Demand is weaker, but it is getting better. There are challenges for both demand and supply sides for all oil-producing economies. The Organization of Petroleum Exporting Countries (OPEC) members must stick to compliance.
The focus of the peak oil debate must place a more serious emphasis on primary energy demand and supply from emerging oil and gas economies.
Oil will peak in the more developed and industrialised economies, but the demand (and supply) will continue to grow in developing countries and emerging economies. However, the primary concern for hydrocarbons development and production will be on the issues of making the growth process cleaner and more efficient in a world that is moving towards energy transition. Hence, decarbonisation will be a key area of regulations and policy guidance for new oil economies. The growing global energy demand mix will include fossil fuel.
The recently launched Energy Outlook 2020 by BP has emphasized that the global energy demand continues to grow, at least for a period, driven by increasing prosperity and living standards in the emerging world. Significant inequalities in energy consumption and access to energy persist. However, this level of energy imbalance will be corrected in developing countries and emerging markets.
The fundamentals are still very challenging for petroleum, but the world market is recalibrating its view of how much inventory it will need for the short, medium and long terms, giving the changing situation of the world economy, following the global pandemic. In particular, the outlook for natural gas is more resilient than for oil, underpinned by the role of natural gas in supporting fast-growing developing economies as they decarbonized and reduce their reliance on coal, and as a source of near-zero carbon energy when combined with carbon capture use and storage (CCUS). Thus, with a great potential for natural gas development in Guyana, this economy can become a world supplier of liquefied natural gas (LNG) to the global market, as it is currently doing with the Liza crude.
Whilst, renewable energy, led by wind and solar power, is the fastest-growing source of energy over the next 30 years, supported by a significant increase in the development of – and investment in – new wind and solar capacity, Guyana has the potential to add to its energy mix as well, with the development of hydroelectric projects. The energy outlook for Guyana as a supplier could be significant with the development of both hydrocarbons and renewable energy sources.
The strength and composition of energy growth over the next 30 years depends importantly on how that energy is used across the main sectors of the economy. The industrial sector (excluding the non-combusted use of fuels) consumed around 45% of global energy in 2018, with the non-combusted use of fuels accounting for an additional 5% or so. The remainder was used within residential and commercial buildings (29%) and transport (21%) (BP Energy Outlook 2020).
The outlook for primary energy also depends on the form in which that energy is used at the final point of consumption. In particular, although it is possible to decarbonize the production of electricity and hydrogen, they require considerable amounts of primary energy to produce. As such, increasing the use of these forms of energy carriers tends to boost primary energy. The contrasting energy trends in developed and emerging economies lead to a continuing shift in the centre of gravity of energy consumption, with the emerging world accounting for around 70% of energy demand by 2050.
Further, the OPEC has stated in it’s last World Oil Outlook (WOO) that total primary energy demand is expected to increase by 25% towards 2040 with renewables leading the way in terms of growth, but oil and gas are still forecast to meet more than 50% of the world’s energy needs by the end of the forecast period. These trends can also be viewed in similar forecasts from other reputable organizations with long-term energy outlooks. From the perspective of oil demand, given recent signs of stress in the global economy, and the outlook for global growth, at least in the short- and medium-term, the outlook for global oil demand has been lowered slightly to 110.6 mb/d by 2040, but demand expands in every five-year period to the end of the timeframe.
Non-OPEC supply prospects have been revised up sharply, as US tight oil, in particular, has again outperformed expectations. While there continues to be the talk of more financial prudence in the tight oil patch, prospects for growth remain given that efficiency and technology gains have further increased. The expectations of a return to growth in some key mature producers, such as Norway, major new field start-ups in Brazil, Guyana and elsewhere, mean that other sources of non-OPEC supply will also likely have a meaningful medium-term impact. In the long-term, however, it is OPEC that will be expected to meet the majority of oil demand requirements. Demand for OPEC liquids will rise to 44.4 mb/d by 2040.
Global energy demand is forecasted to increase from nearly 286 million barrels of oil equivalent a day (mboe/d) to more than 357 mboe/d in 2040, with an average growth of about 1% p.a. In this period, energy demand in non-OECD (Organisation for Economic Co-operation and Development) countries are expected to increase by almost 75 mboe/d, while demand in the OECD is estimated to drop by around 3 mboe/d. These regional demand growth differences relate to variances in demographics, efficiency levels, climate change policies and other factors that shape the energy mix in various countries and regions. Energy demand growth in India and China alone is expected to account for almost 50% of the energy demand growth in the non-OECD region.
Oil is forecasted to remain the largest contributor to the energy mix by 2040, accounting for more than 28%. By 2040, global gas demand is anticipated to rise from 65.5 mboe/d to just above 90 mboe/d. Consequently, natural gas is expected to become the second-largest energy source, reaching a share of 25% in the total primary energy mix in 2040. Demand increases for gas will come primarily from Asia, led by China and India, as well as OPEC Member Countries (WOO 2019). Global oil demand is expected to continue growing at relatively healthy rates in the medium-term reaching 104.8 million barrels a day (mb/d) by 2024.
Long-term global oil demand is expected to increase by about 12 mb/d, rising from 98.7 mb/d in 2018 to 110.6 mb/d in 2040. From a regional perspective, there is a contrast between declining OECD demand and expanding demand in the non-OECD. Driven by an expanding middle class, high population growth rates and stronger economic growth potential, non-OECD oil demand is expected to increase by 21.4 mb/d by 2040. India is projected to be the country with the fastest oil demand growth and the largest additional demand. OECD demand is expected to plateau at around 48 mb/d for the next few years, before declining to around 38 mb/d by 2040.
Therefore, the world will need a great deal of more energy in the decades to come. It is easy to appreciate why. Firstly, the global population is expected to increase by almost 1.6 billion from around 7.6 billion in 2018 to a level of 9.2 billion in 2040. Secondly, the global economy in 2040 is expected to be double its current size. The global Gross Domestic Product (GDP) growth will be mainly driven by developing countries and emerging economies, largely due to improving labour productivity. The GDP of developing countries and emerging economies are expected to grow by 4.5% per annum (p.a.) on average in the medium-term, while projected economic growth for the advanced economies averages 1.8% p.a. In the long-term, this becomes 4.2% and 1.7%, respectively. Global GDP to 2040 is expected to increase at a rate of 3.3% on average.
