A growing demand for liquid fuels in emerging economies is being met by increased supply from the US and OPEC
The market for global liquids expands over much of the Outlook, with growing demand from developing economies met by increased supply from low-cost producers.
In the evolving transition (ET) scenario, global demand for liquid fuels (oil, biofuels, and other liquid fuels) increases by around 13 Mb/d, reaching 109 Mb/d by 2040. Growth in liquids demand gradually wanes and plateaus towards the end of the Outlook.
All of the demand growth comes from emerging economies, driven by rising prosperity, with India replacing China as the primary source of growth. OECD demand resumes its trend decline.
Global liquids supply increases by a little less (11 Mb/d), reflecting the excess supply of liquids in 2016. Supply increases are driven initially by US tight oil, with OPEC taking over from late 2020s, as Middle-East producers adopt a strategy of growing market share. OPEC output increases by around 6 Mb/d by 2040.
Non-OPEC supply grows by 5 Mb/d, with the US accounting for more than all of the net growth, and higher output in Brazil and Russia partially offsetting declines in higher cost, mature regions.
Demand for liquid fuels grows over the Outlook but plateaus by 2040
Liquids demand (Mb/d)
Cars include 2- and 3- wheelers. Trucks include most SUVs in North America. Non-road includes aviation, marine and rail
The transport sector continued to dominate global oil demand, though non-combusted use of oil becomes the main source of growth after 2030
Demand for liquid fuels grows over much of the Outlook, although in the ET scenario, the rate of growth gradually slows and plateaus in the later years.
The transport sector continues to dominate global oil demand, accounting for more than half (8 Mb/d) of the overall growth in demand, with its share in total oil demand remaining relatively stable at a little over 55%.
Within transport, non-road (4 Mb/d) and trucks (3 Mb/d) account for the majority of growth, with a smaller increase in cars and motorbikes (1 Mb/d).
But the stimulus from transport demand gradually fades as the pace of vehicle efficiency improvements quickens and alternative fuels penetrate the transport system. Liquid fuels used by the transport system stop growing towards the end of the Outlook.
The non-combusted use of oil, particularly as a feedstock within petrochemicals, takes over as the main source of growth for liquids demand after 2030, reflecting the more limited scope for efficiency gains relative to transport. Over the Outlook as a whole, non-combusted uses of liquid fuels increase by 7 Mb/d.
Low-cost producers lead growth in supply – and US becomes the largest producer
Growth in global oil production is driven by low-cost producers, especially US tight oil and Middle-East OPEC.
Increases in oil production during the first part of the Outlook are dominated by US tight oil. In the ET scenario, total US liquids production, including natural gas liquids (NGLs), account for two-thirds of the increase in global supply during the first 15 years of the Outlook, plateauing at around 23 Mb/d in the early 2030s. The US is by far the largest producer of liquid fuels over the Outlook (some alternative scenarios for the speed and extent of growth in US tight oil are described below).
In the final 10 years of the Outlook, production growth is increasingly driven by OPEC. The abundance of global oil resources is assumed to prompt OPEC members to reform their economies, reducing their dependency on oil and allowing them gradually to adopt a more competitive strategy of increasing their market share.
For there to be sufficient oil supplies to be able to meet demand in any of the scenarios considered requires significant levels of new investment in oil production. If there were no new investment in oil production from today, and existing production declined at 3% p.a., global oil supplies would be around 45 Mb/d in 2040.
Share of world liquids supply
The US accounts for more than all of the net growth in liquids supply, with higher output in Brazil and Russia partially offsetting declines in higher-cost, mature regions
US tight oil could grow more rapidly and peak earlier or grow by more
There is significant uncertainty about the pace and duration of US tight oil growth, depending on the availability of finance and other inputs required to support rapid expansion, and on the total volume of resources that can be economically extracted.
In the ET scenario, US tight oil grows by around 5 Mb/d, peaking at close to 10 Mb/d in early 2030s. This is consistent with the number of rigs remaining around current levels, productivity levels improving by around 40% over the next 10 years, and cumulative production between now and 2040 of around 70 billion barrels. But US tight oil could grow more rapidly or for longer than projected in the ET scenario.
One possibility (‘early peak’ scenario) is that the availability of finance and resources allows a more rapid expansion. If the rig count doubled by 2025, for the same productivity profile, US tight oil would peak earlier at around 12 Mb/d, but would then decline more rapidly if the same total resource is extracted over the Outlook.
Another possibility (‘greater resource’ scenario) is that recoverable resources are greater, perhaps enabled by stronger productivity gains. If cumulative production was 50% higher than in the ET scenario, US tight oil could potentially grow to around 15 Mb/d by 2030 and remain around that level for the rest of the Outlook.
Global refining under increasing pressure from weak demand growth
Slower growth in liquids demand combined with continued growth of NGLs and biofuels puts pressure on global refining.
In the ET scenario, liquid supplies grow by around 11 Mb/d, of which only 3 Mb/d is accounted for by crude and condensates which need to be refined, with the rest met by NGLs (6 Mb/d) and biofuels and other liquids (3 Mb/d).
The gradual plateauing in product demand combined with continuing steady growth in non-refined liquid supplies, causes refinery runs to peak in the mid-2030s.
New refinery projects which are already planned or under construction for the next five years or so are sufficient to meet all of this additional throughput, implying no net new refining capacity is needed beyond that.
However, in the past, many emerging economies, including China and India, have typically built refining capacity to meet (or exceed) their own demand growth. If just China and India were to continue that practice, this would imply that throughput in the rest of the world would need to fall by 5 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.