Jun. 25 – The International Energy Agency more than doubled its forecast for global oil demand over the next five years on Wednesday, citing stronger than expected growth in emerging economies like China and India.
The IEA expects oil demand to grow 1.4 percent annually through 2015, up from the 0.6 percent annual growth forecast set last year. The agency also projects oil consumption to reach 94 million barrels a day, contingent on the global economy maintaining a steady 4.5 percent growth rate.
The oil markets in China, India, and the Middle East are likely to see the largest jump in demand as they lead the world out of the recession with strong economic performances. Meanwhile, some European nations are likely to see their oil demand slow significantly in the next few years as they deal with sovereign debt issues.
“Oil and gas markets are starting to show signs of recovery, but the impact of the recession differs across regions, and the outlook remains very uncertain,” said IEA Executive Director Nobuo Tanaka in a statement.
The IEA also stated that global oil demand should return to pre-crisis levels by the end of the year.
Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year in next 30 years
- No peak in global production
In next 10 years we must find 44 million BOPD:
- 26 million BOPD to maintain supply – 30% of current production, almost 3 times Saudi Arabia’s output
- 18 million BOPD to keep up with demand – 22% of current production, almost 2 times Saudi Arabia’s output
If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%
If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86