Monday, May 16, 2011

2030 Energy Outlook Volume2

China is the largest source of oil consumption growth in our outlook, with consumption forecast to grow by 8 Mb/d to reach 17.5 Mb/d by 2030, overtaking the US to become the world’s largest oil consumer.

Growth is expected to remain concentrated in the industrial and transport sectors through 2020. Industrial growth slows post-2020 as industrial expansion becomes less energy-intensive and population growth slows; transport will then be the dominant growth driver.

Despite contributing almost half of net global oil consumption growth to 2030, our outlook projects a slower increase in per capita consumption than seen historically in other Asian economies. China is much less dependent on oil in its overall fuel mix (c. 20%) than many other emerging economies at similar points in their development.

In addition, China is likely to implement policies to slow oil consumption growth - such as increasing taxes on transport fuels and maximising use of other fuels. Oil prices are higher than faced historically by other emerging economies; rising import dependence is a policy concern.

Globally, liquids production is expected to increase to meet the growth in consumption, though the sources of growth will change the global balance. Global liquids supply is set to rise by about 16.5 Mb/d by 2030.

OPEC accounts for over 75% of global supply growth, with OPEC NGLs expected to grow by more than 4 Mb/d - driven in part by rapid growth of natural gas production.

Iraqi crude output is projected to grow from about 2.5 Mb/d currently to more than 5.5 Mb/d; Saudi output is likely to expand by nearly 3 Mb/d.

Non-OPEC output will rise by nearly 4 Mb/d. Unconventional supply growth should more than offset declining conventional output, with biofuels adding nearly 5 Mb/d and oil sands rising by nearly 2 Mb/d.

Declining conventional crude supply in Europe, Asia Pacific and North America is partly offset by growth in deepwater Brazil and the FSU, resulting in a net decline of just over 3 Mb/d.

In this outlook, Russia and Saudi Arabia will each sustain their current market share of roughly 12% over the next 20 years.

The importance of OPEC is expected to grow. On our projections, OPEC’s share of global production would increase from 40% in 2010 to 46% in 2030 (a level not reached since 1977).

In the early years of the outlook, OPEC production growth can be met by utilizing current spare capacity. Over time, capacity must expand to meet expected demand growth. In addition to NGL growth, we project an increase in crude oil production capacity of nearly 5 Mb/d by 2030 – to nearly 40 Mb/d – largely in Iraq and Saudi Arabia.

These projections imply that Saudi production capacity, currently at 12.5 Mb/d, is likely to be sufficient to meet demand and maintain a reasonable buffer of spare capacity until around 2020; thereafter a modest expansion appears likely.

While we do not attempt to forecast long-term energy prices, the ability and willingness of OPEC members to expand capacity and production clearly is one of the main factors determining the path of the oil market.

The pace of Iraqi capacity expansion – and production growth – is a key source of uncertainty for this outlook. Iraq is expected to account for 20% of global supply growth from 2010 to 2030.

Service contracts awarded since mid-2009 have signaled the notional (contractual) possibility that Iraqi capacity could reach 12 Mb/d by 2020. However, limited project development capacity and infrastructure constraints may result in project delays and cost inflation.

Key challenges exist in developing export pipelines, terminals and water injection infrastructure. Security challenges, as well as political constraints, are also likely to weigh on capacity expansion plans.

A rapid increase in Iraqi output could have an impact on oil prices. OPEC is likely over time to seek to reintegrate Iraq into the quota system, which is an additional source of uncertainty.

While substantial capacity growth is likely, a number of factors should constrain the pace of expansion. Weighing these factors, we assume Iraqi production exceeds 4.5 Mb/d by 2020 and 5.5 Mb/d by 2030.

Iraq’s proven oil reserves of 112 billion barrels are the world’s second largest, behind Saudi Arabia.

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