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DETAILED OUTLOOK FOR OIL SUPPLIES

Long-term global shale forecast

CHANGING COMPOSITION OF ROAD TRANSPORT

EVs: Don’t believe the hype…at least not all of it

LONG-TERM PETROCHEMICAL FORECASTS

Unpicking petrochemicals

LONG-TERM AVIATION FORECASTS

Aviation outlook: Parts of the barrel continue to fly

EMERGING THREATS TO ROAD TRANSPORT DEMAND

The autonomous X-factor

JUGGLING THE MEDIUM-TERM ISSUES

Trumping US vehicle efficiency gains?

Long-term energy market outlook

2018 | November

https://www.energyaspects.com/?utm_medium=publication&utm_source=middleeast

2018 | November Long-term energy market outlook

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Service overview

The next 20 years threaten to be a watershed moment for energy markets with an unusually large

number of landmark events on the horizon making the future incredibly hazy.

The Long-term energy market outlook service provides our forecasts for international energy

markets out to 2040.

As well as a region/country-specific and fuel-type approach, we also look at the key contributing

sectors. This holistic approach provides an all-encompassing understanding of how oil, gas, coal,

renewables and nuclear markets will evolve over the coming decades based on existing and likely

policy decisions and trends.

The key issues and questions addressed in our Long-term energy market outlook include:

• The emergence of new non-oil propelled motorised transport—particularly electric

vehicles but also gas-powered transport (trucks, buses, cars and ships)—and how, by

focussing on the rapid growth in the sales of these new vehicles as opposed to the

associated evolution of the total vehicle fleet, the true impact of these new technologies

is often misunderstood.

• Changing vehicle ownership preferences—the ‘uberisation’ of road transport—and,

further out, the impact of autonomous vehicles.

• The rapidly expanding role of nonconventional oil supplies, vis-à-vis conventional oil,

and the implications of this transition on company cashflows, future drilling cycles, and

the changing role of OPEC.

• The advent of increasingly cost-competitive renewable power, and how this impacts the

energy mix, especially coal and natural gas.

• The rapidly expanding size of Asia’s new middle-class population—as an unprecedented

number of previously very low per capita energy consumers are finally able to enter

energy wealth—while huge numbers of other emerging market citizens (particularly in

Africa) are first able to consume significant volumes of energy.

• Tightening emissions regulations—such as IMO 2020 for ships—changing not only the

composition of demand, but also downstream oil strategies.

The complex demand-side models incorporated in our Long-term energy market outlook help to

examine these, often opposing, issues. We produce comprehensive forecasts, through to 2040,

providing clarity in an increasingly uncertain world. Each of the primary energy sources is dealt with

in detail, providing outlooks for oil (broken down by all the major product categories), natural gas,

coal, renewables and nuclear. Detailed forecasts are accordingly provided for each major region

(both by total primary energy demand and each major fuel) and for all of the major sectors of

energy demand (aviation, power, road transport, petrochemicals, industry and shipping).


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By explicitly modelling oil on a field-by-field basis, our global supply model addresses many

additional questions such as: the long-term implications of the 2014-2016 price slump, whether the

industry can deliver the supply to meet the ongoing appetite for oil (we do not expect demand to

peak before the mid-2030s), the role of shale and unconventional oil in the global energy mix, and

the implications of this transition on company cashflows and how companies will navigate these

turbulent times.

Our analysis combines a bottom-up field and project-level short/medium-term model (engineering

and technical) with a top-down resource-driven long-term model (influenced by both economic and

political factors) to provide insights into production potential. Transparent logic is critical and we

address how producers respond to price signals. Importantly, we also seek to address the

significance of cashflows in navigating the energy transition. Oil is, and will remain for some time,

one of the most important energy sources for meeting future demand. Conventional oil has been

the main focus of the oil industry since its inception, but we are currently amidst a rapid transition

to develop vast volumes of unconventional resource. In this report we address this impact over

time, assessing the dynamic between OPEC/non-OPEC and show how shale evolves.


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Contents

Executive summary 2

Key takeaways 4

Primary Energy 9

Energy at a glance 9

Economic backdrop 10

Focus: Macroeconomic underpinnings 11

Focus: Sharp expansion in Asian middle class supports energy demand growth 12

Future demand 14

In depth: Demand modelling 15

Oil 20

Overview 21

Demand 25

A brief history of oil demand 25

Product demand history 27

No peak in oil demand before the mid-2030s 28

Electric vehicles: Don’t believe the hype…at least not all of it 28

Jet, LPG and ethane see the most rapid demand gains 35

Focus: Unpicking petrochemicals 36

More restraint in simple ‘black oil’ 39

Focus: Aviation outlook: Parts of the barrel continue to fly 40

Diesel still strong, supported by IMO and ongoing gains in road freight 42

Tale of two decades for gasoline 43

Focus: The autonomous X-factor 44

Focus: Trumping US vehicle efficiency gains? 47

Residual fuel oil once again takes the wooden spoon 49

Focus: IMO 2020 serious implications for oil 49

Regional oil demand forecast 52

Focus: Latin American fossil fuel subsidies and their impact upon oil demand 53

Supply 56

In depth: Oil supply methodology 59

Reserves 61

Conventional reserves 61

Unconventional reserves 62

Focus: Defining conventional resource 62

Decline rates 63

Medium-term DCA 64

Long-term DCA 64

Unconventional basins 65

Focus: Are decline rates really easing? 67

Non-OPEC medium-term overview: 2019-2023 69


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Non-OPEC supply growth is front-end loaded 69

Structural downtrends to continue elsewhere 70

OPEC medium term overview: 2019-2023 74

Non-OPEC long-term overview: 2024–2040 77

North America 77

USA: Value over growth, or growth over value? 77

Focus: Long-term global shale forecast 78

Canada 79

Mexico: Rear-guard battle 80

LatAm: Extremity 81

Europe: She plays, strays and then stays 84

Non-OPEC Middle East 86

FSU: reliant on the giants 87

Asia: post-peak blues 90

Africa: half full or half empty? 92

OPEC long-term regional overview: 2024–2040 98

Africa 98

Middle East 101

Latin America 105

Gas 109

Overview 110

Demand 111

Regional gas demand 112

Sectoral gas demand 112

Focus: China—gas in transport 113

Supply 116

Coal 118

Overview 119

Coal in power outpaced by other energy sources 119

Coal in industry—still strong for the coming decades 121

Coal supply—globalisation at work 121

Focus: Industrial outlook 122

Nuclear 126

Advanced economies—phasing out and repowering 127

Emerging economies: Nuclear take-off 128

Renewables 131

Renewable subsidised expansion 132

Focus: Recent policy developments for renewables 134

Renewables—cost of integration, the growing externality 135

Power 137

Global demand 138


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Global supply 140

Regional Breakdown 141

North America 141

Europe 142

Asia 144

Latin America 146

Africa 147

Middle East 149

FSU 151

Table of figures 153


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Table of figures Fig 1: Primary energy demand by source, btoe 9

Fig 2: Primary energy demand by sector, btoe 9

Fig 3: Chinese primary energy demand, btoe 10

Fig 4: Indian primary energy demand, btoe 10

Fig 6: Average global economic activity, % chg. 12

Fig 7: Global population growth, % chg. 12

Fig 8: Oil consumption per capita, b/d 13

Fig 9: Regional oil demand development path 13

Fig 10: Energy consumption per capita, ktoe 14

Fig 11: Regional energy demand development 14

Fig 13: Demand modelling 16

Fig 14: Regional primary energy demand, btoe 18

Fig 15: Regional primary energy demand growth, btoe 18

Fig 17: Brent crude price 21

Fig 18: Medium-term oil balance, mb/d 21

Fig 20: Long-term oil balance, mb/d 23

Fig 21: Average global oil demand growth, mb/d 23

Fig 22: Forecasted crack spreads, $/b 24

Fig 23: Regional spreads, $/b 24

Fig 24: Global oil demand growth and prices 25

Fig 25: Oil demand growth and the economy 25

Fig 26: Regional oil demand growth, mb/d 26

Fig 27: Regional oil demand, mb/d 26

Fig 28: Oil product demand growth, y/y, mb/d 27

Fig 29: Global oil product demand, mb/d 27

Fig 30: Oil demand growth forecast, mb/d 28

Fig 31: Oil product demand forecast, mb/d 28

Fig 34: Global PLDV fleet, billion 30

Fig 35: Global ePLDV fleet, million 30

Fig 36: Chinese PLDV sales, million 31

Fig 37: Chinese PLDV fleet, million 31

Fig 38: Changing Chinese bus fleet, million 32

Fig 39: Chinese bus road diesel demand, mb/d 32

Fig 40: Indian PLDV fleet, million 33

Fig 41: European PLDV fleet, million 33

Fig 42: Road transport demand, btoe 35

Fig 43: Road demand, annual average chg, kb/d 35

Fig 46: Petchem demand by fuel to 2040, mb/d 37

Fig 47: Regional petchem demand to 2040, mb/d 37

Fig 48: ‘Black oil’ demand, mb/d 40

Fig 49: ‘Black oil’ average demand growth, mb/d 40

Fig 50: Regional aviation demand, mb/d 41

Fig 51: Aviation sectoral growth, % 41

Fig 53: Diesel/gasoil demand by sector, mb/d 43

Fig 54: Diesel/gasoil demand by region, mb/d 43

Fig 55: Gasoline demand forecast, mb/d 44

Fig 56: Gasoline fleet change, mb/d 44

Fig 57: Autonomous vehicle assumptions, % 45

Fig 58: Self-driving demand hit, mb/d 45

Fig 59: Asian Electric PLDV fleet, million 46

Fig 60: Asian gasoline demand, mb/d 46

Fig 61: US road transport demand, mb/d 47

Fig 62: US gasoline fleet, million 47

Fig 63: US diesel vehicle fleet, million 48

Fig 64: US road transport demand, mb/d 48

Fig 65: Regional bunker demand, mb/d 49

Fig 66: Global bunker demand, mb/d 49

Fig 67: Latin America energy demand, btoe 55

Fig 68: Latin America oil demand, mb/d 55

Fig 108: Africa OPEC production, reserves and decline rates 101

Fig 109: OPEC Africa liquids output, mb/d 101

Fig 110: OPEC Africa liquids, y/y change, mb/d 101

Fig 120: Natural gas price forecasts, $/mmbtu 111

Fig 121: Oil, natural gas price forecasts, $/mmbtu 111

Fig 122: Gas demand, by region 112

Fig 123: Regional gas demand, btoe 112

Fig 124: Sectorial gas demand, btoe 112

Fig 125: Gas demand, by sector, mtoe 113

Fig 126: Industrial gas demand, btoe 116

Fig 127: Gas supply, btoe 116

Fig 128: Coal demand, mtoe 119

Fig 129: Overnight capital costs in India & SE Asia, 2015 $/kW 120

Fig 130: Overnight capital costs in China, 2015 $/kW 120

Fig 131: Global coal demand by region, btoe 121

Fig 132: Global coal demand per sector, btoe 121

Fig 133: Coal supply for selected regions, btoe 122

Fig 134: Share of imports in coal consumption 122

Fig 142: Nuclear production worldwide, mtoe 128

Fig 143: Nuclear capacity in OECD countries, GW 128

Fig 144: Nuclear capacity in Eurasia, Africa, Middle East, GW 129

Fig 145: Nuclear capacity in China, India and Russia, GW 129

Fig 146: Future nuclear projects by region and supplier origin 130

Fig 148: Renewable generation per region, btoe 133

Fig 149: Global share of renewable and generation growth 133

Fig 150: Cost competition between solar and gas with and without renewable integration costs 136

Fig 151: Cost competition between wind and gas with and without renewable integration costs 136

Fig 152: Global power demand per regions, btoe 138

Fig 153: Power demand per energy use, % 138

Fig 154: Electric consumption per capita vs population growth139

Fig 155: Electric consumption per capita, toe 139

Fig 156: Global power supply per fuel type, btoe 140

Fig 157: Global share per fuel type, % 140

Fig 158: North American building demand, mtoe 141

Fig 159: North American EV consumption, mtoe 141

Fig 160: North American power supply by fuel type, btoe 142

Fig 161: North American generation mix, % 142

Fig 162: Forecasted GDP growth, % (LHS), energy intensity in kgoe/ 2010$ GDP (RHS) 143

Fig 163: European car fleet, millions of vehicles 143

Fig 164: European power supply by fuel type, btoe 144

Fig 165: European generation mix, % 144

Fig 166: Asian power demand breakdown, btoe 145

Fig 167: Asia/global industrial power demand, btoe 145

Fig 168: Asian power supply by fuel type, btoe 146

Fig 169: Asian generation mix, % 146

Fig 170: Energy subsidy per fuel type, % of GDP 146

Fig 171: LatAm/Caribbean middle class, % of population 146

Fig 172: Latin American fuel supply, btoe 147

Fig 173: Latin American generation mix, % 147

Fig 174: Asia/Africa electrification, % population 148

Fig 175: African power demand per sector, btoe 148

Fig 176: African supply by fuel type, btoe 149

Fig 177: African generation mix, % 149

Fig 178: Residential price of electricity, $/kWh 149

Fig 179: Power consumption per use type, mtoe 149

Fig 180: Middle East supply by fuel type, btoe 150

Fig 181: Middle East power generation mix, % 150

Fig 182: Crude oil export sensitivity to renewable penetration for Middle East region, in mb/d 151

Fig 183: Middle East nuclear capacity additions,GW 151

Fig 184: FSU real output growth forecast, % 151

Fig 185: Subsidies for electricity and gas, USD per capita (LHS), share of energy subsidies, % GDP (RHS) 151

Fig 186: FSU supply by fuel type, btoe 152

Fig 187: FSU generation mix, % 152

Executive Summary The next 20 years will be a fascinating time for the energy industry. Not only will new

technologies such as electric vehicles (EVs) change the composition of demand, but a vast

expansion in the size of the emerging market middle class will bring billions of people out of

energy poverty. Regardless of the form this additional consumption takes—be it plastics or

power, flights or automobiles—more energy will be required. Yet, over the next few years, we

are in a supply constrained world as the lack of investment during the last downturn results in

steep declines in conventional supplies.

The real fascination comes not from this additional energy demand per se, but the evolutions

the energy mix faces through 2040, both regionally and by primary energy source—natural gas,

coal, oil (and all the oil products), nuclear and renewables—with emerging market demand

(particularly in Asia, the Middle East and Africa) clearly outperforming OECD economies.

Technological developments—like EVs, autonomous vehicles and a general sector-wise increase

in electrification—dramatically change the composition of this additional energy demand, as this

extra demand is then diverted via the power sector. Huge discoveries of natural gas coupled

with dramatic cost reductions in solar and wind are allowing increased electrification to broaden

the primary energy mix as these lower-carbon options feed into the power sector.

Electricity is not part of primary energy demand (i.e. direct use of energy at source), but rather

the extra demand is captured through the additional primary fuels that are required by the

power sector to make the incremental electricity. Hence, the primary fuels that dominate our

forecast for the power sector—largely natural gas and renewables—hold sway over the total

forecast. We see global primary energy demand expanding by 3.6 billion tonnes of oil equivalent

(btoe) over 2018–2040—on average 1.0% per year—with renewables dominating (+1.9 btoe),

followed by natural gas (+1.2 btoe), oil (+0.5 btoe, or just over 10 mb/d), nuclear (+0.2 btoe) and

coal (-0.2 btoe).

Although supportive demographics sustain ongoing gains for each primary energy source

through the mid-2020s, the global move towards both increased electrification and lower

emissions sees coal peak around 2027 and oil in 2035. Gas and renewables take up most of the

slack, renewables increasingly dominating growth from the mid-2020s as their costs fall sharply.

Oil only really loses its mojo when the EV fleet reaches a critical market share of nearly one-fifth

in the late 2030s.

We expect oil use to gain slightly over 10 mb/d through 2040. This encapsulates a myriad of

complexities, the most striking of which is the need for higher prices through 2030 to stimulate

additional supply investments, as for that period our analysis unequivocally stresses a steep

supply shortfall between 2022-2023. Three consecutive years of declining Capex over 2015-2017

have inflated decline rates, thus bequeathing a legacy of supplies struggling to meet stout

demand growth through the first half of the long-term forecast. This demand growth, however,

progressively wanes through the second half of the forecast, dented by increased electrification

and efficiency gains. Oil demand peaks in 2035 (though gasoline demand peaks earlier in 2032)


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as EVs increasingly absorb market share and gas makes inroads into road freight (particularly in

China) and shipping.

This EV effect is often misunderstood. It is the fleet impact that really matters and not simply EV

sales (which only slowly penetrate the fleet)—hence, our forecast of peak demand is not quite

on a par with doomsayer predictions. What has already arrived is peak oil demand growth—in

2015—as our forecast largely shows decelerating demand growth out to 2040.

Our models show global oil demand doggedly exceeding supply through to the late 2020s, as

decline rates accelerate, fuelling persistent shortfalls and putting upside pressure on prices (only

brief respite anticipated in 2021-2022 on tightening liquidity and concerns about global trade

restricting momentum). Higher oil prices themselves go a long way towards rebalancing the

market, fuelling an additional supply response and curbing more voracious demand growth. The

early stages of our longer-term forecast show many of the classic signs of a commodity-cycle

rebalancing, with declining net annual supply deficits each year. Post-2030, prices fall as demand

growth moderates on increased electrification and the changing composition of transport

demand. We do not forecast prices then sharply plummeting, however, as two very persistent

demand supports remain—the petrochemical and aviation sectors—effectively putting a

backstop on the predicted post-2030 price drop.

Demand growth for both renewables and natural gas significantly outpace oil over our long-

term forecast, having been more evenly matched in the medium term. The gap widens as these

two greener energy sources fill the void left by the loss of coal—on environmental constraints—

and surge to satisfy consumers’ rampant and rising demand for electricity. On a sector-specific

basis, the power sector dominates natural gas demand growth on increased electrification

worldwide. The second-largest sectorial contribution is from industry, an expansion heavily

influenced by China’s concerted short/medium-term push for additional gas in industry. The

third-largest contribution comes from road transportation, particularly from China, where

government policies are encouraging trucking companies to switch from diesel to natural gas.

Renewables offer the strongest long-term growth, momentum that builds as expanding demand

for electric mobility requires fast-commissioned power supplies from renewables. As the 2020s

progress (into 2030), we increasingly expect the cost of onshore wind and photovoltaic (PV) solar

without subsidies to be substantially lower than gas and coal in all regions of the world, as is

already the case in a few regions. Initially, however, the growth is still heavily dependent upon

government support.

We also expect reasonably vigorous gains from the nuclear sector as it too benefits from surging

demand for power. The upside growth potential is restrained by safety concerns, particularly

following Fukushima, while emerging markets dominate growth.

Coal is the first primary energy source forecast to experience peak demand—in 2027—as coal-

fired power plants are increasingly phased out in many (particularly OECD) markets. The peak

is, however, possibly later than the casual observer might expect, as coal plants continue to be

installed in India, Iran, Pakistan, Turkey and the UAE.


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Selected sample pages


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Sample page from a section on the outlook for electric vehicles


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Sample page from section on North American production


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Example of data


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Example of data (cont’d)


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Long-term energy market outlook deliverables

Long-term energy market outlook

This annual report contains our views on supply, demand and prices from

2018 to 2040. Built on our detailed model of primary energy production

and consumption, it incorporates detailed analysis of a wide range of

relevant topics (e.g. electric vehicles, petrochemicals, Asian economic

growth, etc). The report provides particularly detailed forecasts over the

next five years, our medium-term outlook horizon.

Long-term outlook data

Download the detailed data behind our outlook for the five sources of

primary energy―oil, coal, natural gas, nuclear and renewables. The data

cover relative supply and demand on a global and regional basis, and price

forecasts for crude oil and natural gas.

Medium-term update

We refresh the medium-term outlook—looking out over the next five

years—once a year to ensure our forecast reflects the latest fundamental

drivers at the prompt such as economic shifts, technology changes, and

regulatory and political dynamics.

E-mail alerts

We publish timely e-mail alerts examining pertinent developments related

to the assumptions that drive our long-term forecast.

For example, a series of major new upstream discoveries, a significant

technological breakthrough or a shift in the outlook for the global

economy.

Workshop

Subscribers are invited to exclusive workshops, held annually in both

London and Houston. The workshop provides a forum for our analysts to

present our long-term methodology and views and fully address topics of

interest. Subscribing companies will have two seats at either the London

or Houston workshop.

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