Investors waiting for crude oil prices to bounce back into triple digit territory could be waiting for 20 years or more in part because of the boom in U.S. tight oil supplies, the Organization of Petroleum Exporting Countries (OPEC) said Wednesday in its annual report. By 2040, natural gas also is seen as the No. 1 global fuel.
Worldwide energy consumption through 2040 is set to grow at one-third the pace it was on from 1970 to 2013, according to the World Oil Outlook (WOO) for 2015. Falling demand -- and rising output outside of the oil cartel -- is the major reason markets won't return to their pre-2014 halcyon days.
U.S. unconventional production has fallen by about 500,000 b/d this year from 2014 levels, but the decline "is seen as temporary," WOO researchers said.
"An assumed gradual price recovery in the coming years will also lead to higher production," they said of U.S. output. Domestic shale and Canadian oilsands output should increase by about 1.7 million b/d through 2020, while production in Russia, Europe, Mexico and other regions outside of the 13-member cartel declines. OPEC expects its share of the oil market will rise to 37% in 2040 from 33% in 2014.
Brent prices in real 2014 dollars are forecast to hit $70/bbl by 2020 and reach $95 by 2040 -- a 9% decline from WOO's 2014 forecast. Global oil demand growth in 2020 is expected to be about half 2015 levels. By 2020, oil demand is seen declining in developed nations by 200,000 b/d, while global demand overall should increase by 7% o 97.3 million b/d.
The rise and fall of the crude oil markets this year is expected to reduce global capital expenditures by 20%, according to the Saudi Arabia-led cartel. The price crash has prompted producers to cut an estimated $200 billion this year on new projects, particularly deepwater and oilsands development. The annual publication highlights possible future challenges and opportunities that lie ahead for the oil industry using the expertise of the OPEC Secretariat, input from member countries and the group's Economic Commission Board.
Oil demand in 2016 is expected to be about 30.9 million, but demand in 2020 should fall to an average 30.7 million b/d. Member countries together now produce about 1 million b/d more than the 2020 forecast.
"The past year has been a test for all producers and investors, who have had to face up to the realities of a shifting global oil industry," OPEC Secretary-General Abdullah al-Badri said. "It begs the questions: what lessons can the industry take away from the past 12 months or so, and how might these recent events alter the outlook for the oil market in the years and decades ahead?"
Global economic developments remain central to the overall outlook.
"The past year has offered up both optimistic and pessimistic indicators in some regions and some countries," al-Badri said. "But globally we see a higher economic growth rate in 2016, compared to 2015."
Economic growth in 2015 is estimated to be 3.2%, rising to 3.5% in 2016 and hitting 3.8% in 2018. Over the long-term forecast period between 2014 and 2040, the average global economic growth rate is 3.5%.
"On the demand side, this year's WOO sees oil demand rise to 97.4 million b/d by 2020, compared to 96.9 million b/d in last year's outlook, an increase of 500,000 b/d," he said. However, the impact of the recent oil price decline on demand "is most visible in the short-term. It then drops away over the medium-term."
Crude oil demand by 2040 is forecast to be close to 110 million b/d, around 1 million b/d less than OPEC predicted in the 2014 report. Energy efficiency improvements, environmental policies, as well as slightly lower long-term economic growth estimates are expected to lead to the decline in demand.
Fossil fuels are seen dominating the energy mix with a 78% share of global demand in 2040. But there are changes happening already through alternative fuel growth.
"In the next 20 years, oil will remain the fuel with the largest share of global energy use," al-Badri said. "However, its relative weight will decline in the next decades. By the 2030s, oil is expected to drop below 28%. A similar trend is expected for coal.
"By 2040, natural gas is expected to have the largest share, making up close to 28% of global energy demand with both oil and coal having lower shares by then," the researchers said. "However, combined, oil and gas are expected to supply around 53% of the global energy mix by 2040, similar to current levels."
OPEC's expectation that gas would become the No. 1 global fuel mirrors forecasts by other energy economists.
The International Energy Agency expects gas to become the dominant fuel by the 2030s (see Shale Daily, Nov. 10). In BP plc's annual Energy Outlook 2035 issued in February, U.S. gas is forecast to replace domestic oil as the leading fuel in energy consumption around 2028 (see Shale Daily, Feb. 18). In its annual energy outlook issued in December 2014, ExxonMobil Corp. said North American gas production is projected to increase by about 75% from 2010 to 2040 to about 140 Bcf/d (see Shale Daily, Dec. 10, 2014).
Between 2013 and 2040, nuclear energy demand should increase at 2.2% a year on average, making up 5.9% of the world's total energy consumption by 2040. The share of hydro and biomass, though growing, is to remain relatively stable, with hydro at around 2.5% and biomass within a narrow range of 9.5-9.8%.
Other renewables, mainly wind and solar, are expected to grow at the fastest rates, multiplying their contribution to total primary energy supply by more than seven times, but with an overall share of the market at about 4% in 2040.