Exploring Hydrocarbon Depletion
Page added on January 26, 2017
The world has access to more than twice as much oil as it will need between now and 2050, which will dampen the long-term outlook for prices, according to BP.
There was an “abundance of oil” globally and it was “increasingly likely” that some resources would be left in the ground, Spencer Dale, the oil major’s chief economist, said. This would prompt competition, keeping long-term prices below $US100 a barrel.
BP’s latest Energy Outlook report, published overnight, estimates that more than 2.5 trillion barrels of oil have been discovered worldwide and technically could be extracted.
Although the company sees continued growth in oil demand into the 2040s, the rate of demand is slowing because of fuel efficiencies and the drive for greener energy. That means there should still be “enough oil to meet the world’s entire demand of oil out to 2050 twice over”, Mr Dale said.
Faced with this long-term supply glut and the prospect of an eventual decline in demand, lower-cost producers including OPEC, Russia and America’s shale drillers, may change their strategy and pump more crude, he suggested.
To date “many low-cost producers have, in effect, rationed their supplies, with the view that if they don’t produce a barrel today they can produce a barrel of oil tomorrow”, Mr Dale said. In future, they may “use their competitive advantage to gradually increase their market share relative to the share of high-cost producers”.
The extent to which this would happen would depend on how high-cost producers responded and how quickly low-cost producers could, or were willing to, increase production.
While BP’s annual outlook report focuses on long-term trends, Bob Dudley, its chief executive, warned at its launch of continuing short-term volatility. “Last year was notable for its unpredictability and this year is promising more of the same,” he said.
“Oil prices have risen a little recently, following the production commitments from OPEC and others, but prices remain low compared with a few years ago. Oil inventories remain at high levels. And we are not yet seeing the full effects on supply of the cutbacks in investment in new energy projects made over the past two years.”
While much short-term attention has focused on competition between OPEC and America’s shale producers to ride out lower prices and benefit from their resurgence, Mr Dale pointed to changing dynamics in the longer term.
“Over a 20-year period, OPEC and US tight oil aren’t competing against each other,” he said. “It’s the higher-cost forms of supply [that] the low-cost producers — Middle East OPEC, Russia, US tight oil — are competing with.”
He said that present low prices did not appear to be sustainable, but he did not see a return to long-term prices above $US100 a barrel. “There [are] quite significant pressures which should dampen long-run prices,” he said. “Where in that big gap between current [prices] and $US100 we end up, I will let you speculate.”
He suggested that recent prices of about $US55 a barrel would not be “a settling point”, but equally it was unlikely that the long-term price would return consistently to very high levels.
Mr Dale said that BP did not specifically forecast when oil demand would peak. However, if the company’s forecasts for slowing demand growth were extrapolated beyond 2035, they would point to a high point in about the mid-2040s.
If global action to tackle climate change was tougher, oil demand would peak earlier, possibly within the next 20 years. On the other hand, if economic growth was stronger than expected, it was “quite conceivable” that oil demand would not peak until the second half of the century.
“The punchline from us is, we don’t know,” he said. “I would argue nobody knows.”