Global oil demand is estimated to plateau around in the second half of the 2030s on increasing EV penetration in the passenger car segment

World Oil Outlook (WOO)

Global population is estimated to increase from 7.3 billion in 2015 to 9.2 billion in 2040, stated OPEC in World Oil Outlook (WOO). Organization of the Petroleum Exporting Countries (OPEC) further stated, the additional 1.8 billion people will mainly come from Developing countries. In the Organization for Economic Co-operation and Development (OECD) region, population is forecast to increase by 116 million people in the period to 2040 partly supported by immigration. The share of the global working age population (that is, individuals aged between 15 and 64 years) peaked in 2012, following a steady increase since 1970. Individuals aged 65 or more are anticipated to account for 14% of the world population in 2040, up from today's level of 8%. Children are estimated to represent 22% of the population by 2040, down from 26% today.

The size of the global economy in 2040 is estimated to be 226% that of 2016. Developing countries are estimated to account for three-quarters of the global GDP growth over the forecast period. Furthermore, one of every two additional $ (2011 purchasing power parity (PPP)) of GDP is expected to come from China and India.

 

In 2016, OECD America accounted for 20% of global GDP, OECD Europe and China were both at 18%, and India was at 7%. By 2040 the share of OECD America is anticipated to drop to 16% and that of OECD Europe to 12%. On the other hand, China's contribution to the global economy is forecast to increase to 23%. Even more remarkable is the case of India. Its weight in terms of global GDP is expected to increase to 16%.

The evolution of energy markets over time is significantly impacted by government policies, which are used as mechanisms to stimulate change beyond purely market-driven forces. The current trend is expected to lead toward a long-term global convergence that focuses on energy efficiency and the increased adoption of clean modes of energy, including renewables. Moreover, policies are also expected in terms of energy poverty eradication measures in developing countries.

Among the visible long-term global energy policy trends is the increasing penetration of electric vehicles (EVs), the tightening of fuel emissions standards, and the desulphurization in the road transportation, marine and aviation sectors.

It can be expected that technical advancements will continue to evolve and change the future energy panorama. For example, the current development of renewable energies and the of introduction of EVs as a replacement for ICE vehicles are strong signs of trends. Elsewhere, highly resistant fibres in conjunction with oil-based resins are already replacing traditional metal-based materials in the case of latest-generation airplanes, to highlight another stateof-the-art development. And in the field of oil discovery and exploration, technical development has always played a decisive role since early onshore drilling, through the large-scale development of offshore and, today, tight oil reserves.

Reflecting the underlying assumed developments of the key drivers, total primary energy demand is forecast to increase by 96 mboe/d between 2015 and 2040, rising from 276 mboe/d to 372 mboe/d. In relative terms, this represents a 35% increase compared to the base year of 2015, with an average annual growth rate of 1.2 % during the forecast period.

Within the grouping of Developing countries, India and China are the two nations with the largest additional energy demand over the forecast period, both in the range of 22-23 mboe/d. It should be noted, however, that for the first time recent projections see India as the single largest contributor to future energy demand, followed by China and other countries. However, this change in the leading position is primarily the result of the downward revisions made for China, compared to the Reference Case, rather than a more positive outlook for India.

There are two main reasons for this change. The first has to do with the modified prospects for economic activity in these countries, which have mainly resulted in downward revisions for China's GDP growth compared to last year. The second reason is more policy-oriented. Recent signals and specific actions being undertaken by China - such as the closure of several inefficient coal power plants, the cancellation of plans to build new power plants and the rapid expansion of renewable energy sources - have raised the credibility of government endeavours to combat domestic pollution problems, contribute to efforts to reduce global emissions and use energy more efficiently. As a result, overall energy demand in China by 2040 has been reduced by more than 3 mboe/d in the WOO 2017, compared to last year's projections.

At the global level, the largest contribution to future energy demand is projected to come from natural gas. In absolute terms, demand for gas will increase by almost 34 mboe/d, reaching a level of 93 mboe/d by 2040. Its share in the global energy mix will increase by a significant 3.6 percentage points.

The majority of the energy demand growth in the 2015-2040 period comes from non-OECD countries with around 29 mboe/d, while the rest (some 5 mboe/d) is located in the mature markets of OECD countries. Strong population growth in most developing countries, combined with robust economic development, leads to demand growth for gas in all the relevant sectors: power generation, industry, as well as the residential and commercial sectors. The increasing availability of gas on the global market due to the expansion of liquefied natural gas (LNG) production is also set to contribute to the high growth rates for this energy source.

Oil and coal are projected to grow at much lower rates of 0.6% and 0.4% p.a., respectively. Despite these relatively low rates, fossil fuels will retain a dominant role in the global energy mix, although with a declining overall share. Indeed, the share of fossil fuels in the global energy mix stood at 81% in 2015. This is set to decline to below 80% by 2020 and then drop further to under 78% by 2030. It is estimated to reach 74% by 2040. It should be noted, however, that oil and gas together are still expected to provide more than half of the world's energy needs over the forecast period, with their combined share relatively stable between 52-53%.

The medium-term oil demand outlook for the period 2016-2022 shows an increase of 6.9 mb/d, rising from 95.4 mb/d to 102.3 mb/d. This corresponds to a healthy average annual increase of almost 1.2 mb/d. Demand in Developing countries is expected to be strong, increasing from 43.2 mb/d in 2016 to 49.6 mb/d in 2022.

Globally, oil demand has been revised upwards by 2.24 mb/d in 2022 compared to the WOO 2016. This revision includes the upward shift to the baseline (+1.2 mb/d) in 2016. In addition, in this year's WOO, OECD regional oil demand is expected to grow until 2019, before the trend reverses. In last year's publication, OECD demand grew only until 2017.

Long-term oil demand is expected to increase by 15.8 mb/d, rising from 95.4 mb/d in 2016 to 111.1 mb/d in 2040. Demand in the OECD region is anticipated to show a significant decline of 8.9 mb/d over the forecast period. Driven by an expanding middle class, high population growth rates and stronger economic growth potential, Developing countries' oil demand is expected to increase by almost 24 mb/d. China is anticipated to continue to be the largest oil consumer over the forecast period, adding 6 mb/d to reach 17.8 mb/d by 2040. India will be the region with the second largest overall demand growth, adding 5.9 mb/d between 2016 and 2040. Indian demand growth is also set to witness the fastest average growth of 3.6% p.a. Long term global oil demand growth is forecast to decelerate steadily, falling from an annual average of around 1.3 mb/d during the period 2016-2020 to only 0.3 mb/d every year between 2035 and 2040. This deceleration is a result of slowing GDP growth, assumed oil price increases, a structural shift of economies towards a more service-oriented structure, efficiency improvements as a result of tightening energy efficiency policies and/or technological improvements, and oil facing strong competition from other energy sources.

The road transportation sector is currently the largest contributor to global oil demand. In 2016, this sector represented 45% of total demand at 42.8 mb/d. Substantial growth is expected in the long-term with an additional 5.4 mb/d up to 2040, when it reaches 48.3 mb/d. In fact, one out of every three new barrels between 2016 and 2040 is anticipated to come from the road transportation sector.

Significant growth is also expected for the petrochemical sector where demand is estimated to increase by 3.8 mb/d during the forecast period. Aviation is the fastest growing sector driven by a rapidly expanding global middle class, particularly in developing countries, as well as the increasing penetration of low cost carriers. It is foreseen that demand in this sector will increase by 2.9 mb/d over the forecast period.

Demand in the road transportation sector is anticipated to increase by 5.4 mb/d over the forecast period. However, there is a clear differentiation between the expected sectoral demand pattern in the OECD region and that in Developing countries. In the former, sectoral demand is anticipated to drop by 7.2 mb/d. In the latter, it is estimated to increase by 12.2 mb/d.

Focusing on the penetration of EVs in the passenger car segment, a alternative sensitivity has been developed: the Sensitivity Case. In this sensitivity, a more optimistic view is taken on the penetration of EVs with the assumption that annual EV sales reach 80 million by 2040. This would mean that three out of every five cars sold in 2040 would be electric.

Under the assumption that the increasing EV penetration in the passenger car segment in the Sensitivity Case spreads, at least partially, to commercial vehicles, particularly in the mediumduty segment, oil demand in 2040 is reduced by 2.5 mb/d compared to the Reference Case, to total 108.6 mb/d. Moreover, global oil demand is estimated to plateau around this level in the second half of the 2030s.

Around 7.6 mb/d of new refining capacity is likely to come online between 2017 and 2022, while 19.6 mb/d of new refining capacity is expected between 2017 and 2040. The majority of the new capacity is anticipated to be located in developing regions supported by growing oil demand. In the long-term, around half of the overall refining capacity (9.5 mb/d) is estimated to be added in the Asia-Pacific, while new capacities in the Middle East are expected to total around 3.7 mb/d, or some 20% of the total. Combined refining capacity additions in Latin America and Africa are estimated to be around 4.5 mb/d, or almost 25% of the total. At the same time, in the long-term new builds in developed regions are estimated at below 2 mb/d, which equates to less than 10% of the global additions.

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