Opec sees global oil demand plateauing by the mid-2030s, but crude will remain the biggest component of the international energy mix until 2045, as the world's population increases and the global economy more than doubles in size to $270 trillion.
Global oil demand is forecast to rise by 17.6 million bpd in two-and-a-half decades, growing to 108.2 million bpd in 2045 from 90.6 million bpd in 2020, Opec said in its World Oil Outlook 2021 report on Tuesday.
“Projections highlight the front-loaded pattern for future demand growth,” it said.
Annual oil demand growth will average 2.6 million bpd during the first five years of Opec’s forecast period, which will slow during the second five-year period to 0.6 million bpd, and further decelerate to 0.3 million bpd during 2030–2035 period.
“After that, projections indicate a plateauing of oil demand at the global level,” the Vienna-based organisation said.
Oil demand is set to grow in countries outside the Organisation for Economic Co-operation and Development. An expanding middle class and stronger economic growth potential will drive oil demand in non-OECD countries by 25.5 million bpd to reach 74.1 million bpd in 2045.
In OECD countries, demand is estimated to peak at about 46.6 million bpd before it starts a longer-term decline towards 34 million bpd level by 2045.
In the medium term, Opec sees demand for crude jumping to 104.4 million bpd by 2026, increasing an estimated 13.8 million bpd. However, almost 80 per cent of this demand will materialise in the 2021-2023 period, as the world recovers from the Covid-19 pandemic.
Oil demand is bouncing back as the global economy continues to recover from the pandemic-driven slowdown that disrupted world trade last year and severely affected the aviation and tourism sectors. The world economy, which tipped into a deep recession in 2020, is expected to expand 6 per cent this year, according to the International Monetary Fund.
Despite the spread of the more virulent Delta strain of the coronavirus, the oil producers' group said it expects demand for 2022 to exceed pre-pandemic levels, reaching 100.8 million bpd. Demand growth in 2021 remained unchanged at 6 million bpd, with global consumption hitting 96.7 million bpd, Opec said in September.
“Energy and oil demand have picked up significantly in 2021 after the massive drop in 2020 and continued expansion is forecast for the longer term,” said Mohammad Barkindo, Opec’s secretary general.
“While this year has not been without its challenges, we have not revisited the rollercoaster ride of 2020.”
Oil prices, which slumped last year amid declining demand, have also rebounded to hover around $75 per barrel range and topped $80 per barrel level on Tuesday as supply tightened and demand rose.
The Opec+ group of producers, led by Saudi Arabia and Russia, is bringing 2 million bpd back to the markets by the end of this year. It is set to decide whether to bring an additional 400,000 bpd of supply in October.
However, producers are struggling to meet production targets, said Naeem Aslam, chief market analyst at AvaTrade.
“Poor maintenance during coronavirus lockdowns and hindrances in the Gulf of Mexico are major drivers of the growing demand-supply gap,” he said. “On the other hand, as economies recover from the coronavirus pandemic, demand for oil continues to rise."
Vitol Group, the world’s biggest independent oil trader, expects global crude demand to climb by an extra half a million bpd in the winter as a gas-led energy crunch drives a rush for other fuels, chief executive Russell Hardy said.
Nations across the world are opening up economies amid mass vaccination drives and easing Covid-related travel restrictions. That has boosted the global aviation and transportation sector, which Opec said will drive long-term growth in oil demand.
“The transportation sector is forecast to be the major contributor to future incremental demand, adding 13 million bpd between 2020 and 2045. More than 90 per cent of this increase is projected to come from the road transportation and aviation sectors, each contributing around 6 million bpd,” Opec said.
However, the producer's group expects long-term demand growth to be limited due to the "growing penetration of electric vehicles”. The total number of vehicles is estimated to reach 2.6 billion by 2045 around the world, increasing by around 1.1 billion from the 2020 level. EVs are set to approach 500 million, or about 20 per cent of the global fleet, according to the report.
Opec expects the global economy to more than double in 2045 from around $125tn level in 2020, with China and India – two of the world’s biggest energy consumers – to account for 37 per cent of global GDP. At 34 per cent, the OECD bloc is set to account for slightly less.
The producers' group also expects oil to dominate the global energy mix until 2045, as energy demand is set to increase to 352 million barrels of oil equivalent per day by 2045 from 275.4 million boepd in 2020.
Primary oil demand is estimated to rise to 99 million boepd in 2045 from 82.5 boepd in 2020. Despite strong growth in other energy sources, such as renewables, gas and nuclear power, oil is expected to remain the biggest component, the group said.
In 2020, oil accounted for 30 per cent of global energy requirements. Amid post-pandemic oil demand recovery, the share of oil is anticipated to increase to 31 per cent by 2025, before it gradually declines to 28 per cent by 2045, according to the report.
“Global primary energy demand is expected to increase by 28 per cent in the period between 2020 and 2045, with all energies required, driven by an expected doubling in size of the global economy and the addition of around 1.7 billion people worldwide,” Mr Barkindo said.
All energy sources will grow, “with the exception of coal”, he said, adding that renewables will experience the sharpest growth in share, followed by gas.
Opec estimates the global oil sector requires a total of $11.8tn in investments until 2045, 80 per cent of which are needed in the upstream sector of the Industry. Downstream and midstream investment – needed to expand and maintain the associated refinery, storage and pipeline systems required to bring oil to market – require another $1.5tn and $1.1tn, respectively, according to the report.
“It is clear that underinvestment remains one of the great challenges for the oil industry and this was exacerbated by the Covid-19 pandemic. Over the course of 2020, investments declined by around 30 per cent,” Mr Barkindo said. “Without the necessary investments, there is the potential for further volatility and a future energy shortfall, which is not in the interests of either producers or consumers."