(co-authored by Bruno Castello, the article below appeared at GEM, September 2016)
Although nobody can know what the future holds, many
institutions try to appraise the possible trends of the different fuels in the
next decades. The main reason is that energy is at the heart of the world
economy and even if forecasts won’t match reality, they are an essential tool
to activate today’s key policy changes.
The energy world has seen many changes in the past and many
others can be expected in the future. In order to see if common/divergent
trends emerge in the future we looked in this article at forecasts from five reputable
World Energy Outlook 2015 (New Policies
Scenario) of the International Energy Agency (IEA);
International Energy Outlook 2016 (Reference
Case) of the US Energy Information Administration (EIA);
Statoil Energy Perspectives 2016 (Reform
BP Outlook 2016;
ExxonMobil Outlook 2016.
Looking into the future, or at least trying to do so, is
obviously an intellectual work, hence outcomes below must be taken with
prudence. Comparing different data sets from different sources is a difficult
exercise. Each institution has its own definition, methodology, geographic
coverage and often report data in different units. We harmonized all the data
series to the largest extent possible. Although differences remained, they were
not seen too big to result in dramatically different analysis/conclusions.
Prospects for Oil and
All institutions/companies listed above agree that global
energy use will maintain a solid upward trajectory in the next 25 years with fossil
fuels remaining dominant in the overall energy mix.
Despite a spectacular increase of non-fossil fuels use
(nuclear and renewables energy), the share of fossil fuels will only slightly
decrease to at least three quarters of the global primary energy demand by 2040.
It had remained broadly constant above 80% over the last 25 years.
They all agree that oil will remain the single largest fuel in
the energy mix throughout the projection period. Although oil demand will
continue rising, its share in total energy demand will decrease to about 30% in
Demand for natural gas will grow faster than that of any
other fossil fuels. Share of gas in total energy demand is expected to slightly
increase to about 25% by 2040.
Share of oil and gas in global energy demand for the World
Source: OME based on IEA, EIA,
BP, ExxonMobil, and Statoil.
However, there are some divergences between the outlooks
with regards to the scale of the future oil demand growth. With an average rate
of only 0.4% per year, the IEA and Statoil envisage a sharp slowdown in oil
demand growth in the next 25 years, while BP and ExxonMobil foresee an average
annual growth of around 0.7% per year. In contrast, the US EIA, forecasts an oil
demand growth above 1% per year on average.
Past and future average annual growth rate for oil and gas demand in the
Source: OME based on IEA, EIA,
BP, Statoil and ExxonMobil. * to 2035 for
The EIA is the most enthusiast for natural gas demand growth
as well. It projects a maintained solid pace in gas demand growth in the future
compared to the recent past. According to the US administration, the share of gas
in total electricity generation could further increase to 28% (from around 22%
today). Conversely, the other institutions expect a strong deceleration of the
natural gas demand growth around 1.5% per year on average. The IEA is the only
one anticipating that consumption of natural gas will not surpass the level of
coal within the projection period, in energy-equivalent terms. In addition, according
to the IEA, the share of gas in total electricity generation will merely gain
one percentage point compared to today’s level. Statoil scenarios, however,
differ from the others. Its Reform and Rivalry scenarios see continued growth
in demand (1.1% per year) whereas the third scenario, Renewal, is characterized
by stagnant demand or zero growth.
When looking at oil and gas forecasts of the different scenarios
by region, we see a clear shift of the centre of gravity of oil and gas markets
from the OECD to the non-OECD. If OECD used to represent main oil and gas
consumers in the world, this is no longer the case. Demand for oil and gas in non-OECD
countries today is already higher.
Non-OECD countries are taking over and leaving behind OECD
countries as the main oil and gas consumers in the world. Population and GDP
growths remain clear markers of the future trends of global oil and gas demand.
Europe, in contrast, is an isolated island in this oil and gas world.
In the future almost all the growth in gas demand, all in
oil demand is expected to come from non-OECD countries. With much faster rates
of economic and population growth than OECD countries, non-OECD countries are
expected to use all possible means, including fossil fuels, to satisfy their
strong demand growth in energy while OECD countries will increasingly replace
fossil fuels with low-carbon fuels in their energy mix.
World oil and gas demand by region and by scenario
Source: OME based on IEA,
EIA, BP and ExxonMobil.
Share of non-OECD countries in global oil and gas demand is
projected to reach about 65% and above 60% by 2040 (by 2035 for BP)
IEA, EIA, BP and ExxonMobil all agree that oil needs in non-OECD
countries will increase significantly in the future; by as much as 50% for the
IEA, BP and ExxonMobil, and by almost 70% for the US EIA. Consensus is less
obvious with regards to future oil demand in OECD countries. While the EIA
expects consumption of oil to remain stable in the next 25 years (only -0.2%
from today to 2040), the IEA forecasts a drop of about 30%.
In the case of future natural gas demand, the EIA again is
more optimistic. The EIA projects the gas needs in non-OECD countries to double
and increase by one-third in OECD countries by 2040. Others are somewhat more
“moderate” and expect non-OECD gas demand to increase by about 70%. For OECD,
the growth rates in gas demand are different and range between 13% (IEA) and
Forecasts Are Not Set
Every institution makes revisions to forecast due to several
reasons, such as better knowledge of market trends, better available data,
changing policies and priorities. This is why it is also instructive looking at
future oil and gas demand forecasts through another angle: release date.
In order to show an example, we looked at the evolution throughout
the years of the different World Energy Outlook (WEO) New Policies scenarios of
the International Energy Agency for oil and gas. We narrowed our analysis to OECD
Europe only to check if some comparisons can be drawn with the revisions of OME
for the Mediterranean region. The IEA does not propose an aggregate with
Mediterranean countries but parallels exist between this aggregate and OME sub-region,
Since at least 2011, the IEA has revised its future OECD
Europe oil demand mostly downward. It is worth noting that between World Energy
Outlook (WEO) 2010 and 2015 releases, the IEA revised oil needs in OECD Europe for
2035 downward by 20%. In volume, the magnitude of the revision was 2.2 million
barrels per day. Just between the last two editions, OECD Europe oil demand by
2040 was reduced by a stunning -10% or 800 thousand barrels per day.
WEO revisions to OECD Europe gas demand
Source: OME based on IEA (WEO
2010 to 2015, New Policies Scenario).
Revisions in WEO editions are even larger in the case of future
OECD Europe natural gas demand. While consumption of gas in Europe keeps
declining since the late 2000s, naturally, gas demand forecasts were revised
accordingly. In its last edition (WEO 2015, released in November 2015), the IEA
anticipated OECD Europe gas demand at about 530 billion cubic metres (bcm) by
2035. This is 100 bcm less than the demand forecast in the 2010 edition, and about
140 bcm less than those in the 2011 edition when the question of a world
entering a golden age of gas was first asked.
In only five years, between WEO-2010 and WEO-2015 editions,
gas demand for OECD Europe for 2020, the closest term in the projection period,
has been revised downward by almost 90 bcm; and by about 130 bcm when we
compare 2011 and 2015 editions. The gap for the year 2040 between OECD Europe gas
demands in the last two WEO releases is more than 80 bcm.
IEA analysis reflects the fast-increasing uncertainty that
is observed by all analysts about future European fossil fuels needs, in
particular for natural gas. Now, there is a strong belief that gas use in the
region already peaked and will stagnate in the next decades.
While the future for natural gas looks still bright in the
rest of the world with a sound increase of demand repeated from one update to
the other, the future of gas in Europe is to some extent questioned. The strong
post-crisis recovery of the gas demand in Europe in the beginning of the 2010s
was short-lived. Among others, main culprits were a disappointing growth path
and sluggish electricity demand, a certain degree of vagueness with regards to
the EU energy strategy and the place of natural gas in future energy mix.
Comparison of EU
Natural Gas Production Forecasts
Modest and delayed economic recovery in several European
countries as well as the policy push for more green energy future makes the
place of natural gas in the long term energy mix rather fuzzy. This would
surely make the long term forecasts very uncertain. In contrast, long term gas
production forecasts are usually expected to be less uncertain, at least in
It is perhaps due to this reason that OME was criticized
heavily for its gas production forecasts for the EU in 2007.
OME forecasts at that time, and also in the following few years, were
considered to be very pessimistic, especially compared to the forecasts from
the EC and the IEA, as can be seen in the chart below.
Comparison of EU natural gas production forecasts for 2030
Almost 10 years later, we see that OME forecasts in 2007 are
still remarkably close to reality.
In 2013 there was a considerable hype about the shale gas
production in the EU. This was reflected in the upward revisions by the EC and
the IEA to the future EU gas production. In 2013, OME also made a revision to
its 2007 forecasts in order to incorporate the expectations concerning the
shale gas developments in the EU.
Comparison of OME forecasts with actual realisation
Source: OME based on IEA,
Eurostat, BP data (past), OME (forecasts).
Compared to the EC and the IEA, OME’s estimate for shale gas
production at that time was rather pessimistic. Nevertheless, they naturally
caused a shift in OME’s forecast to future EU gas production. Even then, OME’s
forecasts for future EU gas production are still much lower than those of the
EC and the IEA.
Gas production is on a downward trend for almost a decade
and still upstream development plans, whether conventional and/or
unconventional, face strong public but also political rejection in many
countries. The contribution of unconventional supply to the domestic European
gas production is expected to remain modest within the next 15 years. It is
perhaps due to this expectation that in its WEO-2015 the IEA lowered, for the
first time since 2011, its future EU gas production by 13% compared to the
The review of the different scenarios of the IEA, US EIA,
BP, ExxonMobil, Statoil and OME confirm that future energy mix will likely
remain to be dominated by oil and gas.
Who is right is not the point
we want to raise here. Instead we would like to draw attention to the fact that
the energy scene is moving permanently, sometimes with full of surprises. Who
anticipated the shale boom in the US, its consequences (the US will become a
net exporter of LNG in 2016!), and the sudden drop in oil prices since 2014?
Nobody knows what the next major changes in the energy world
will be. We can only be sure that reality will be different from the ones
forecasted. Place your bets!