The Organization of Petroleum Exporting Countries has released its oil outlook to 2030, citing various challenges to the oil market, including uncertainty of demand, rising costs, and environmental regulations.
The results point to growing energy interdependence, requiring a pragmatic dialogue among all parties, cognizant of the needs and responsibilities of oil producers and consumers, exporters and importers, and developed and developing countries.
OPEC’s World Oil Outlook (WOO) says that the low oil prices of the 1980s and 1990s have had a dramatic impact on the oil industry because such low prices discouraged investment. As a result, at the beginning of this century, the world was caught unprepared for the surge in demand when faced with above-trend global economic growth.
OPEC assumes annual growth over the forecast period of 1.7% in its reference case, amounting to a 50% rise in worldwide energy demand during 2006-30. This is based on world economic growth averaging 3.5%/yr and assuming no significant changes in policies and technologies.
Supply, demand
With oil in the lead, fossil fuels will continue to provide more than 85% of the world’s energy needs, OPEC says, adding that the total contribution of nonfossil fuels to the mix will grow from a low initial base.
Demand for transportation fuels will propel oil demand to 113 million b/d in 2030, up 29 million b/d during the reference period, and developing countries will account for most of the increase. This projection is down 4 million b/d from OPEC’s previous long-term forecast, reflecting greater efficiency improvements because of a higher oil price assumption.
By 2030, total non-OPEC oil supply will reach 60 million b/d, with 11 million b/d being unconventional oil. This suggests that an additional 12-13 million b/d of OPEC crude will be required at that time vs. today’s output, according to the WOO, but total demand for conventional crude will not exceed 82 million b/d by 2030.
The level of ultimately recoverable reserves is clearly more than sufficient to supply the amount of crude oil and natural gas liquids that will be needed, OPEC says.
“With a large and increasing resource base, together with the vast amounts of nonconventional oil, availability is not an issue,” the report states. “To put it simply: there is enough oil to meet the world’s needs for the foreseeable future. What is an issue, however, is the deliverability of the required oil. It is here that the industry faces several key challenges, as well as associated opportunities.”
Challenges
Exploration, development, and production cost increases have been a drag on the economics of upstream projects, including the cost of engineering, procurement, and construction services, as have been the costs and availability of skilled labor.
OPEC says that while some of the upward movement in these costs is cyclical, structural changes, such as the continued move toward deeper water and frontier regions, suggest that an element of higher costs is here to stay.
Despite increasing costs, industry players are increasing investments. OPEC forecasts that during 2007-30, in 2007 dollars total upstream investments will be $2.8 trillion.
Another challenge the WOO points out is that the industry faces uncertainties over how much to invest, citing the US Energy Security and Independence Act of 2007 and proposed European Union climate change and renewable energy targets.
These policies could have substantial impacts on the amount of oil needed from OPEC. Scenarios show that they could reduce the call on OPEC oil by close to 4 million b/d by 2020, according to the report.
Additional policy measures would further increase the uncertainty over the amount of OPEC oil the market will require by 2020. With a 9 million b/d spread, OPEC places its then-call for oil at 29-38 million b/d. This translates into what the report calls an uncertainty gap of upstream investment needs in OPEC-member countries of over $300 billion.
Downstream demands
OPEC’s reference case estimates that by 2015, global refining crude distillation capacity will grow 7.6 million b/d. Adding in the effect of capacity creep, crude distillation capacity could increase 8.8 million b/d from 2007 capacity.
While crude distillation unit additions by 2015 look sufficient in the reference case, those for secondary processing units are not, OPEC warns, saying further additions are needed, especially for hydrocracking and desulfurization.
In particular, the gap between supply and demand for middle distillates will grow, unless more diesel-oriented projects are implemented. This evolving gap likely will drive price differentials towards a premium for diesel and could also have an impact on the absolute level of product and crude prices, according to the WOO.
Another major driver of refining requirements and economics is the level and quality of product demand, OPEC says, particularly the move toward distillates. Especially notable are diesel and low and ultralow-sulfur fuels as OECD regions complete their conversions to these fuels and non-OECD countries increasingly adopt these standards.
To meet product demand in 2030, OPEC says a total of almost 20 million b/d of additional distillation capacity will be required, compared with current capacity, with substantial investments needed in all regions.
WOO estimates that the total investment in refinery processing to 2015 will be more than $320 billion in 2007 dollars in the reference case, while for the entire forecast period to 2030 the figure is close to $800 billion.
