The Future of World Oil
By Diezani Alison-Madueke
The demand for oil has continued to rise steadily, alongside an ever-increasing demand for fossil fuel for the transportation and power sectors, with the exception of a few blips in the 1970s and 1980s. It is worthy to mention, that over 60 per cent of the fossil fuel demands end up in fuel tanks. This situation is further exacerbated, by the rapid growth in vehicular transportation in the world’s two most populous countries, China and India with millions of the driving public in the middle class. The big oil companies, the International Energy Agency (lEA), and America’s Energy Information Administration, all predict, that demand for crude oil will continue to increase. Expectation is that global crude oil demand will continue to grow from 89 million barrels per day (mbpd) to 97 million barrels per day by 2020 approximately 115mbpd, by 2040.
As we continue to feel the effects of the recent global recession, many unresolved economic challenges add to the uncertainty associated with long-term assessment of world energy markets. However, based on current reserves estimates, global supply of crude oil and other liquid hydrocarbons, based on current consumption patterns, is adequate to meet the world’s long term demand for liquid fuels up to 2040. This supply is expected to sustain world energy consumption, projected to grow by 56 per cent between 2010 and 2040, according to International Energy Outlook 2013 (IE02013).
Several factors possess the potential to influence the future of world oil demand and supply. I have selected a few of these critical factors for discussion in this forum.
Future Economic Conditions
The demand for oil correlates closely with general economic growth rates. The occurrence of recessions and other periods of low or negative economic growth, will typically have adverse impacts on oil demand and supply outlook In addition, changes in population growth rates, government austerity programs and the global financial situation, which includes but is not limited to: currency exchange rate fluctuations, sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises etc. All these will, of course, impact the future demand for world oil.
As such, restructuring of fiscal systems and other events or conditions, that impair the functionality of financial markets, will continue to play significant roles in the future of our hydrocarbon resource, especially in the developing countries. This is therefore a clarion call, for developing and emerging economies, to develop strategies in governance – with financial discipline, that will critically underpin continuous development of their industrial sectors, to continue to sustainably stimulate their economic growth.
Oil producing countries in the developing world, particularly in Africa, need to shift from predominantly crude oil production, to an integrated oil and gas development, with much greater emphasis on the domestic utilisation of their natural resources, with particular reference to the power and industrial sectors, as a pivot for economic growth, whilst ensuring less dependence on finished products. If adopted, this strategy will not only drive growth but also address the ever-increasing unemployment situation in developing economies; consequently mitigating against increases in crime and insecurity.
We need to encourage more private participation in the oil and gas sector, rather than the historical majority control by governments in the developing countries. There is therefore the urgent need to privatise the oil and gas sector in emerging economies, freeing up critical funds for infrastructural development by government, to meet the needs of the citizenry.
It is worthy to mention that advances in technology have played both positive and negative roles in the future of world oil. These improvements in technology have and will significantly unlock potentials in reserves and increase production. However, similar improvements in fuel efficiencies in the transportation sector will significantly decrease the demand for fossil fuels. As we have seen with the US shale revolution, the improvement in tracking technologies will continue to increase reserves base, and consequently the production potential of unconventional oil and gas. However, the growing popularity of electric and hybrid cars, along with vehicles powered by natural gas or hydrogen fuel cells, will have a negative effect on future demand for oil.
Impact of Shale Oil and Expected Decline after Year 2020