The global market for liquid fuels is set to continue to expand for a period, with growing demand from developing economies met by increased supplies mainly from the US and OPEC.
In the ET scenario, global demand for liquid fuels – crude and condensates, natural gas liquids (NGLs), and other liquids – increases by 10 Mb/d, plateauing around 108 Mb/d in the 2030s.
All of the demand growth comes from developing economies, driven by the burgeoning middle class in developing Asian economies. Consumption of liquid fuels within the OECD resumes its declining trend.
The growth in demand is initially met from non-OPEC producers, led by US tight oil. But as US tight oil production declines in the final decade of the Outlook, OPEC becomes the main source of incremental supply. OPEC output increases by 4 Mb/d over the Outlook, with all of this growth concentrated in the 2030s.
Non-OPEC supply grows by 6 Mb/d, led by the US (5 Mb/d), Brazil (2 Mb/d) and Russia (1 Mb/d) offset by declines in higher-cost, mature basins.
Demand for liquid fuels looks set to expand for a period before gradually plateauing as efficiency improvements in the transport sector accelerate.
In the ET scenario, consumption of liquid fuels increases by 10 Mb/d (from 98 Mb/d to 108 Mb/d), with the majority of that growth happening over the next 10 years or so.
The demand for liquid fuels continues to be dominated by the transport sector, with its share of liquids consumption remaining around 55%. Transport demand for liquid fuels increases from 56 Mb/d to 61 Mb/d by 2040, with this expansion split between road (2 Mb/d) (divided broadly equally between cars, trucks, and 2/3 wheelers) and aviation/marine (3 Mb/d).
But the impetus from transport demand fades over the Outlook as the pace of vehicle efficiency improvements quicken and alternative sources of energy penetrate the transport system.
In contrast, efficiency gains when using oil for non-combusted uses, especially as a feedstock in petrochemicals, are more limited. As a result, the non-combusted use of oil takes over as the largest source of demand growth over the Outlook, increasing by 7 Mb/d to 22 Mb/d by 2040.
Although the precise outlook is uncertain, the world looks set to consume significant amounts of oil (crude plus NGLs) for several decades, requiring substantial investment.
This year’s Energy Outlook considers a range of scenarios for oil demand, with the timing of the peak in demand varying from the next few years to beyond 2040. Despite these differences, the scenarios share two common features.
First, all the scenarios suggest that oil will continue to play a significant role in the global energy system in 2040, with the level of oil demand in 2040 ranging from around 80 Mb/d to 130 Mb/d.
Second, significant levels of investment are required for there to be sufficient supplies of oil to meet demand in 2040. If future investment was limited to developing existing fields and there was no investment in new production areas, global production would decline at an average rate of around 4.5% p.a. (based on IEA’s estimates), implying global oil supply would be only around 35 Mb/d in 2040.
Closing the gap between this supply profile and any of the demand scenarios in the Outlook would require many trillions of dollars of investment over the next 20 years.
In the ET scenario, total US liquids production accounts for the vast majority of the increase in global supplies out to 2030, driven by US tight oil and NGLs. US tight oil increases by almost 6 Mb/d in the next 10 years, peaking at close to 10.5 Mb/d in the late 2020s, before falling back to around 8.5 Mb/d by 2040. The strong growth in US tight oil reinforces the US’s position as the world’s largest producer of liquid fuels.
As US tight oil declines, this space is filled by OPEC production, which more than accounts for the increase in liquid supplies in the final decade of the Outlook.
The increase in OPEC production is aided by OPEC members responding to the increasing abundance of global oil resources by reforming their economies and reducing their dependency on oil, allowing them gradually to adopt a more competitive strategy of increasing their market share.
The speed and extent of this reform is a key uncertainty affecting the outlook for global oil markets (see pp 88-89).
The stalling in OPEC production during the first part of the Outlook causes OPEC’s share of global liquids production to fall to its lowest level since the late 1980s before recovering towards the end of the Outlook.
The abundance of oil resources, and risk that large quantities of recoverable oil will never be extracted, may prompt low-cost producers to use their comparative advantage to expand their market share in order to help ensure their resources are produced.
The extent to which low-cost producers can sustainably adopt such a ‘higher production, lower price’ strategy depends on their progress in reforming their economies, reducing their dependence on oil revenues.
In the ET scenario, low-cost producers are assumed to make some progress in the second half of the Outlook, but the structure of their economies still acts as a material constraint on their ability to exploit fully their low-cost barrels.
The alternative ‘Greater reform’ scenario assumes a faster pace of economic reform, allowing low-cost producers to increase their market share. The extent to which low-cost producers can increase their market share depends on: the time needed to increase production capacity; and on the ability of higher-cost producers to compete, by either reducing production costs or varying fiscal terms.
The lower price environment associated with this more competitive market structure boosts demand, with the consumption of oil growing throughout the Outlook.
The increase in liquid fuels supplies is set to be dominated by increases in NGLs and biofuels,
with only limited growth in crude.
In the ET scenario, global liquid fuel supplies increase by 10 Mb/d over the Outlook. Growth of crude and condensates account for less than 3 Mb/d of that increase. The majority of the growth stems from increased production of NGLs (5 Mb/d) and ‘other’ liquid fuels (3 Mb/d), particularly biofuels.
The increase in NGLs is driven mainly by the US (3 Mb/d) and the Middle East (2 Mb/d). NGLs supplies largely stem from gas production, except in the US where NGLs are also linked to tight oil production. The increase in NGLs over the Outlook is supported by the strong growth in the non-combusted use of liquid fuels.
‘Other’ liquid fuels are dominated by biofuels, which increase from 2 Mb/d to 4 Mb/d by 2040, with the majority of this production concentrated in the US and Brazil.
The growth in liquids demand is largely met by non-refined supply, dampening the increase in refinery runs.
In the ET scenario, the growth in liquids demand is dominated by LPG and naphtha – supported by growing use in petrochemicals – and to a lesser extent gasoline and jet fuel. The increase in LPG, naphtha and gasoline is met largely by NGLs and bioethanol; with only the growth in kerosene sourced mainly from refineries.
The strong growth in non-refined liquids weighs on refining throughput, which plateaus in the mid 2020s and is only 3 Mb/d higher by 2040. This compares with around 9 Mb/d of new refining capacity planned or under construction between 2017 and 2023.
In addition, many emerging economies in the past – including China, India and the Middle East – have typically built refining capacity to meet (or exceed) their own demand growth. If those regions were to continue that practice, this would imply that throughput outside of these countries would need to fall by around 10 Mb/d from today’s levels. This would likely result in substantial refinery closures in mature markets such as Europe, OECD Asia and parts of North America.