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IEA’s WEO Presents Three Futures of World Oil Demand

Consumption

You know the old adage, it takes two to tango. In the global oil market, this means the dance between supply and demand. As analysts and commentators analyzed the recent OPEC agreement to cut global production by 1.2 million barrels per day (Mbd), supply-side dynamics captured the limelight of intrigue.

But should supply always steal the show?

Over the past decade, global oil consumption has been the consistent through-line that drives the world’s thirst for new supply. This year, world oil demand is expected to average over 100 Mbd, a symbolic benchmark that is more than 13 Mbd higher than it was a decade earlier. The Asia Pacific region represents most of this consumption increase, accounting for more than seven out of every 10 new barrels of demand since 2008. This increase is not only enormous, on a per-barrel basis it is also the fastest rate of oil demand growth in history.

Against this backdrop, the International Energy Agency (IEA) last month released the World Energy Outlook (WEO). The WEO provides in-depth scenarios of future oil supply and demand, regional trends, and sector-specific growth. According to IEA, in two out of three scenarios, global oil demand does not peak before 2040. IEA’s New Policies Scenario (NPS), which incorporates “the likely effects of announced [government] policies” projects an 11.5 Mbd increase in global oil consumption to 106.3 Mbd in 2040. Through 2025, global oil demand will rise 1.0 Mbd and then slow to 0.25 Mbd thereafter because of China’s vehicle electrification policies and increased efficiencies in advanced economies’ vehicle gasoline demand. After 2025, IEA says, India and the Middle East take the mantle of global oil demand growth leaders.

The rise in global oil demand seen in IEA’s New Policies Scenario rest on several meaningful and interrelated dynamics. One is that oil demand in the aviation/shipping and petrochemical industries will rise faster than road transport through 2040. Since the availability of current substitutes and technologies are limited for aircraft and ships, and the plastics demand of developing economies is expected to grow markedly, IEA sees the aviation/shipping and petrochemical sectors as being more significant contributors to future oil demand growth than road transport. In OECD countries, IEA says higher rates of recycling will also displace new petrochemical demand.

Another dynamic is the world’s commitment to the 2015 Paris Climate Agreement. So far, the governments of many nations have indicated their sincere desire to achieve the agreement’s steep fuel demand reductions. As two leading contributors of future oil demand growth, China and India have each announced plans to transition their transportation fleets to electric vehicles by investing in infrastructure and supporting battery electric research and development. However, it is possible, and even likely, that the middle-road New Policies Scenario discussed above will be wrong. IEA does not, after all, issue forecasts per se, but scenarios based on current trends and policies. (If this sounds familiar it is because it is similar to the U.S. EIA’s approach with energy outlooks). If they are wrong, the consequences for global oil demand can be dramatic with either upside or downside risk.

On the one hand, IEA’s Sustainable Development Scenario (SDS) provides a glimpse of a world that fully commits to achieving international environmental, energy, and air quality goals. Rather than rising to 106 Mbd, oil demand peaks before 2030 due to the coordinated execution of fuel efficiency, renewable energy, and fuel-switching policies that promote road transportation alternatives like CNG/LNG trucks and electric vehicles. Demand only rises in sub-Saharan Africa through 2040, IEA writes. The result is world oil demand just under 70 Mbd in 2040. Including biofuels, which account for just under 10 percent of global liquids demand, the world consumes 77.2 Mbd in this scenario, equivalent to the global oil consumption of the early 2000s.

On the other hand, IEA’s Current Policies Scenario (CPS) envisions a world where the status quo does not change. Existing policies enshrined into law today are carried through into the future. This scenario yields an additional 14.2 Mbd of global oil demand growth to 120.5 Mbd in 2040. Europe continues to reduce demand through current policy that substitutes alternative fuels for gasoline and other motor fuels, while fuel demand in Africa, Asia, and the Middle East increases dramatically. Without policies that effectively curtail oil demand, consumption in these regions rise with the anticipated increases in gross domestic product and population, among other factors.

IEA’s scenarios reveal the long-term uncertainties brought about by future demand expectations. As one consequence of future demand expectations, oil prices vary across the three scenarios from the low-point SDS at $64 per barrel in 2040, mid-point NPS at $112 per barrel, and high-point CPS at $137 per barrel. Differences in demand also alter OPEC’s market share, which is lower in the SDS at 42.8 percent and higher in the CPS due to different assumptions about prices and demand for its crude.

The IEA does not weigh WEO’s scenarios according to likelihood; they are exactly as the IEA describes them—scenarios. In a volatile world, any unanticipated event could, and realistically will over the next two decades shift the demand trajectories to the upside or downside. Certainly, IEA has been wrong in the past and the agency will continue to be wrong in the future. A popular uprising in China or more stringent international climate agreement would move the needle toward or away from a world that has more or less demand for OPEC’s oil and pays higher or lower prices for crude. Over the long term, these changes will represent threats to U.S. economic and national security that are arguably as important as supply-side developments. The only real control the United States has is to pursue policies that achieve even greater reductions in oil demand.

energy fuse



20 Comments on "IEA’s WEO Presents Three Futures of World Oil Demand"

  1. JuanP on Thu, 20th Dec 2018 11:51 pm 

    I believe a civil war, revolution, and/or financial crash in the USA could move the needle, too.

  2. JuanP on Thu, 20th Dec 2018 11:54 pm 

    I hope Americans unite to improve the future of the USA, but divisions appear to be growing. This forum is evidence of that. I will persist on working peacefully for a better future for all, regardless.

  3. makati1 on Fri, 21st Dec 2018 1:05 am 

    JuanP, I admire your “stick-to-itiveness”. I don’t think even if ten million Americans woke up tomorrow and realized what is happening, that it would make a difference. Greed is too pervasive in America to be overcome in a few years. It would mean cleaning out Washington and that would start a civil war between the serfs and the army. It happened in the 30s and would have gotten worse if the Veterans had been armed.

    When the SHTF and it gets difficult to survive, the guns will come out and make the old wild west seem like a theme park ride. In a country where guns outnumber persons, it can only end that way. TPTB have been trying to take them away, but have had limited success. Civil war? A very good possibility in the next few years. That is my take on the situation currently.

  4. Cloggie on Fri, 21st Dec 2018 3:44 am 

    There are still people who worry about a world running out of fossil fuel soon…

    Haha…

    https://deepresource.wordpress.com/2018/12/18/north-sea-ucg/

    Ha.

    Worry about the atmosphere instead.

    For the rest… financial collapse, WW3 (South China Sea), CW2 in America, but also in France, run-away climate change, geopolitical reconfiguration…

    all possible, even likely.

  5. Davy on Fri, 21st Dec 2018 4:24 am 

    “but also in France”

    That is quite an admission. I realize for you it means a pathway to PBM along with the CW2 in the US. LOL.

  6. Davy on Fri, 21st Dec 2018 5:14 am 

    Yet again another analysis without an “economic” demand basis other than development and population will raise oil demand. Nothing on the global economy and its long term average rate of growth. These agencies seem to always use a continuous rate of growth of around 3% based on past experiences as if this will never end. I believe it will end and go into a decline in the near future. It will be this phase change that will be disruptive. How disruptive is an unknown but we must allow for the effects of economic abandonment, dysfunctional networks, and irrational policy to lower actual economic activity and efficiency. In the past decade we have seen an undulating plateau of growth, malinvested growth, and decline. The malinvested growth is huge and significant and it is the kind that will bite in the next few years throwing us into a paradigm shift of decline. Debt with the systematic effects of easing and rate repression are part of this. Decline is also occurring in the economic fabric with the gutting of the productive middle class in the wealth transfer to the wealthy elite. This wealth transfer is parasitic and destructive change not constructive growth based change. Africa, Asia, and the ME cannot keep growing as they are because food and water will not allow it. Affordable energy is another limiting factor for the developing world. It is already a factor for the developed world but it is coming to the rest of the world with diminishing returns to new economic activity.

    It is my opinion this deceleration and possible decline of growth will be the primary driver of demand growth and supply ahead. I have discussed demand but then there is investment in future supply that will bite. Supply will be a limiting factor to demand naturally but lower demand leads to lower supply in a kind of economic vortex of decline with demand lowering supply and supply lowering demand. Lower supply of high quality conventional oil is already biting and if the global economy decelerates less capital will go to new projects. This includes renewables and efficiency efforts which require major investments. Don’t bank on a renewable transition to save us. The numbers and physics do not add up. A transformation yes but a transition NO. Most current renewable investment are the sweet spots both with collection placement but also grid penetration in regards to intermittency. The hard part for renewables is the last 50%. One other unfortunate issue is a return to dirty fossil fuels once an economic decline is in full swing. The possibility of a return to coal growth as a cheap alternative in a declining global economy could be a side effect of decline. That’s right peak everything may actually increase emissions unfortunately.

    I see us closing in on a paradigm shift but these agencies chose not to deal with that possibility. One wonders if it is not their mandate. Are they even considering it behind closed doors? I am not sure but this is something I see across the board with governmental sanctioned reporting agencies. We all know politics and propaganda is part of this reporting. Full honesty is not allowed because the sheeples can’t handle the truth but one wonders if these agencies even understand the truth. Alternative sites touch on declining global growth but are considered “nutter” by the mainstream. Yet, even many alternative sites chose to accept an average global rate of growth as a given and focus on other issues of decline. I don’t because this is a finite planet and we are close to peak everything.

  7. Cloggie on Fri, 21st Dec 2018 6:38 am 

    Dug up some old Dutch and American documents from the eighties regarding underground coal gasification/horizontal drilling:

    https://deepresource.wordpress.com/2018/12/21/69131/

    It offers confirmation of what rockman always had said, namely that fracking (horizontal drilling) is NOT a new technology from ca. 2010, but decades older.

    The Dutch national energy institute ECN produced a study in 1984, predicting that UCG could become viable in NW-Europe by early 21st century.

    The study refers to US research from Morgantown, Virginia. UCG could become to Europe, what fracking already is in the US. The only difference is that in contrast to fracking in the US, with UCG the combustible material is NOT brought to the surface initially, but burned “in-situ”, adding limited amounts of water and air, and harvest CH4, CO and H2 afterwards.

    If you think about the recent Yellow Vests protests in France against too high a fuel tax, it could become inevitable, unfortunately, to prolong the fossil fuel age a little longer, in order to make the transition to 100% renewable energy more affordable, preventing that the transition becomes torpedoed by increasing political strength of the “populists”.

  8. Dredd on Fri, 21st Dec 2018 8:31 am 

    We need oil for “heat” (“Where da heat at?“)

    Patterns: Conservative Temperature & Potential Enthalpy – 2

  9. Sissyfuss on Fri, 21st Dec 2018 3:54 pm 

    Davy,do you think a steady state economy is doable? And especially if it has to replace the growth is necessary meme of capitalism? I can’t even garner a guess.

  10. I AM THE MOB on Fri, 21st Dec 2018 4:24 pm 

    No one cares what davy thinks. He is a angry loner, whose family has abandoned him.

  11. Davy on Fri, 21st Dec 2018 4:31 pm 

    Sis, let’s hope we can figure out how to manage a collapsing economy. Steady state is fantasy.

  12. Cloggie on Fri, 21st Dec 2018 5:11 pm 

    “No one cares what davy thinks. He is a angry loner, whose family has abandoned him.”

    What gave you the idea that anybody cares what you think? Or that a sociopath like you has any other role in life but to function as a punching ball?

  13. Davy on Fri, 21st Dec 2018 5:25 pm 

    MOB doesn’t appreciate the art of debate or the importance of a challenge from a worthy adversary. Neder, I may not like what you talk about but I respect your abilities. MOB, just wants to hear himself talk.

  14. makati1 on Fri, 21st Dec 2018 5:29 pm 

    More oily guessing games. Not worth my time.

  15. Spoonman on Fri, 21st Dec 2018 5:32 pm 

    Being a doomer these days is easy work with everything imploding around us . Kind of feel soory for trolls and cornies having a hard time to put a positive spin on things to keep the sheeple at bay just a bit longer

  16. I AM THE MOB on Fri, 21st Dec 2018 5:58 pm 

    Elon Musk is 0 for 7 on his biggest promises for 2018

    Elon Musk: SpaceX Plans to Fly Humans Around the Moon in 2018
    https://www.wired.com/2017/02/spacex-plans-launch-humans-around-moon-2018/

    He’s going to have a self-driving Tesla drive itself clear across the United States.
    http://www.theverge.com/2016/1/10/10746020/elon-musk-tesla-autonomous-driving-predictions-summon

    Elon Musk Says Tesla Cars Will Reach 620 Miles On A Single Charge “Within A Year Or Two,” Be Fully Autonomous In “Three Years”
    http://techcrunch.com/2015/09/29/elon-musk-says-tesla-cars-will-reach-620-miles-on-a-single-charge-within-a-year-or-two-have-fully-autonomous-cars-in-three-years/#.zgnb0e:vdpc

    He’s going to complete a ~15 mile tunnel from LAX to the intersection of I-405 and US-101.
    https://twitter.com/elonmusk/status/924389383792312320

    He’s going to pump out 500,000 Tesla’s
    https://www.reuters.com/article/us-tesla-results/tesla-puts-pedal-to-the-metal-500000-cars-planned-in-2018-idUSKCN0XV2JL

    He’s going to pump out 10GW of solar panels in Buffalo.
    https://electrek.co/2016/11/04/solarcity-solar-gigafactory-produce-10-gw-tesla-elon-musk/

    He’s going to send an unmanned rocket to Mars.
    http://www.cnbc.com/2016/06/02/musk-we-intend-to-launch-people-to-mars-in-2024.html

  17. I AM THE MOB on Fri, 21st Dec 2018 6:09 pm 

    A man has climbed the National Christmas Tree in Washington, D.C.and is refusing to get down

    https://www.nydailynews.com/news/national/ny-news-christmas-tree-climber-20181221-story.html

  18. makati1 on Fri, 21st Dec 2018 6:17 pm 

    Spoonman, yes, the lies get more and more blatant, don’t they? About like trying to justify Santa. lol

  19. Spoonman on Fri, 21st Dec 2018 8:03 pm 

    🙂

  20. Chrome Mags on Sat, 22nd Dec 2018 12:18 am 

    Let’s see, we can’t figure out where future oil demand is going, so let’s have one go way up, another go up some and another go way down. Sure, that outa cover it. Next?!

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