1 - Key assumptions

Decelerating growth and ageing population mark future demographic change

Population growth, the size of the working-age population, urbanization levels and immigration play an important role in shaping the future energy and oil market. Global population is expected to increase from around 7.8 billion in 2019 to 9.2 billion in 2040. The majority of this growth will come from Developing countries, particularly from Africa, India and the Middle East. In the Organization for Economic Co-operation and Development (OECD) region, population is estimated to grow by 105 million in the period to 2040. It is important to note, however, that overall population growth will decelerate over the forecast period.

While the working-age population (age 15-64) is estimated to grow by around 1 billion people over the long-term, its relative share of the global population is expected to decline from 66% in 2020 to 63% in 2040.

Table ES 1

Global GDP growth between 2019 and 2040 is expected to average 3.4% p.a., driven primarily by Developing countries

Global economic growth will mainly be driven by the Developing countries while the OECD region is expected to see weaker growth on the back of a marginally declining working age population and slowly rising labour productivity.

Global gross domestic product (GDP) growth between 2019 and 2040 is expected to increase at an average annual rate of 3.4%. This is slightly lower than the WOO 2018 assumption mainly due to the expectation of less dynamic long-term labour market developments. Most of the growth until the end of the forecast period will be determined by labour productivity. Developing countries are expected to grow, on average, by 4.5% per annum (p.a.) over the forecast period, while growth in the OECD region averages 1.8% p.a.

Table ES 2

Major regional shifts in the future economic picture are expected

The size of the global economy in 2040 is estimated to be more than double that in 2019. There will be major regional shifts in the economic picture during the forecast period. In 2019, OECD America accounted for 20% of global GDP, followed by OECD Europe and China both with 18%. Other Asia accounted for another 10% while India had a share of 8%. During the forecast period, China’s weight in the global economy is projected to increase by around 6 percentage points to reach 24%, while the weight of OECD America is estimated to drop to 15% and that of OECD Europe to 12%.

Energy policies, combined with the cost competitiveness of natural gas, put the coal industry under increasing pressure

Many countries, including ten OPEC Member Countries, have ratified the Paris Agreement. In efforts to achieve climate objectives, the coal industry is under the most regulatory scrutiny. Consequently, the power industry is undergoing a paradigm shift; shutting inefficient plants and replacing them with modern technologies – or shifting toward other power sources altogether. The cost competitiveness of natural gas and renewables (particularly wind and solar), combined with supportive policies, have captured commercial interest across the globe. This shift is particularly evident in China, which has set a path toward achieving a future of 'blue skies'.

Road transportation sector under increasing regulatory scrutiny, with the establishment of more stringent emissions targets across various regions

In the road transportation sector, fuel quality and vehicle emissions standards continue to evolve in major consuming regions. Although the US is relaxing Corporate Average Fuel Economy (CAFE) standards, the European Union (EU), China, and India are continuing to increase fuel economy and vehicle emissions standards. Meanwhile, reflecting the fiscal realities of incentives programs, policies regarding electric vehicle across major consuming regions are undergoing a re-evaluation, as policymakers attempt to strike a balance between government support and the competitiveness of electric vehicles.

Energy policies provide support to technology advancement, leading to efficiency improvements and emission reductions

Policymakers in energy consuming and producing countries employ various policy measures in order to simultaneously meet and balance their individual national priorities. These priorities include enhancing energy security, energy efficiency, economic development, alleviating energy poverty, and adhering to environmental objectives as embodied within global pacts such as the 'Paris Agreement'.

Evolutionary path of technology advancement provides a broader future energy panorama

Technological advancements will continue to evolve, in general, and provide a broader future energy panorama. The concerns around global warming have accelerated the development of energy paths toward lower emissions. The ongoing, and at least already partially successful, introduction of electric vehicles as a complement to the internal combustion engine (ICE) is an important development for the energy market, although ICEs still have a substantial potential for further developments in many aspects. Tight oil plays are also an area of intense technology developments. Impressive advances have also been achieved in wind and solar for power generation. The ongoing revolution in information technologies (IT) will impact both sides, supply and demand, towards higher efficiency, lower emissions and more optimal costs.

2 – Energy demand

Total primary energy demand is expected to increase by 91 mboe/d between 2015 and 2040 to reach 365 mboe/d in 2040

The Reference Case sees energy demand increasing from 274 million barrels of oil equivalent a day (mboe/d) in 2015 to around 365 mboe/d in 2040, with an average annual growth of 1.2% p.a. Almost 95% of the increase is accounted for by Developing countries (including China and India), with an average annual growth of 1.9% p.a.

A modest increase of around 4.5 mboe/d is projected for Eurasia between 2015 and 2040, an average annual growth of 0.7% p.a. The OECD is estimated to witness only a small increase of less than 1 mboe/d, which points to stagnating energy demand in this country group as the market increasingly saturates. The imbalance between the world regions is the result of stronger population and economic growth, as well as accelerating urbanization rates in Developing countries, where an increasing number of people are expected to gain access to modern energy services.

Table ES 3

Natural gas and 'other renewables' show the largest growth in the long-term

The fuel with the largest estimated demand growth is natural gas, increasing by almost 32 mboe/d between 2015 and 2040, an annual average growth rate of 1.7%. Consequently, the share of natural gas in the global energy mix accounts for 25% in 2040, up 3.3 percentage points from 2015. ‘Other renewables’ are projected to have the highest average growth rate of around 7.4% p.a. during the forecast period. Nevertheless, due to the current low base, the increase in absolute terms is estimated at around 19 mboe/d between 2015 and 2040.

Strong demand growth is also expected for nuclear, increasing by around 9 mboe/d, due to strong expansion in Developing countries and supported by the anticipated return of nuclear energy in Japan. The utilization of biomass (including solid biofuels, waste, biogas, liquid biofuels) is projected to increase by 8.5 mboe/d between 2015 and 2040. Coal has the lowest average growth of just 0.2% p.a. Moreover, coal is the only fuel projected to reach a global demand peak during the forecast period, hitting a high of around 82 mboe/d by 2030. Oil sees a relatively low average growth rate of 0.6% between 2015 and 2040. However, due to a large base, oil demand is expected to increase by almost 15 mboe/d to just above 101 mboe/d in 2040.

Oil retains the highest share in the global energy mix in the period to 2040

Oil is forecast to remain the largest contributor to the energy mix throughout the forecast period, with a share of nearly 28% in 2040, higher than gas and coal. Despite relatively low demand growth rates (especially for coal and oil), fossil fuels are projected to remain the dominant component in the global energy mix, with a share of 75% in 2040, albeit a drop of 6 percentage points from 2015.

Coal will continue to be the largest source of CO2 emissions

Total annual energy-related carbon dioxide (CO2) emissions are set to increase from around 33 billion tonnes (bt) in 2015 to around 39 bt by 2040. Despite the low growth in global coal demand and its expected peak towards the end of the forecast period, coal is still forecast to be the largest source of CO2 emissions, accounting for 15.7 bt of emissions in 2040. However, the largest increase in emissions, on an annual basis, is expected for natural gas (+3.3 bt) as demand for this energy source is set to increase significantly over the forecast period.

3 – Oil demand

Medium-term oil demand growth

Oil demand at the global level is expected to continue growing at healthy rates over the medium-term to reach a level of 104.5 million barrels a day (mb/d) by 2023. This is 7.3 mb/d higher than 2017 levels and represents an average annual increase of 1.2 mb/d.

These solid global growth numbers, however, mask significant variations, as well as diverging trends, at the regional, sectoral and product levels. Oil demand from Developing countries is projected to grow at a relatively steady rate of around 1.1 mb/d each year over the medium-term, except for 2020, when the implementation of International Maritime Organization (IMO) regulations on lower sulphur limits in marine bunker sector will likely provide a one-off push to oil demand.

Incremental oil demand in the OECD is projected to flip from the positive territory observed in the past few years, and which had been projected to continue until 2020, to negative growth thereafter. The contribution of Eurasia to overall demand growth is marginal, in the range of just 0.1 mb/d p.a. on average.

Implementation of IMO regulations have challenged refiners and impacted global demand levels

The implementation of the IMO regulations to limit the global sulphur content in all bunker fuels to 0.5%, effective January 2020, have not only posed a challenge to the refining industry, but had also affected overall demand levels, especially in the one to two years following its implementation.

Oil demand projected to increase by 14.5 mb/d to reach 111.7 mb/d by 2040, but growth decelerates over time

Long-term oil demand is expected to increase by 14.5 mb/d, rising from 97.2 mb/d in 2017 to 111.7 mb/d in 2040. However, the Reference Case projections to 2040 show a contrasting picture between the three major regions: declining long-term demand in the OECD, a moderately rising to flattening oil demand pattern in Eurasia, which both stand in stark contrast to growing demand in Developing countries. Driven by an expanding middle class, high population growth rates and stronger economic growth potential, oil demand in Developing countries is expected to increase by more than 22 mb/d between 2017 and 2040, rising from 44.4 mb/d in 2017 to 66.6 mb/d in 2040.

Another important observation is the steadily decelerating oil demand growth at the global level. Global growth is forecast to slow from a level of 1.6 mb/d p.a. during the initial forecast years to 2020 to just 0.2 mb/d p.a. in the period from 2035-2040.

Road transportation continues to lead demand, but petrochemicals see the largest increase and aviation is the fastest growing sector

Among all transport modes, the largest demand for oil comes from road transportation. In 2017, this sector represented 45% of global demand with 43.6 mb/d and significant demand growth is expected in the long-term to reach 47.8 mb/d by 2040. This is followed by aviation, which is estimated to be the fastest growing sector, with average oil demand growth at 1.5% p.a.

Demand growth in industry is driven mainly by the petrochemical sector, with demand forecast to increase by 4.5 mb/d from 2017-2040. Oil demand in the rest of industry – comprising primarily iron and steel, glass and cement production, construction and mining – is anticipated to continue to face strong competition from alternative fuels. Global demand in ‘other industry’ is expected to increase by 1.2 mb/d between 2017 and 2040, representing an average growth rate of 0.4% p.a. Electricity generation is the only sector where declining demand is forecast at a global level.

Total vehicle fleet is estimated to reach 2.4 billion by 2040

The increase in vehicle stock is the key driver that contributes to the rise in oil consumption in the road transportation sector. The total vehicle stock is estimated to grow by around 1.1 billion between 2017 and 2040 to reach 2.4 billion vehicles by 2040. Out of this, passenger cars are estimated to grow by around 877 million, with 768 million cars in Developing countries. China is set for the highest increase in additional passenger cars over the forecast period, at 291 million, followed by Other Asia with an increase of around 167 million cars. The passenger cars fleet in the OECD is foreseen to increase marginally.

The total commercial stock is forecast to more than double during the period 2017-2040, rising from 230 million vehicles in 2017 to 462 million by 2040. The majority of the increase comes from Developing countries, particularly from China, Other Asia, and India. The total amount of additional commercial vehicles in Developing countries is estimated to be around 183 million, which represents almost 80% of the total growth.

Share of electric vehicles in the total fleet is projected at around 13% by 2040

Electric vehicles (EVs), including battery electric and plug-in hybrid vehicles, are set to experience a significant growth in numbers and are forecast to reach around 320 million units in 2040. Out of this, passenger electric vehicles are estimated to account for more than 300 million in 2040, representing around 15% of the passenger fleet. Natural gas passenger cars are not expected to witness the same growth as electric vehicles, as there are only expected to be 77 million additional units on the road in 2040. An even slower expansion is projected for fuel cells vehicles (FCVs), which are forecast to remain a niche market over the forecast period.

Out of an expected 442 million commercial vehicles by 2040, a large majority of around 370 million will remain conventional. Natural gas vehicles (NGVs) are forecast to account for 6% of the commercial fleet by 2040. Electric vehicles are forecast to gradually increase its share and reach a high of 4% of commercial vehicles in 2040.

Combined, the share of electric vehicles in the total fleet is projected at around 13%, while the penetration of alternative fuels vehicles (AFVs, including EVs) is expected to reach around 18% by 2040.

4 – Oil movements

Global crude exports increase in the long-term, due to additional volumes from the Middle East destined for the Asia-Pacific

Global crude exports are expected to increase by around 5.4 mb/d, mostly driven by increasing demand and falling domestic supply in the Asia-Pacific. Global crude exports are likely to be around 40 mb/d in 2020, up from 38.5 mb/d in 2017, driven by increasing export volumes from the US & Canada, which have estimated grown by more than 2 mb/d between 2017 and 2020. By 2025, the global crude export level is projected to drop to around 39 mb/d, mainly due to lower volumes coming from Latin America and Africa, as more volumes are refined in these regions. At the same time, US & Canada crude exports are expected to peak at just under 4 mb/d in 2025.

Post-2025, global crude exports are expected to increase gradually to levels just below 43 mb/d, driven by increasing demand from the Asia-Pacific and increasing exports from the Middle East. Middle East crude exports are seen to increase by more than 6 mb/d between 2025 and 2040.

Another region contributing to the increase of global crude exports is Russia & Caspian, with volumes estimated to rise to above 7 mb/d, mainly due to output increases in Kazakhstan. Traditional exporting regions, such as Latin America and Africa, are expected to see lower crude exports to global markets, as increasing domestic demand results in additional refinery runs in those regions.

5 – Energy and technology key takeaways

-Internal combustion engines (ICE) still have substantial development potential beyond the current emission standards.

-The issue of polluting emissions from ICEs, mainly nitrogen oxide (NOx), can be resolved by using amply dimensioned catalysts and filters, together with appropriate temperature management.

-Battery technology is expected to evolve continuously and will lead to solid-state batteries in the course of the next decade.

-Conventional and electric powertrains will co-exist in the coming decades.

-Recycling will play a very important role in the case of electric vehicles.

-Gas turbines remain the main engines for commercial airplanes.

-Electrification may become an interesting complement in air transportation in view of adding to the operational security, as well as peak power development mainly upon take-off.

-The record-high efficiency of large marine diesel engines limits their potential for further improvements; air lubrication and hybridization may offer better solutions.

-The use of LNG as a sulphur-free fuel offers several advantages, including for WHR, but it will be impacted by a shortage of bunkering facilities in the short- and medium-term.

-Combined cycle gas turbines (CCGT) provide, by far, the lowest specific CO2 emissions of all fossil fuel technologies used in the power generation sector.

-Renewable power generation is expected to come mainly from wind and solar in the future, with storage increasingly playing a key role.

-Power storage may be a key element for renewables; battery electric storage systems are making progress in parallel to the development of electric vehicles.

-Tight oil will continue to play an important supply role, especially in the medium-term horizon, due to the substantial technological advances in this area.

-The crude oil-to-chemicals (COTC) concept may substantially improve processing facility output and bring ‘Industry 4.0’ principles to the petrochemicals sector.

-Data collection, data processing and AI are becoming omnipresent in the energy business, from exploring and exploiting resources through to oil refining for final consumption.

-Technological developments may not only contribute to new forms of energy, but also to strengthening the role of conventional energy sources.

6 - Energy and climate change key takeaways

-The Paris Agreement on climate change, combined with the cost competitiveness of natural gas, means that the coal industry is under increasing pressure, particularly in the power generation sector.

-Following the US announcement of its intention to withdraw from the Paris Agreement, the EU, China, and India have reaffirmed their commitments to the Agreement.

-The road transportation sector is increasingly under regulatory scrutiny, with the establishment of more stringent emissions targets across various regions.

-Diesel fuel faces tighter quality standards across several countries, particularly following the ‘dieselgate’ controversy.

-The popularity of electric vehicles among policymakers is also evident across regions; however, all of the regions reviewed in this Chapter are undergoing an evaluation, in one form or another, of the fiscal burden of subsidies for electric vehicles.

-Policymakers across the world are re-examining the potential role of nuclear energy in power generation, chiefly as a means to achieve climate and energy security objectives.

-Renewables are poised to play a greater long-term role in power generation, as a result of government support and the falling costs of renewables, particularly wind and solar.

-US energy policy has experienced an evolution of goals over time, ranging from ‘energy security’, to ‘energy independence’, and culminating in the current aim for ‘energy dominance’.

-While the US’s federal regulatory regime is liberalizing tight oil resources on federal lands, economics and technology prevail when it comes to the commerciality of tight oil resources.

-By 2030, the EU plans to reduce GHG emissions by at least 40%, meet a minimum level of 27% of renewable energy in the energy mix, and an increase in energy efficiency by at least 27%.

-In the EU, liquefied natural gas (LNG) features prominently as a means toward achieving diversification of energy supplies.

-China’s policy developments reflect the endeavour to achieve the domestic goals of realizing a future with ‘blue skies’.

-Renewable energy is intended to make up the bulk of India’s power additions in the medium- to long-term, led by solar and wind.

-While policies can be powerful mechanisms driving long-term changes, market fundamentals, consumer preferences, and fiscal realities also have a significant impact on energy markets.

Energy and sustainable development

Nonetheless, the achievement of SDG 7 targets on increased use of renewable energy and energy efficiency improvements will have significant effects on the future energy mix and levels. Coal is projected to be the most affected fuel as a reduction of about 65% in demand for coal is estimated necessary to achieve the SDG 7 targets on renewables and energy efficiency, along with an almost 15% decline in oil demand, and a 13% reduction from gas in 2040. It should be noted that the corresponding global CO2 emission reductions are not sufficient to put the world on a pathway consistent with a 2°C temperature target.

Subject research data been solemnly passed by Dr. Ayed S. Al-Qahtani (Director of Research Division at OPEC) to Mr. Maksym Karpenko (GM at NAVIS) during the OPEC Conference held in Abu Dhabi.

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