It has become an oil industry maxim that the world needs to find the equivalent of three Saudi Arabias in a decade if it is to make up for declines at the world's biggest fields. But behind this statistic lies growing uncertainty among forecasters about the world's future needs, because of doubts over economic growth and intensifying efforts to conserve energy and switch to alternatives.
The International Energy Agency (IEA), the energy watchdog for 28 industrialised nations, said yesterday that estimates of the world's oil needs in five years varied by 2.6 million barrels per day (bpd). "Demand uncertainty now is perhaps as great as it has ever been," the IEA said in an annual forecast released yesterday. If the world economy recovers as expected, the world's thirst for oil will grow by a cumulative 6.5 per cent in five years. But if the recovery is more subdued, the increase in demand will be only 4.1 per cent, according to the agency's latest forecast.
The difference is worth tens of billions of dollars in investments in new drilling by OPEC members, Russia, Brazil and the other countries that are expected to meet the bulk of the world's future oil needs. The forecasts are further clouded by politics; the IEA's critics have long accused the agency of overestimating future consumption to encourage excess investment in oilfields as a means of suppressing prices.
What is clear is that even more of the oil will be going to emerging economies than previously expected, even as demand in industrialised countries steadily falls. The IEA's fresh forecast increased China's expected consumption in 2012 by 7.3 per cent, even as it cut North America's expected demand for that year by 1.2 per cent. Oil demand in industrialised countries has peaked, the IEA said, as cars become more efficient, population growth slows and more households shift from oil to natural gas for heating.
Consumers in emerging economies, however, are buying more cars, electronic goods and other conveniences. As the graph above shows, oil companies still provide the world's most important source of energy, but their product is facing new challenges and new competition from biofuels, natural gas and renewable energy in the battle for market share. A key question for oil companies is what effect new restrictions on offshore drilling will have on their ability to expand production, the IEA said.
"At present there is no certainty over specific regulatory and permitting changes that may be implemented in the aftermath of the Deepwater Horizon," the agency said, referring to the explosion at a BP well in the Gulf of Mexico in April and the consequent oil leak. Regulatory delays could potentially reduce expected 2015 output by up to 850,000 bpd, the IEA said, which is equal to almost 1 per cent of current daily world oil consumption.
A federal judge in New Orleans on Tuesday struck down a six-month moratorium the Obama administration had placed on new deepwater drilling projects. The administration immediately said it would appeal against the decision. The long-term challenge for oil, which is mostly used in the transport sector, will come in the potential for breakthroughs for biofuels and electric cars. Too many uncertainties about future costs prevent a forecast for the effects of costs on oil demand, the IEA said.
Global output of biofuels will increase more than 32 per cent to 2.4 million bpd, allowing the industry to displace up to 5.7 per cent of global petrol use. Further growth is highly dependent on oil prices and government incentives to develop new types of biofuels made from plant and wood waste. Natural gas, meanwhile, is likely to be the ascendant fuel in the next two decades. Natural gas cut into coal's share of the electricity market in the US last year, the IEA said, and was set for strong gains in China and India in the next five years.
Even as total oil consumption falls by 2 per cent in three years in industrialised countries, those countries' use of gas will remain stable, the IEA said. @Email:firstname.lastname@example.org