This Energy Insights post highlights some of the key points from the 2016 IEA World Energy Outlook presentation. The presentation hosted by the Center for Strategic & International is worth a watch - I recommend subscribing to the CSIS channel on YouTube.
Middle East oil production at a maximum of last 40 years (35% of global production)
Middle East output is at a historical high due to
- A period of relative calm with countries like Iraq producing oil.
- A low price of oil incentivising oil producers to maximize output to maintain cash flow.
This period of high production could come to an end with any instability that the Middle East is historically known for.
Approval & discovery of new oil projects lowest since 1950s
The low oil price environment is leading to project financing drying up. It will likely take a few years for the effects of the lack of investment to be felt in oil prices.
Combining this with the potential for Middle East supply to reduce we could see a quite interesting oil market in a few years.
Oil investment is required for:
2/3 for decline in existing fields.
1/3 for growth in oil demand.
This is an interesting point – it is not only the demand in growth but the decline in existing fields that requires investment.
Slowdown in oil growth – but no peak yet. Still growth.
– Decline in power generation (still used a lot in Middle East).
– Decline in heating and passenger cars (double of fleet size by 2040 but improved efficiency -> small reduction in passenger car oil use).
– Growth in trucks, aviation and petrochemicals.
This is a somewhat controversial part of the IEA 2016 Outlook – that the peak in oil demand is yet to come. Many other forecasters predict a decline in oil demand.
This also highlights that electrification of passenger cars alone won’t slow down our oil demand growth. Efforts in other sectors like aviation and freight are crucial to reducing oil consumption.
Chinese gas consumption – global = 25%, China = 5%
This statistic gives me hope – there is still a large low hanging fruit in China of converting coal to gas. In this low natural gas price environment projects like this should be attractive. I would expect that it is supply of gas that is the issue – which the growing LNG market can help support.
Thanks for reading!