasts total global oil demand will reach 111.1m b/d in 2040.
Developing nations will drive much of this demand growth, Opec said, adding that over the next five years oil demand in developing countries will rise by 1.1m b/d every year, accounting for a 28m b/d rise by 2040. Opec sees developing countries, particularly those in Asia, as central to future oil demand growth as the region's rising population, increasing urbanisation and economic expansion improve social conditions and the need for mobility increases over the next few decades.
The United Nations (UN) Population Division expects a rise in global population from just over 7.1 billion in 2013 to almost 9bn in 2040. More than 90% of this increase is expected to come from developing countries. Coupled with this, by 2040 more than 60% of the world's population are expected to live in cities.
Opec said this will have important implications for global economic growth and energy demand trends. The cartel believes Asian nations will account for 71% of oil demand growth across all developing nations, Opec said, helping push total global oil demand to 96m b/d by 2019.
In the OECD, however, oil demand will fall by around 700,000 b/d between 2013 and 2019 to 45.2m b/d. By next year, non-OECD oil demand will be higher than OECD consumption for the first time and by 2040 oil demand in the OECD will fall by more than 7m b/d, the report said.
Demand for oil products will be bolstered by an increased need for middle distillates, such as diesel, jet fuel and gasoil. Opec expects middle distillates - mainly diesel and jet fuel - to account for 60% of the total increase in demand for liquid products globally by 2040, as the road and air transport sectors expand rapidly.
The report said countries outside of the cartel will continue to dominate global production growth in the medium-term, but added that output growth is expected to slow between 2019 and 2040.
Between 2013 and 2019, total non-Opec oil production is expected to increase by 6.4m b/d to reach 60.6m b/d. The increase will be driven by rising tight crude and unconventional natural gas liquids output in OECD America. Non-Opec crude production is then expected to decline between 2020 and 2040, but increases in other liquids supply will more than compensate for this loss, Opec said. The report sees total non-Opec supply rising from around 54m b/d in 2013 to between 61m b/d and 63m b/d between 2020 and 2040.
Most OECD supply is expected to come from North America, although there will be around 700,000 b/d of tight crude coming from Russia and Argentina by 2040. Other regions such as Latin America (mainly Brazil and Colombia), the Middle East and Africa, the Caspian and Russia are also expected to see production increases. The report said these increases will compensate for expected declines in declining output from OECD Europe. Chinese production will also be constrained by limited resources, Opec says.
The rise in tight crude and unconventional natural gas liquids (NGLs) supply in OECD America will dominate medium-term non-Opec supply volume increases. Opec expects US and Canadian tight-oil production to rise from around 2.8m b/d to around 4.4m b/d in 2020. Then from 2020 onwards, US and Canadian tight-oil output will begin to fall steadily to about 3.3m b/d in 2040.
Despite the expected fall in OECD America's tight crude and unconventional NGL output from the middle of the next decade, the report said total oil production from the US and Canada will continue to rise, reaching a plateau of 20.8m b/d in 2030. This will be mainly due to a rise in oil sands and biofuels supply.
The report said Opec's crude oil output will fall in the medium-term, to just below 29m b/d. This is in because of expectations that the call on Opec to meet global crude demand will fall, from just over 30m b/d last year, to 28.2m b/d in 2017. However in the longer term, Opec's output will recover, reaching over 39m b/d in 2040. The cartel expects its share of total global liquids production to reach 36% in 2040, slightly above last year's level.
Opec expects more than 9m b/d of new crude distillation capacity will be added globally between 2014 and 2019. More than 40% of this new capacity, around 3.4m b/d, will be added in Asia-Pacific by 2019. China alone will account for more than 60% of this capacity expansion, adding around 2.2m b/d over the next five years, the report said.
In the longer term, around 22.5m b/d of additional crude distillation capacity will be needed by 2040, most of it in Asia, the report said. Opec said this shift eastwards will significantly alter traditional oil trade patterns with major suppliers focusing even further on supplying the Pacific basin.
Asia-Pacific's burgeoning crude demand will result in an increase in crude imports from all producing regions, Opec said. Asia-Pacific crude oil imports are expected to increase by 11m b/d over the forecast period, reaching almost 30m b/d by 2040. The Middle East will supply almost 20m b/d of crude to Asia-Pacific by 2040, an increase of 7m b/d from 2013. Russia and the Caspian region are also expected to almost triple exports to the region, reaching 4m b/d by 2040.
Opec added it believes an additional 8m b/d of crude oil and 6m b/d of oil products will be traded globally between 2013 and 2040 as a result. This, however, will also create more challenging environments for established refineries in traditional demand regions. Opec said the pace of refinery capacity additions will be higher than that needed to cover demand in the medium term. This could lead to substantial over-capacity in the sector, with mounting pressure forcing closures in several regions, especially Europe.
Primary energy demand
Opec expects primary energy demand to rise by 60% globally by 2040 with fossil fuels remaining the main source of supply. Oil's share of the primary global energy mix will fall over the forecast period, from 31.9% of the total in 2010 to 24.3% in 2040, but it will remain a significant source of global energy supply.
Coal's share of the global mix will fall by 1% between 2010 and 2040 but it will become the largest primary source of energy, comprising more than 27% of the global total. Natural gas' share is expected to increase from 21.5% in 2010 to 27% in 2040.
Opec said that although coal will eventually become the fuel with the greatest share of the energy mix, gas is likely to overtake it post-2040. Oil will continue to be one of the globe's larger energy sources. In calorific terms, natural gas use will rise faster than any other form of energy supply.
The report said Opec expects renewable energy capacity to increase rapidly by 2040, but because it currently has such a modest share in the global energy mix, renewables will still comprise a small proportion of the total. The share of nuclear energy and hydropower will rise by just 0.1% each over the period, to 5.7% and 2.4% respectively.
Carbon emissions policies
However, the outlook said more stringent legislation to cut carbon emissions will affect the pace at which global oil demand grows. Policies such as China's air pollution reduction plans, possible nuclear power restarts in Japan and Europe's 2030 emissions reduction targets create risk factors for Opec's forecasts.
The Intergovernmental Panel on Climate Change released its Fifth Assessment Report at the beginning of November 2014 which highlighted the urgent need to cut global carbon emissions to slow the impact of man-made climate change.
The World Oil Outlook said focusing on decarbonising electricity generation globally should be a key component of any attempt to tackle climate change. It also stressed the need to change electricity consumption patterns. The report said that as well as phasing out coal-fired power generation capacity, low-carbon technologies such as renewable energy, nuclear power and carbon capture and storage should be employed as options to reduce emissions into the atmosphere.
However the report warned that climate change mitigation costs are not uniformly distributed among individual countries and Opec member countries "could face larger and disproportionate adverse impacts" arising from new policies specifically aimed at reducing emissions from the oil sector.