Market Report Series Oil 2017 Neil Atkinson, Head Oil Industry & Markets Division, IEA International Institute for Strategic Studies, Bahrain, 17 September 2017
Oil demand continues to grow but at a slower pace 2.0 Global oil demand growth 1.5 mb/d 1.0 0.5 0.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 China India Rest of the world Global oil demand crosses 100 mb/d mark in 2019. Transport accounts for one-half of global growth, petrochemicals - one-third. Almost half of global oil demand growth comes from China and India
Global oil supply rebounds then slows markedly Global oil supply capacity growth mb/d 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 Non-OPEC OPEC Following record slide in global upstream spending over 2015/16, only modest recovery seen in 2017 Unless significant new projects sanctioned quickly, growth all but stalls by 2020.
US leads global production capacity growth of 5.6 mb/d 2.0 Changes in global capacity 2016-2022 mb/d 1.5 1.0 0.5 0.0-0.5 Non-OPEC OPEC Capacity growth highly concentrated: 3 main non-opec countries account for 60% of global growth
US LTO production rebounds but price sensitive mb/d 8.0 US LTO production 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2010 2012 2014 2016 2018 2020 2022 $80/bbl Base case $50/bbl LTO set to expand by 1.4 mb/d by 2022 in our base case. At $80/bbl, output could expand by 3.0 mb/d over the same period
Crude flows West to East in even bigger volumes 8 East of Suez crude oil balance 6 4 mb/d 2 0-2 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 With massive growth in Asian demand, East of Suez crude deficit widens as Middle East exports are not sufficient to meet demand. Exports growth from Brazil and Canada each is higher than from the Middle East.
World oil market grows tighter from 2020 40 Call on OPEC crude and stock change 38 36 mb/d 34 32 30 28 2014 2015 2016 2017 2018 2019 2020 2021 2022 Call on OPEC + stock change OPEC Crude Capacity Call on OPEC rises and spare capacity shrinks without further upstream investment. Less than 2% in 2022 versus 3.7% in 2008 when prices rose sharply.
Conclusions Demand continues to grow steadily -- up 7.3 mb/d by 2022 -- driven by China and India, which will account for almost half of growth over the period Global production capacity will also grow -- up 5.6 mb/d -- led by the United States, Brazil and Canada Asian demand growth draws extra Middle East oil but also needs supply from other areas. Trade routes will shift and lengthen Global investment remains weak in 2017 after two-year record plunge and OPEC spare capacity contracts to less than 2% in 2022 -- a 14-year low A tighter market & security of supply concerns could lead to increased volatility and higher prices by 2020
Oil & Gas Investment Neil Atkinson, Head Oil Industry & Markets Division, IEA International Institute for Strategic Studies, Bahrain, 17 September 2017 IEA OECD/IEA 2017
Global energy investment fell 12% in 2016, a second consecutive year of decline Global energy investment 2016 USD (2016) billion 1 000 750 500 250-1% Networks Renewabl e -25% Coal Oil & gas +9% -25% 0 Thermal Electricity Oil, gas & coal Energy efficiency Renewables in transport and heat Total energy investment was $1.7 trillion in 2016. Electricity sector investment overtook oil and gas for the first time, while energy efficiency was the biggest growth sector.
Global upstream investment rebounds modestly in 2017 37% Global oil and gas upstream capital spending 2010 2017 USD billion (nominal) 800 700 600 500 400 300 200 100 0 25% 38% 38% 37% -26% +6% 39% 42% 42% 27% 27% 44% 45% 28% 29% 25% 28% 18% 19% 20% 21% 20% 26% 25% 21% 19% 17% 12% 14% 14% 14% 16% 12% 10% 13% 2010 2011 2012 2013 2014 2015 2016 2017 US independents Global Cost Index (Right Majors axis) Other Shale private Cost Index (Right NOCs axis) 120 110 100 90 80 70 60 50 40 Ramp up of activities leads to cost inflation in US tight oil but elsewhere upstream costs decline further. NOC share in total investment reaches another record high.
A two-speed world oil market Change in Upstream investment, 2017 vs 2016 60% 40% +53 % 20% 0% -20% -9% -4% +4% Africa Latin America Middle East Russia +6% US Shale After two years of unprecedented decline, global upstream investment is expected to stabilize in 2017, but downside risks remain
Oil and gas projects moving to shorter timelines and smaller sizes Average size of conventional resources sanctioned and time to market Time to market (years) 5.0 4.5 4.0 3.5 3.0 2.5 Other offshore Global Average Onshore Deepwater offshore 2010 2014 2016 2017 2.0 1.5 0 100 200 300 400 500 600 700 Average size of resources (Million barrels) A shift in company strategies and technology developments leads to shorter project cycles across all the oil and gas industry
Oil Market Update Neil Atkinson, Head, Oil Industry & Markets Division International Institute for Strategic Studies, Bahrain, 17 September 2017 IEA OECD/IEA 2017
Strong oil demand growth in 2Q17 Global Oil Demand Growth, y-o-y 2500 2000 1500 1000 500 0-500 1Q2015 1Q2016 1Q2017 1Q2018 Japan China India US Total In 2017 growth revised upwards to 1.6 mb/d, followed by 1.4 mb/d in 2018
Non-OPEC supply growth remains on track mb/d Total Non-OPEC Supply, y-o-y Change 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5 1Q14 1Q15 1Q16 1Q17 1Q18 Other North America Total Non-OPEC oil supplies set to expand by 0.7 mb/d in 2017 and 1.5 mb/d in 2018.
OPEC quota discipline solid in 2017 cut mb/d -1.40-1.10-0.80-0.50 Compliance Improves 100% 50% -0.20 Jan Feb Mar Apr May Jun Jul Aug 0% Saudi Kuwait UAE Angola Iraq Others* OPEC-12 For January-August period OPEC achieved 86% compliance rate
OECD stock surplus falling mb 400 OECD stocks vs 5-year average 350 300 250 200 150 100 50 0 Jan 16 Jul 16 Jan 17 Jul 17 Oil Products Crude + NGL + Feedstocks In January stocks = 300 mb above the average and now = 190 mb
Oil market is re-balancing gradually mb/d 100 98 96 94 92 Demand/Supply Balance until 4Q17 mb/d 3.0 2.0 1.0 0.0-1.0 90 2Q14 2Q15 2Q16 2Q17-2.0 Total Stock Ch. & Misc Demand Supply* Note: For scenario purposes, OPEC/non OPEC cuts remain constant until end 2017. After sharp fall in 2Q17, stocks will fall gradually in 2H17
Conclusions Oil demand is growing strongly in 2017 and 2018 Non-Opec production growth is strong in 2017, led by the US, and accelerates in 2018 OPEC quota compliance has been solid at 86% OECD stocks are falling versus 5-year average Oil market gradually re-balancing OECD/IEA 2017