Piecing together the puzzle

Nov. 29, 2010
As Oil & Gas Journal editors begin to assemble OGJ's annual Forecast & Review, due to be published Jan. 3, 2011, there are many economic and market forces to consider.

Senior Editor-Economics

As Oil & Gas Journal editors begin to assemble OGJ's annual Forecast & Review, due to be published Jan. 3, 2011, there are many economic and market forces to consider.

For example, driving this year's increase in worldwide oil demand are countries outside of the Organization for Economic Cooperation and Development, especially China and India. Forecasters are calling for this trend to continue, although there are now concerns that China will try to slow its growth and inflation by raising interest rates. This follows news that the country's inflation rate in October reached 4.4% on an annual basis.

Asian oil forecast

FACTS Global Energy (FGE) this month released a report that said Asia-Pacific oil demand thus far has been relatively unscathed by the global economic crisis.

In its report, FGE projects that Asia's incremental oil demand this year will be up 1.05 million b/d, much higher than the 491,000 b/d that the Honolulu-based consultancy had called for earlier this year. Asia's oil demand in 2009 posted an increase of 315,000 b/d despite a sharp drop of 470,000 b/d in Japan.

On Sept. 28, the Asian Development Bank raised its 2010 economic growth projection for developing Asian economies to 8.2% from its 7.5% growth forecast set in April. This revision was due to the strength of first-half 2010 data, which showed broad-based expansion driven by strong exports, private demand, and sustained stimulus policy effects.

FGE forecasts that in 2011, Asian oil demand growth will moderate to about 600,000 b/d as the region's economic growth slows to 7.3%.

By 2030, oil demand in Asia will average 38.1 million b/d, FGE forecasts, up 13.2 million b/d from the 2009 average. The region's average annual growth will slow to 1.3% during 2021-30 from 2.5% during 2011-20, according to the outlook.

FGE said the combination of Asia's huge population, low oil consumption per capita, and continued economic progress ensures that its thirst for oil products will grow, albeit with stops and starts.

Over the longer term, global oil supply will struggle to keep pace. Unlike in the past, the future will be characterized by limits to oil supplies, which at times will cause sharp upward movements in prices and drive concerted moves to restrain oil demand, FGE said.

IEA's outlook to 2035

Also this month, the International Energy Agency released its 2010 World Energy Outlook, which finds that oil will remain the dominant fuel in the primary energy mix to 2035. Nonetheless, oil's share of the primary fuel mix diminishes as higher oil prices and government measures to promote fuel efficiency lead to further switching away from oil, IEA said.

IEA's WEO also said that natural gas will play a central role in meeting the world's energy needs for at least the next two-and-a-half decades. Global gas demand, which fell in 2009 with the economic downturn, will resume its long-term upward path from 2010. Gas demand will increase by 44% between 2008 and 2035, averaging growth of 1.4%/year, according to the IEA report.

"Growth in demand for gas far surpasses that for the other fossil fuels due to its more favorable environmental and practical attributes, and constraints on how quickly low-carbon energy technologies can be deployed. China's gas demand grows fastest, accounting for more than one fifth of the increase in global demand to 2035," the report said.

The Middle East will lead the expansion of gas production, with its output doubling by 2035. Over one third of the global increase in gas output comes from the unconventional sources of shale gas, coalbed methane, and tight gas in the US and, increasingly, from other regions. And a glut in global gas-supply capacity, which could peak in 2011, will keep the pressure on gas exporters to move away from oil-price indexation, notably in Europe, according to the WEO.

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