Oil will be a major ingredient in the global energy mix by 2040

By Y. Alshammari

The launch of the 2017 World Oil Outlook (WOO) [1] was held at the Organisation of Petroleum Exporting Countries (OPEC), in Vienna. WOO is an annual flagship publication of OPEC which forecasts important dimensions in the oil industry. It analyses the impact of major pillars that play a key role in the future of the oil industry including global economic growth (GDP), population, energy demand, OPEC-Non-OPEC Oil supplies; Refining Capacity; and Global Oil Exports. This includes analysing the impact of major technologies affecting the oil demand including Electric Vehicles (EVs), enhanced fuel efficiency and shale oil fracking.

Population and Economic Growth:

This year outlook assumes that the world population will increase by 1.8 billion people to reach 9.2 billion in 2040 with most of the growth taking place in India. This leads to estimating a global GDP growth at 3.5% p.a which reaches 126% of the GDP in 2016. Most of the economic growth is driven by developing countries compared with the OECD countries.

Energy Demand:

Global energy demand is projected to increase by 35% with the fastest growth taking place in the renewables. Nonetheless, fossil fuels will continue to supply 75% of global energy demand by 2040 with no less than 52% from oil and gas only. There seems to be a marginal reductions in the demand for oil driven by many external factors such growth in alternative fuels, electric mobility, and environmental regulations of the International Maritime Organisation (IMO). Most of oil demand will be in the transport sector; road and aviation in the developing countries which is expected to exceed 12 mb/d with a decrease in the demand in OECD countries by (7.1 mb/d) due to alternative fuels, EVs, efficiency enhancement leading to a net demand increase of 5.2 mb/d for oil globally in the transport sector.

The number of cars is expected to double mainly in the developing countries from 1 billion to 2 billion by 2040 due to increased population, and urbanisation, and construction of Mega-Cities. EVs is expected to account for 12% of the total road transport vehicles by the year 2040. Demand for oil in the transport sector is expected to decline in the OECD countries by 7.1 mb/d and it will increase by +12 mb/d in the developing countries. The decrease in oil demand in the OECD countries is driven by penetration of EVs and enhancement in fuel consumption efficiency. Demand for OPEC crude remains flat until 2019 after which it gradually increases. There has been no peak demand for oil in the period until 2040.

The IMO regulations will have impact on fuel oil demand leading to additional refining requirements of fuel oil while generating excess high sulphur fuel oil (HSFO). Fuel oil is major constituent of crude oil obtained as a heavy component from crude oil distillation and it is used mainly in marine transport as well as in power generation. The HSFO obtained from refineries will be used for the power generation in order to cope with stringent IMO sulphur regulations in the marine transport.

Oil Supplies and Trade:

WOO shows that there is an expected growth in the Non-OPEC oil supplies to reach 62 mb/d in 2022 and that takes place mainly in the US shale oil. However, this production will peak in 2025 and it then decreases marginally on the long-run to reach 60.4 mb/d by 2040 which leads to an increase in the OPEC supplies to reach 41.4 mb/d. The largest production of shale oil is situated the mainly in the US and Canada, followed by Argentina, and Russia.

Global oil exports are expected to reach 44 mb/d in 2040 increasing by 6.5 mb/d starting in the US and Canada which will account for 70% by 2025, then the Middle East will increase after 2025. The increase in oil exports in the US and Canada is driven mainly by the increase in shale oil production which peaks in 2025 after which demand for OPEC crude, exported mainly from the Middle East, will increase.

Refining Capacity:

The increase in oil production requires investments in the upstream, mid-stream and down-stream sectors. This also leads to increased refining requirements to produce various fuels to meet the required energy demand. The global refining capacity is expected to reach 19.6 mb/d in 2040 with 70% of global expansion capacity will be in China, Asia-Pacific and the Middle East. Investments required by the oil sector will reach USD10.5 trillion by 2040 of which 80% will be in the upstream sector.

Major Assumptions and Uncertainty:

WOO assumes an evolutionary development in technology and energy policy; increasing energy efficiency while reducing emissions. The forecast reported by WOO is subject to uncertainty in four key factors; GDP growth, EVs penetration rate, the level of implementation of energy efficiency measures, and the growth in the supply of US shale oil. Demand for oil in 2040 reference case is 111.1 mb/d of which at least 34% will come from OPEC. A faster penetration of EVs by 60% of new car sales would lead to a reduction in oil demand by 2.5 mb/d by 2040. In addition, the implementation of more aggressive energy efficiency measures in the developing countries leads to more reduction in the demand for oil which decreases by 3.5 mb/d to 107.9 mb/d in 2040. A higher GDP growth (3.6% p.a) showed a total increase for oil demand to 113.8 mb/d while a lower GDP growth (3.3% p.a) led to a total growth in oil demand to 107.5 mb/d.

The work reported by WOO shows that oil will continue to be a key player in the global economy in the next decades. The theory of peak demand for oil is not observed in the forecast period reported despite assuming an increase the penetration rate of EVs and energy efficiency, and fast growth in renewables.

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Dr. Alshammari raising a question at the Press Conference of the Launch of World Oil Outlook 2017 at OPEC HQ in Vienna

References;

OPEC (2017), World Oil Outlook 2040, Organisation for Petroleum Exporting Countries (OPEC), Available online: https://woo.opec.org [access date 07/11/2017]

Digitalisation is the future of the power sector: World (Future) Energy Leaders conclude their summit in Lisbon

The World Energy Week organised by World Energy Council (WEC) was held in the Portuguese Capital, Lisbon, between 16-19 October 2017, attended by Dr. Alshammari, a Board Member of the Future Energy Leaders’ at World Energy Council. This gathering included major events of World Energy Council including the Executive Assembly, Future Energy Leaders’ (FELs) Summit, Energy Trilemma Summit and World Energy Leaders’ Summit (WELS).

World Energy Monitor:

The event commenced by a plenary session presenting the results of the World Energy Monitor, a measure that assesses global energy agenda in various regions. In Asia, for instance, results showed that the issues of highest impact include digitisation, economic growth, electricity storage, and the Chinese growth. In Latin America, the issues included the US policy, regional integration, and commodity prices. In the Middle East, the monitor showed issues such as talents acquisition, energy efficiency, and energy subsidies as the main issues of high impact and high uncertainty. The monitor also shows a global consensus that energy efficiency, and digitization as important issues that keep energy leaders awake at night.

FEL Summit:

Furthermore, Future Energy Leaders held their annual summit in which they discussed work progress of various taskforces on issues including achieving climate targets, digitisation, and energy transition. The synergy between innovation, regulations, and policies were discussed as an important approach to achieve climate targets. It was also emphasised that the FEL vision designed to tackle grand transition challenges is based on three main pillars; leadership; flexible business models; and human capital.

FELs

Energy Trilemma Summit:

The Energy Trilemma discussed many important energy issues including climate change, the new natural gas market dynamics, and role of blockchain technology in transforming the electricity markets. Diversification of energy supplies, enhancing consumption efficiency, the and circular economy were highlighted as important strategies to enhance resilience to climate change. In addition, the need to understand new dynamics of gas market in terms of new supply projects and logics while maintaining investments and infrastructure to facilitate the market. This includes the need to establish new effective methods to create access to natural gas as more competitive more reliable source for energy. There was also a clear consensus on the impact of blockchain on the electricity market by allowing more transparent energy transactions which supports energy decentralisation and democratisation.

World Energy Leaders’ Summit:

The WELS event focused on the role of digitalisation in energy sector. As energy is the most capital intensive business, digitalisation can be an important tool to reduce costs and improve services. Furthermore, the increased decentralisation of the energy sector by, for instance, solar PV, makes digitalisation more important in achieving the energy transition. A case study was presented from the Estonian Energy Minister showing that Estonia achieved a 100% smart metering country and 96% of invoicing over e-channels with agreements signed over internet/mobiles. The average cost for providing electricity went down to 3 EUR/Person, with digitalisation compared with 20-25 EUR/Person. In addition, energy consumption was hugely reduced which raised efficiency and customer satisfaction. Customers can also make use of interactive maps to easily locate any points of errors with the electricity providers. It was highlighted that for every 1 EUR invested in digitalisation 3 EUR can be returned in 5 years.

In the era of digital companies, the power generation sector should look at business models that democratise energy supplies and accommodate demand for electric mobility. New business models could emerge especially from in India where decentralized systems or micro-grids are needed to power villages.

Energy leaders also highlighted the emergence of a new type of a customer relationship by 2030 in which customers pay for the service not for KW. This would enable establishing a digital service business that include energy as a component which enables customers to pay less, and in which Artificial Intelligence will play a key part. The winners will be those who adopt new business models, as competition will be based on competitive service providers.

The issue of cities and urbanisation was also highlighted as a major challenge in the transformation to meet the digital revolution. High base load energy sources such as nuclear energy as well as access to reliable data will be crucial for cities planning for transformation.

The executive assembly also discussed regional issues, budget governance, and strategies to better engage stakeholders. The next WEC Executive Assembly will take place in Milan 2018.

Uros
Dr. Alshammari with Uros Simovic, Future Energy Leader of Serbia

 

 

 

Kim
Dr. Alshammari with Chair of World Energy Council (middle) and Vice-Chair for Africa

 

Pirjo
Dr. Alshammari with Chair of Future Energy Leaders Board, Pirjo Jantunen of Finland

 

 

 

 

 

Dr. Alshammari attends President Grimsson of Iceland Lecture at IIASA

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Dr. Alshammari has attended the plenary lecture of Dr. Ólafur Ragnar Grimsson, Former President of the Republic of Iceland, at the International Institute of Applied Systems Analysis (IIASA). The lectured covered geopolitical issues affecting the future of the Arctic.

Read the full story: http://www.iiasa.ac.at/web/home/about/leadership/director/Pres_Grimsson.html