World Energy Outlook: oil-price pressure
While crude demand will grow over the long-term, vast US reserves and lower cost production will keep a lid on prices, says the International Energy Agency
The need to replace existing oil reserves, if nothing else, is likely to keep explorers busy over the next two decades. Yet the International Energy Agency's forecast of sluggish demand growth
—and its expectation that US oil production is likely to remain resilient for years to come-is hardly likely to lift hearts among those seeking fresh reserves elsewhere.
The Paris-based think tank forecasts in its
that the US will account for 80% of the increase in global oil supply to 2025, helping to keep a lid on the oil price, which it sees as rising to around $83 a barrel in that year under its middle-of the-road New Policies Scenario, and only $72/b in its Sustainable Development Scenario. The Sustainable Development Scenario incorporates tougher climate change measures than countries have committed to thus far. World Energy Outlook 2017 Sluggish demand growth
The IEA sees robust oil demand growth only until the mid-2020s, after which it will slow as consumption from the passenger vehicle sector falls away, due to improved fuel efficiency and the growth of electric vehicle usage. That's in spite of an anticipated doubling in the global car fleet, to 2bn, between now and 2040.
However, growing demand from other sectors and other countries, notably India and China, should still ensure oil demand grows, albeit at a slower pace than in recent years
—and lagging well behind demand growth. The IEA says the petrochemicals sector will be the largest source of growth, followed by trucking —where electric motors will find it harder to oust the more powerful internal combustion engine —and then aviation and shipping. Under the New Policies Scenario, oil demand rises to 105m barrels a day in 2040, compared to around 94m b/d in 2016.
However, it is a sign of the times that the IEA once more includes a "Low Oil Price Case" in this year's World Energy Outlook, building on a Low Oil Price Scenario published in 2015, and complementing the agency's Sustainable Development Scenario.
The growing consensus within the industry on the need to tackle climate change that has emerged since the
Paris Agreement was signed in 2015 —the US presidency apart —means they are likely to be taken more seriously. The quickening pace at which countries are increasing their renewables sectors and electric vehicle usage targets attests to a heightened sense of urgency.
Under the Low Oil Price Case, the IEA outlines a plausible scenario, where a doubling of estimated US tight oil resources to more than 200bn barrels increases supply, while advances in digital applications keep it relatively cheap to drill. At the same time, tougher national and international support leads to an increase in the global electric vehicle fleet, to around 900m cars by 2040.
This, the IEA estimates, would produce the sort of conditions likely to keep oil prices in the $50-70 a barrel range up to 2040
—assuming the main producing regions can keep pumping at that price level. Under the New Policies Scenario, which incorporates existing and already pledged measures to tackle climate change, the agency predicts a $111/b oil price by 2040. Price pessimism
All the agency's forecasts for long-term oil prices are lower than those it made last year. It attributes this readjustment to increased estimates of US tight oil reserves, lower projected costs for oil developments, and shorter project development times that enable production to track demand more rapidly.
As coal's star wanes, natural gas' role as the fuel of choice in the power and heating market is set to rise. Its role will be underpinned by the flexibility brought by the rapid development of the liquefied natural gas market. Under the New Policies Scenario, global gas demand is seen rising to 5.3 trillion cubic metres in 2040 from 3.54 trillion cm in 2015.
The IEA notes that gas supply is set to become more diverse, increasing prospects for energy security, with the number of liquefaction sites estimated to double by 2040, as the US, Australia, Russia, Qatar, Mozambique and Canada bring more facilities online. It observes that the wider choice of gas imports helps compensate for any lack of flexibility in fuel switching that will occur as coal plants are retired. The report estimates that by 2040, it would take around 10 days for major importing regions to raise their import levels by 10%. That's a week less than it might take today in Europe, Japan and Korea.
comments powered by Disqus.