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Ten Opec forecasts

09 November 2011

Read the ten major forecasts from Opec's latest World Oil Outlook, ranging from the challenges and prospects for oil developers to the intense competition they will face over the next 25 years.

Opec's in a brave new world and it knows it. Political and environmental pressures, shifting markets and new energy sources and supplies have made it a dangerous new world for the oil bloc that produces a third of the world's oil supplies, and sits on more than half of the proven reserves.

But the cartel is determined to maintain its ground and even improve it share of the global oil market.

"There will be no shortage of oil for the foreseeable future," says Abdalla Salem El-Badri Secretary General, in the latest Opec World Oil Outlook, almost in defiance to the naysayers who have long heralded the demise of hydrocarbons and the waning influence of its oil members.

In its long-term forecast, Opec expects fossil fuels to continue to play a significant role in the energy mix. While biomass, hydro, wind and solar are the flavour of the month, over the next 25 years, fossil fuels (oil, gas and coal) will make up 82% of the global commercial energy supply.

But despite the apparent healthy prospects for the oil sector, Opec remains worried. New technologies, new sources of supply and new environmental regulations means that even if Opec builds capacity over the long-term it does not necessarily mean that consumers will want those barrels of oil.

"Confidence is key," warns Badri in the report. "It is important to invest in a timely manner to meet future demand. It would be a damaging waste of resources to invest in capacity that is not needed."

Just as countries like the U.S. are looking for energy security, Opec producers are demanding supply security from its key consumers.

Here are the key challenges, issues and prospects facing Opec till 2035:

1 OIL NO LONGER TOP ENERGY SOURCE BY 2035



Oil will lose its position as the number one energy source over times. From 34.5% of the global energy mix in 2010, oil will make up 28.4% of total supply by 2035, losing ground to coal, which will emerge as the leading energy.

Gas use will rise at faster rates than both coal or oil, in percentage terms and volumes, with its overall share rising from 23% to 25%. Other renewables, biomass and hydro will make up 11.5% of the energy mix by 2035.

2 ...BUT THERE IS STILL DEMAND
Oil may lose its top spot, but oil demand will rise by 23 million barrels per day by 2035. Overall, crude demand will hit 110 million barrels per day by that year. Not surprisingly, emerging economies will consumer 56% of the demand by 2035, and demand from OECD nations will actually decline.

3. THANK GOD FOR PLANES, TRAINS AND AUTOMOBILES
Transportation in non-OECD countries is central to future global oil demand growth, accounting for close to 90% of the increase over the period to 2035. Developing countries are also expected to see some rise in oil use in other sectors, particularly in industry and the household/commercial/agriculture sector.

While new technologies and government policies will mean more fuel-efficient cars, the sheer volume of new transportation coming into the market will mean brisk business for Opec oil.

For example, in 2008 there were nearly 848 million cars in the world. By 2035 that number will rise to 1.6 billion cars - with an 8% rise per year in two of the most populous regions in the world: South Asia and China.

No wonder oil demand in transportation will rise by 4.2% in developing countries till 2020 and from then on by 1.4% per year till 2035.

Meanwhile, demand for oil in aviation will rise by 1.9% per year from 2008 to 2035, according to Opec estimates.

4. FALLING DEMAND ELSEWHERE
Oil demand in electricity generation will fall 0.4% each year till 2035. In residential and agricultural areas, oil demand will rise from a meagre 0.7% over the next 25 years.

5. EXPECT OPEC AND NON-OPEC TO KEEP PUMPING OUT OIL
Peak oil, what peak oil? Non-Opec supplies from places like Canada and Brazil will ensure that 8 million barrels of oil per day enter the market by 2035. However, Opec will be pumping out an additional 10 million barrels per day to produce nearly 40 million barrels per day by 2035- or 35% of global supply, exactly one per cent higher than its share today.

6. PRICES WILL BE IN THE SWEETSPOT
Opec assumes oil prices will remain in the range of $85-95/b during this decade, and rise over the long-term to reach $133/b by 2035.

7. INVESTING IN TIMES OF UNCERTAINITY
While triple digit oil prices will keep oil producers engaged, Opec needs to invest $480 billion by 2025 to meet its upstream requirements, it could well be that new technologies and regulations means demand for Opec oil could fall by 10 million barrels by that year. That means Opec may end up investing $290 billion.

"This demonstrates the genuine concerns over security of demand. These estimates do not include investments required in the mid- and downstream industries of OPEC Member Countries," the report notes.

Overall, oil developers will be investing $3-trillion (in 2010 dollars) for additional capacity.

"Most of this investment will be made in non-OPEC countries: on an annualized basis, over the medium-term non-OPEC will need to invest an average of $77 billion p.a., rising to well over $90 billion p.a. in the longer term.

OPEC, on the other hand, would be expected to invest an average of $30-billion annually over the medium-term, rising towards $40 billion p.a. in the long-term.

OPEC members are expected to invest $300-billion in 132 energy projects over the next five years, according to Opec data.

8. IT REALLY IS ALL ABOUT CHINA (AND ASIA)
Forget OECD countries, China will accounts for 27% of global GDP, nearly double the size of Western Europe. The share of developing countries in the world's economic activity is set to rise from 40% in 2010 to 57% by 2035, with Asian developing countries alone accounting for 43% of global GDP.

9. EATING THEIR OWN FOOD
However, rising populations and economic prosperity would mean Opec countries will consume a lot more of their own oil over the next 25 years. From 8.1 million barrels per day in 2010, Opec oil demand will rise to 12.5 million barrels per day by 2035.

10. SHALE GAS AND OIL SANDS THREAT
The development of Canadian oil sands means that the United States will not be a major importer of Opec oil over the long term. The development of shale gas in the United States and Canada - which could rival Saudi Arabian oil reserves if fully developed - also means that North America would stop its addiction to Mideast oil over the long term.

© alifarabia.com 2011