In its monthly Oil Market Report (August), the International Energy Agency (IE|A) in Paris, has stated that it has revised its overall global demand for oil for 2009 and 2010. Instead of its July estimates, in which global oil demand will contract in 2009 by 2.5 million bpd in 2009, current facts shown only a demand increase by 2.3 million bpd For 2010, overall figures have been kept at the same as before, 1.3 million bpd increase.
As stated, the IEA’s global oil demand forecast for 2010 has been revised up by 70,000 bpd to 85.3 million bpd. Main reason for the latter has been stronger than expected demand in Asia, especially China and India. For the member countries of the OECD, 2010 demand forecast is set at 45.1 million bpd, which is 25,000 bpd lower than IEA previously.
Total demand forecast of non-OECD demand for both 2009 and 2010 is said to increase due to a higher Chinese growth. Non-OECD demand in 2010 is now expected to average 40.1 million bpd, up 1.3 million bpd from 2009. One critical remark should be made in the total assessment. Not only does the IEA only slightly indicate that demand growth expectations are based on some new growing markets, such as the Middle East, Russia and Africa, all oil and gas producers, but at the same time, the growing impact of natural (and associated) gas usage as fuel and decline in overall production on fields has not been taken fully into account. Gas usage in most OPEC countries has been increasing substantially, as it is being used for power and desalination projects, which have been popping up like mushrooms in the world. Increased domestic demand for oil is also witnessed, as due to gas supply shortages more and more projects will be returning to use oil based fuels as feedstock for their power generation. Overall, especially in MENA regions and FSU, crude oil based fuels for transportation also will be increasing the coming years. Increased wealth in most countries will have a direct effect on car usage, leading directly to higher fuel demands.
Some analysts have even stated that the continuing growth of investments in refining and petrochemical projects also will have their negative effects on demand, as crude oil will be used for socalled internal use, not anymore needed to be transported to OECD countries as crude, but only as refined products. These developments should be explicitly be taken into account in all demand and supply assessments of OECD countries, according to myself. Some decline of demand in OECD is based on these developments.
The supply issue is clear, non-OPEC supply will be higher, not only due to new fields but largely caused by stringent OPEC production quota agreements. As long as OPEC members comply to this in full, new demand will have to be covered by other sources, largely Norway, Russia, FSU, Canada and new production regions. The IEA has raised its forecast for 2009 non-OPEC supply by 160,000 bpd, largely due to stronger than expected Russian output but also due to higher US NGL and Gulf of Mexico production and a rapid ramp-up at new Canadian oil sands mining operations.
Still, one main issue has not been covered. Due to lower global investments in upstream and still high costs of projects (deepwater, heavy crudes or sour crudes), the normal production levels of most fields could be under pressure. If no investments are being put in revamping existing production capacity, based on assessments production is expected to be decline by 6-10% per year. When taking the lower base line, this would mean a shortage of around 5 million bpd. The latter production decline needs to be countered, additional investments are needed to revamp mature oil fields, set up IO and EOR operations and stop decline. At present, this has not been the case. Most mature oil (and gas) field regions are facing lower investments. North Sea operations, Saudi Arabia’s giant fields or Iranian operations, are facing continuing decline rates. Supply could be hit dramatically if this is not countered soon. Demand will be increasing, if the global economy recovers. Supply is not as secure as presented by the IEA. The statements that Russian oil production has increased is not caused by higher overall production but largely by lower internal demand and more available volumes for exports. Moscow also needs more cash to quell growing domestic unrest, aka exports are being targeted. Some of this additional crude supply could again be threatened if gas supplies continue to falter the coming years.
The picture is diffuse, demand seems to be growing, supply is lagging behind. Price settings could change soon, an upward trend should be expected, even if oil stocks at present are high. It only takes some additional disturbances in main producing regions, in combination with harsher winter conditions, to have prices increase. More investments are needed, not only for new production, but to support current production in full.
(Source: www.glgroup.com)