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OPEC Forecasts Global demand to Reach 108.2mbpd by 2045

“…Much of the demand growth materialises in 2021-23, as part of the recovery process from the COVID-19 pandemic”

By Teddy Nwanunobi

The Organisation of Petroleum Exporting Countries (OPEC), in its 2021 World Oil Outlook (WOO 2021) that was launched on Tuesday, said that global oil demand is expected to continue to grow to 108.2 million barrels per day (mbpd) by 2045.

It particularly noted that this demand would grow from a low of 90.6mbpd that was witnessed in 2020.

OPEC’s timeline for peak oil demand in its 2021 outlook is a few years earlier than in last year’s WOO report, which had forecast that global oil demand would grow steadily until the late 2030s, when it would begin to plateau.

After the COVID-19 pandemic last year, OPEC, for the first time, put a timeline to peak oil demand.

In this year’s outlook, OPEC sees oil demand growing “strongly” in the short- and medium-term, before demand plateaus in the long term.

OPEC sees limited risk that investment in new oil supply will fail to keep pace with rising post-pandemic demand.

Upstream capital expenditure (capex) fell by 28 per cent on the year in 2020 to $240 billion, as oil companies cut spending to ride out the COVID-related oil price collapse, according to consultancy Rystad Energy.

The pandemic has also spurred further momentum towards environmental, social and governance (ESG) policies, which could make fossil fuel investments more expensive, the WOO said.

But there are still “considerable doubts” as to whether global decarbonisation ambitions will be met in their proposed timeframes, OPEC said.

As a result, the report’s reference case still sees oil demand growing in the short and long terms, and for the fuel to retain the largest share in the energy mix at 28 per cent in 2045.

This is little changed from last year’s estimate and down by just 2 percentage points from its 2020 share.

Much of the demand growth materialises in 2021-23, as part of the recovery process from the COVID-19 pandemic, but there will be “virtually no growth” after 2035, suggesting a relatively long period of plateauing oil demand.

OECD countries’ oil demand is unlikely to recover to 2019 levels and will peak at around 46.6mbpd in 2023 because of increasing emphasis on a low-carbon future.

But non-OECD demand will continue rising, to 74.1mbpd in 2045 from 48.6mbpd in 2020.

Cumulative investment requirements in the global oil sector amount to $11.8 trillion over the 2021-2045 period, of which upstream accounts for 80 per cent.

The bulk of this will go to the US, helping drive non-OPEC liquids supply above pre-pandemic levels of 65.5mbpd next year, OPEC said.

It sees US tight oil peaking at around 15.2mbpd towards the end of the decade – around 600,000 bpd lower than expected in last year’s estimates – and for US total liquids to peak at 20.5mbpd at a similar time.

Here are some specific highlights from this year’s WOO:

–         The year 2020 saw the largest ever global drop in energy and oil demand, but 2021 has witnessed a significant rebound as vaccines were rolled out, lockdowns were eased, mobility increased, economies opened up further, and fiscal and infrastructure packages were implemented.

–         All forms of energy will be needed to support the post-pandemic recovery in a sustainable way, balancing the needs of people in relation to their social welfare, the economy and the environment.

–         ‘Other renewables’  – combining mainly solar, wind and geothermal energy – see the largest growth in both absolute and percentage terms, leading to a share over 10 per cent by 2045. Gas witnesses the second largest increase in absolute terms.

–         Oil is expected to retain the largest share of the energy mix throughout the outlook period, accounting for just over a 28 per cent share in 2045.

–         All major fuel types witness growth, with the exception of coal.

–         India is expected to be the largest contributor to incremental demand, adding 6.5mbpd between 2020 and 2045.

–         Oil demand in road transportation will continue to dominate the sectoral breakdown, increasing by 6.3mbpd over the forecast period, with the total vehicle fleet (passenger and commercial vehicles) set to expand by over 1.1 billion by 2045 to around 2.6 billion.

–         The long-term share of alternative fueled vehicles in the total fleet is projected to reach a level of around 24 per cent in 2045, but conventional vehicles remain dominant.

–         Oil demand in the aviation sector was most affected by COVID-19 restrictions in relative terms, but it is projected to recover in the long term with an expected expansion of 5.8mbpd out to 2045.

–         Non-OPEC liquids supply is expected to continue its recovery and grow by 7.5mbpd from its 2020 low to 70.4mbpd in 2026, driven by US tight oil, as well as barrels from Brazil, Russia, Guyana, Canada and Kazakhstan.

–         After US supply peaks at 20.5mbpd around 2030, total non-OPEC liquids supply is also expected to decline, reaching 65.5mbpd in 2045.

–         OPEC liquids, which recover to pre-pandemic levels by around mid-decade, rise strongly thereafter, reaching nearly 43mbpd in 2045. In terms of market share, this implies an increase from 33 per cent in 2020 to 39 per cent by 2045.

–         Estimated refining capacity additions in the medium-term are a robust 6.9mbpd, while another 7.1mbpd of incremental capacity is required in the long-term, predominantly in developing countries.

–         Refinery capacity closures of 4.5mbpd between 2020 and 2026, mostly in developed countries, will help to balance out the downstream market in the medium-term.

–         After the 2020 drop, global inter-regional crude and condensate trade is projected to recover and reach levels above 38mbpd in 2025, and increase further to above 40mbpd from 2035 onwards.

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