Those predicting a rapid and sustained world-wide move away from fossil fuel energy will be disappointed at the latest oil market update from the International Energy Agency (IEA). According to IEA tracking, global oil demand rose “very strongly” in 2017 Q2, climbing by 2.3 million barrels per day (MBD), or +2.4% y/y. As a result, the IEA’s boffins have revised up their full-year oil consumption growth forecast to 1.6 MBD. The agency notes that “OECD demand growth continues to be stronger than expected, particularly in Europe and the US.”
At the same time, world oil supply fell in Q2, reflecting “unplanned outages” and maintenance issues, as well as the impact of declining upstream investment in some producing jurisdictions. The combination of still expanding world demand coupled with a pattern of weak investment in new supply raises the prospect of market volatility and future oil price spikes.
Looking beyond the short-term, the outlook for oil consumption is for continued increases in demand, albeit at a more muted pace than in the past. The rising share of renewables in the world electricity mix, more efficient vehicles, greater use of electric cars, and government policies to reduce (or slow the growth of) carbon emissions all point to slower growth in demand. Still, in BP’s latest global energy forecast, absolute oil demand increases through 2035. Energy intensity – the volume of primary energy required per dollar of real economic output – improves steadily over the 2015-35 period. Oil’s share in the global primary energy mix falls, while the shares of natural gas and renewables make steady gains.
|Global Oil Demand|
|2015 Global Demand/Consumption||95 MBD|
|Other Asia||+3.0 MBD|
|Other emerging markets||+7.0 MBD|
|2035 Projected Global Demand/Consumption||110 MBD|
|Source: BP Energy Outlook, 2017 (base case scenario). The figures in the table are rounded.|
Specifically, BP projects that world “liquids demand” (oil, biofuels, and other liquid fuels other than natural gas) rises by approximately 15 million MBD by 2035, even as oil’s place in the overall energy supply picture diminishes. All of this growth occurs in emerging economies, as rising prosperity and incomes lead to greater use of energy and energy products. Among the advanced economies, oil demand decreases by 8 MBD by 2035.
|Share of Energy Sources in Global Primary Energy Consumption (%)|
* Includes wind, solar, geothermal, biomass and biofuels.
Add it all up, and it’s clear that world energy markets are shifting, with a transition away from carbon-based fuels now evident in the data. But that long-term energy transition does not spell the end of either oil demand or the Canadian hydro-carbon industry. Indeed, with world-wide demand for oil still growing and the US becoming more self-sufficient in energy, there is a compelling case for Canada to look to offshore markets to absorb a portion of the country’s rising oil production.