opec: world oil outlook 2009

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World Oil Outlook2009

Organization o the Petroleum Exporting Countries


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The data, analysis and any other inormation (Content) contained in this publication is or inor-

mational purposes only and is not intended as a substitute or advice rom your business, nance,

investment consultant or other proessional. Whilst reasonable eorts have been made to ensure the

accuracy o the Content o this publication, the OPEC Secretariat makes no warranties or represen-

tations as to its accuracy, currency or comprehensiveness and assumes no liability or responsibility or

any error or omission and/or or any loss arising in connection with or attributable to any action

or decision taken as a result o using or relying on the Content o this publication. This publication

may contain reerences to material(s) rom third parties whose copyright must be acknowledged by

obtaining necessary authorization rom the copyright owner(s). The OPEC Secretariat will not be

liable or responsible or any unauthorized use o third party material(s). The views expressed in this

publication are those o the OPEC Secretariat and do not necessarily refect the views o individual

OPEC Member Countries.

The material contained in this publication may be used and/or reproduced or educational

and other non-commercial purposes without prior written permission rom the OPEC Secretariat

provided that the copyright holder is ully acknowledged.

OPEC Secretariat, 2009Obere Donaustrasse 93

A-1020 Vienna, Austriawww.opec.orgISBN 978-3-9502722-0-8


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OPEC is a permanent, intergovernmental organization, established in Baghdad, Iraq,1014 September 1960. The Organization now comprises 12 Members: Algeria,

Angola, Ecuador, Islamic Republic o Iran, Iraq, Kuwait, Socialist Peoples LibyanArab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.The Organization has its headquarters in Vienna, Austria.

Its objective is to coordinate and uniy petroleum policies among MemberCountries, in order to secure a steady income to the producing countries; an ecient,economic and regular supply o petroleum to consuming nations; and a air return oncapital to those investing in the petroleum industry.


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Acknowledgements

Research DivisionHasan M Qabazard, Director, Research Division

Project co-ordinatorMohamed Hamel, Senior Adviser

Main contributorsGarry BrennandJan BanNamat Abu Al-SooFuad SialaRamiro RamrezMohammad MazraatiMohammad Khesali

Taher NajahBenny LubiantaraMartin Tallett

EditorJames Griin

Secretarial supportAnne RechbachMarie Brearley

Art designerAlaa Al-Saigh

TypesettingAndrea Birnbach

Additional support was provided byMohammad Alipour-Jeddi, Omar Ibrahim, Ibibia Worika, Fuad Al-Zayer, Puguh Irawan, Ramadan Janan, Claude Clemenz, Nadir Guerer, Aziz Yahyai, Kurt Zach, Monika Psenner, PantelisChristodoulides, Steve Hughes, Hannes Windholz, Klaus Stoeger

OPECs Economic Commission BoardMustapha Hanii, Lus Neves, Maria Viteri Acaiturri, Javad Yarjani, Adel Al-Taee, NawalAl-Fuzaia, Ahmed El-Geroushi, Uthman Muhammad, Sultan Al-Binali, Yasser Muti, AliAl-Yabhouni, Fernando Valera


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Contents

Foreword 1

Executive summary 6

Section OneOil supply and demand outlook to 2030 18

Section TwoOil downstream outlook to 2030 170

Footnotes 246

Annexes 250


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Section OneOil supply and demand outlook to 2030

Chapter 1 World energy trends: overview of the Reference Case 21

Main assumptions 21Energy demand 38Oil demand 49Oil supply 56Upstream investment 64CO2 emissions 65Comparison o projections 73

Chapter 2 Oil demand by sector 77Road transportation 78

Aviation 95Other transportation: domestic waterways and railways 96Other sectors 101Demand by product 110

Chapter 3 Oil supply 117Medium-term non-OPEC crude and NGLs 117Long-term non-OPEC crude and NGLs 131Non-conventional oil (excluding biouels) 137Biouels 140

OPEC upstream investment activity 144

Chapter 4 Protracted Recession scenario 147

Chapter 5 Industry challenges: a raft of uncertainties 157 Lowerand higher growth scenarios 157

The atermath o the global inancial crisis 160Financial markets and oil prices 164Upstream costs 165Human resources 166Technology and the environment 166Sustainable development objectives 167Cooperation and dialogue 168


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Section TwoOil downstream outlook to 2030

Chapter 6 Distillation capacity requirements 173

Assessment o reining capacity expansion review o existing projects 175Medium-term outlook 185Longer-term distillation capacity outlook 188

Chapter 7 Conversion and desulphurization capacity requirements 193Crude quality 193Reined products quality developments 196Capacity requirements 202Crude and product pricing and dierentials 212

Chapter 8 Downstream investment requirements 217

Chapter 9 Oil movements 221Crude oil 222Products 227Tanker capacity requirements 231

Chapter 10 Downstream challenges 235Changing downstream undamentals 235

Potential consequences or reinery projects, capacity and closure 239Potential or carbon regimes 241

Footnotes 246

Annex A Abbreviations

Annex B OPEC World Energy Model (OWEM): definitions of regions

Annex C World Oil Refining Logistics Demand (WORLD) model: definitions of regions

Annex D Major data sources


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List of b oxes

Box 2.1 The auto-industry: where is it heading?Box 2.2 Plug-in hybrids: plugged in, or plugged out?

Box 2.3 The aviation sector: up, up and awayBox 2.4 Petrochemicals: an important contributor to oil demand growthBox 3.1 How much will it cost?Box 3.2 Decline rates: business as usualBox 3.3 Is it a new era or Brazilian oil?Box 6.1 Sentiment or reining projects shitsBox 7.1 Marine bunkers: another element o uncertainty or reinersBox 7.2 The Atlantic basin: mapping the uture gasoline and diesel imbalance

List of tables

Table 1.1 Real GDP growth assumptions in the medium-termTable 1.2 Changes to real GDP growth Reerence Case assumptions in the

medium-term compared to WOO 2008Table 1.3 Population levels and growthTable 1.4 Population by urban/rural classiicationTable 1.5 Average annual real GDP growth rates in the Reerence Case

(PPP basis)Table 1.6 World supply o primary energy in the Reerence CaseTable 1.7 World coal and gas demand growth, 19902007 and 20072030Table 1.8 Medium-term oil demand outlook in the Reerence CaseTable 1.9 World oil demand outlook in the Reerence CaseTable 1.10 Medium-term oil supply outlook in the Reerence CaseTable 1.11 World oil supply outlook in the Reerence CaseTable 1.12 Assumptions or the calculation o upstream oil investment

requirements, cost per b/d conventional oilTable 1.13 Proposals by countries o QELROs targets or 2020 GHG emissions in

Annex I parties, as o end June 2009Table 1.14 Characteristics o past-TAR stabilization scenariosTable 1.15 Oil demand in reerence case projectionsTable 1.16 Oil supply in reerence case projectionsTable 2.1 Vehicle and passenger car ownership in 2006Table 2.2 Projections o passenger car ownership to 2030Table 2.3 The volume o commercial vehicles in the Reerence CaseTable 2.4 Average growth in oil use per vehicleTable 2.5 Oil demand in road transportation in the Reerence CaseTable 2.6 Oil demand in aviation in the Reerence Case


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Table 2.7 Oil demand in domestic waterways and railways in the Reerence CaseTable 2.8 Oil demand in industry in the Reerence CaseTable 2.9 Oil demand in residential/commercial/agricultural sectors in the

Reerence CaseTable 2.10 Electricity demand growth, 19712006

Table 2.11 Oil demand in electricity generation in the Reerence CaseTable 2.12 Oil demand in marine bunkers in the Reerence CaseTable 2.13 Global product demand, shares and growth, 20082030Table 3.1 Medium-term non-OPEC crude & NGL supply outlook in the

Reerence CaseTable 3.2 Estimates o world oil and NGLs resourcesTable 3.3 Long-term non-OPEC crude oil and NGLs supply outlook in the

Reerence CaseTable 3.4 Medium-term non-OPEC non-conventional oil supply outlook

(excluding biouels) in the Reerence Case

Table 3.5 Long-term non-OPEC non-conventional oil supply outlook (excludingbiouels) in the Reerence Case

Table 3.6 Medium-term biouel supply outlook in the Reerence CaseTable 3.7 Long-term biouel supply outlook in the Reerence CaseTable 4.1 Economic growth assumptions in the Protracted Recession scenarioTable 4.2 Supply and demand in the Protracted Recession scenarioTable 5.1 Oil demand in the lower growth scenarioTable 5.2 OPEC crude and non-OPEC oil supply in the lower growth scenarioTable 5.3 Oil demand in the higher growth scenarioTable 5.4 OPEC crude and non-OPEC oil supply in the higher growth scenarioTable 6.1 Estimation o secondary process additions rom existing projectsTable 6.2 Global demand growth and reinery distillation capacity additions by

period, Reerence CaseTable 6.3 Total distillation unit throughputsTable 7.1 Expected regional gasoline quality speciications (maximum sulphur

content in ppm)Table 7.2 Expected regional diesel uel speciications (maximum sulphur

content in ppm)Table 7.3 Global capacity requirements by process, 20082030

Figure 1.1 GDP growth orecasts or 2009: coming down astFigure 1.2 Average annual population growth ratesFigure 1.3 UN projections o world population to 2050: high, medium and low

variants

List of f igures


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Figure 1.4 Average annual growth rates o working age populationsFigure 1.5 Urban population as percentage o totalFigure 1.6 Real GDP in 2008 and 2030Figure 1.7 Real GDP per capita in 2008 and 2030Figure 1.8 World supply o primary energy by uel type

Figure 1.9 Coal reserves, 2008 (Top 10 countries)Figure 1.10 Coal demand, 2008 (Top 10 countries)Figure 1.11 Natural gas reserves, 2008 (Top 10 countries)Figure 1.12 Natural gas demand, 2008 (Top 10 countries)Figure 1.13 Natural gas demand, 19602030Figure 1.14 Increase in non-ossil uel inputs to electricity generation,

20072030Figure 1.15 Annual growth o oil demand in the medium-termFigure 1.16 Changes to oil demand Reerence Case projections in 2013

compared to WOO 2008

Figure 1.17 Growth in oil demand, 20082030Figure 1.18 Oil use per capita in 2030Figure 1.19 Annual global growth in oil demand by sectorFigure 1.20 Annual growth in oil demand by sector in OECD countriesFigure 1.21 Annual growth in oil demand by sector in developing countriesFigure 1.22 Annual growth in oil demand by sector in transition economiesFigure 1.23 Changes to non-OPEC oil supply Reerence Case projections in 2013

compared to WOO 2008Figure 1.24 Growth in non-OPEC oil supply, 20082013Figure 1.25 OPEC crude capacity and crude supply in the medium-termFigure 1.26 Incremental OPEC and non-OPEC supply in the Reerence CaseFigure 1.27 World oil supply 19702030: OPEC crude oil share will not be much

dierent rom todayFigure 1.28 Incremental crude and non-crude oil supply in the Reerence CaseFigure 1.29 World oil supply 19702030: crude and other sources o oilFigure 1.30 Cumulative upstream investment requirements in the Reerence

Case, 20092030Figure 1.31 Share o dierent anthropogenic GHGs in total emissions in 2004 in

terms o CO2-eq

Figure 1.32 Per capita CO2 emissions in the Reerence CaseFigure 1.33 Cumulative CO2 emissions since 1900

Figure 1.34 CO2 emissions pathways or Category III concentration stabilization

Figure 1.35 CO2 emissions pathways or Category IV concentration stabilizationFigure 1.36 World oil demand in Category III stabilization scenarioFigure 1.37 Changing world oil demand projections or 2025Figure 2.1 Oil demand by sector in 2006Figure 2.2 The distribution o oil demand across sectors in 2006Figure 2.3 Passenger car ownership per 1,000 in 2006


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Figure 2.4 Development o car ownership in OECD countries, 19702006Figure 2.5 Increase in number o passenger cars, 20072030Figure 2.6 Commercial vehicle intensities: volume per unit o GDP, 19702006Figure 2.7 Increase in volume o commercial vehicles, 20072030Figure 2.8 Growth in oil demand in road transportation, 20072030

Figure 2.9 Growth in aviation oil demand, 20072030Figure 2.10 Share o industry value-added in GDPFigure 2.11 The share o petrochemicals in industrial oil useFigure 2.12 Increases in oil demand in industry, 20072030Figure 2.13 Per capita electricity use in 2006Figure 2.14 Oil share in electricity generationFigure 2.15 Global demand by product, 2008 and 2030Figure 2.16 Global product demand changes between 2008 and 2030 compared

to WOO 2008Figure 3.1 Changes to Reerence Case non-OPEC crude and NGLs supply in

2013 compared to WOO 2008Figure 4.1 Global economic growth in the Protracted Recession and Reerence

Case scenariosFigure 4.2 US oil rig count ell with the low oil priceFigure 4.3 Change in non-OPEC supply: Protracted Recession scenario

compared to Reerence CaseFigure 4.4 OPEC spare capacity in the Protracted Recession scenarioFigure 4.5 OPEC spare capacity as a percentage o world oil demand in the

Protracted Recession scenarioFigure 5.1 World oil demand in the three scenariosFigure 5.2 OPEC crude oil supply in the three scenariosFigure 5.3 Cumulative OPEC investment requirements: how much is needed?Figure 6.1 Announced crude distillation capacity increasesFigure 6.2 Distillation capacity additions rom existing projects, 20092015Figure 6.3 Additional distillation capacity and crude runs rom existing

projects, including capacity creepFigure 6.4 Potential incremental product output rom existing projectsFigure 6.5 Incremental global reinery crude runs, required and potentialFigure 6.6 Additional cumulative reinery crude runs, required and potential

Figure 6.7 Crude distillation capacity additions in the Reerence Case by period,20082030Figure 7.1 Non-OPEC crude quality outlookFigure 7.2 OPEC crude quality outlookFigure 7.3 Global crude quality outlookFigure 7.4 Maximum sulphur limits or gasoline in 2009Figure 7.5 Maximum sulphur limits or diesel in 2009Figure 7.6 Conversion capacity requirements by region, 20082015Figure 7.7 Expected surplus/deicit o incremental product output rom existing

reining projects


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Figure 7.8 Global capacity requirements by process type, 20082030Figure 7.9 Conversion capacity requirements by region, 20082030Figure 7.10 Desulphurization capacity requirements by region, 20082030Figure 7.11 Desulphurization capacity requirements by product and region,

20082030

Figure 7.12 Gasoil-gasoline price dierentials in major markets, historical andprojected

Figure 7.13 Price dierentials or major products, historical and projectedFigure 8.1 Reinery investments in the Reerence Case, 20082015Figure 8.2 Reinery investments in the Reerence Case, 20082030Figure 8.3 Projected reinery direct investments by region, 20082030Figure 9.1 Inter-regional crude oil and products exports, 20072030Figure 9.2 Global crude oil exports by origin, 20072030Figure 9.3 Major crude exports by destination, 20072030Figure 9.4 Destination o Middle East crude oil exports and local supply,

20072030Figure 9.5 Global crude oil imports by region, 20072030Figure 9.6 Asia-Paciic crude oil imports by origin and local supply, 20072030Figure 9.7 Global exports o liquid products, 20072030Figure 9.8 Global exports o inished products, 20072030Figure 9.9 Global products imports by region, 20072030Figure 9.10 Net imports o liquid products by region, 20152030Figure 9.11 Outlook or tanker capacity requirements by category, 20082030Figure 9.12 Tanker leet capacities and requirements, 20082015


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Foreword


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Foreword

The past year has been one o much upheaval as the world aced a massive nancialcrisis and an ensuing deep economic contraction; one not witnessed since the 1930s.The implications have stretched ar and wide, with its ripple eects carrying it arbeyond the country where the crisis originated. It has ushered in some extraordinarychanges in such a short period o a time.

And o course or the oil market in general and, OPEC in particular, the ad-verse impacts were dramatic too. This is especially evident when looking at oil pricemovements over the past year, with the OPEC Reerence Basket price hitting highso over $140/b in July 2008, beore alling by more than $100 to below $40 onlysix months later. And this volatility could have been even more extreme withoutOPEC taking timely and proactive measures, both when prices were heading up, as

well as down.

Few could have predicted the rapid and widespread adverse impacts thatresulted rom the US sub-prime mortgage crisis. Over-leverage, poor risk man-agement, greed and speculation drove the nancial system to the edge o a to-tal meltdown when Lehman Brothers collapsed in September 2008. Whilst it isapparent that the world has now stepped back rom the abyss, the lessons need tobe taken on board.

From an oil market perspective, OPEC has clearly stated that the high oil pricesin the middle o 2008 were not justied by physical supply and demand undamen-tals. Price movements were exacerbated by massive direct and indirect investmentinfows by non-commercial players looking to gain exposure to commodity markets.This was acilitated, among other things, by the possibility o high leverage and theabsence o a cap on speculative activity.

OPEC has repeatedly called or better regulation and increased transparency inthese markets, or the benet o both producers and consumers alike. This call had aprominent place in the oreword o last years WOO. There is evidently a need or thisto be repeated here.

In putting together this years publication, a number o important questionsocused on the current crisis, in particular, just how long and deep this recession maybe, and which path the economic recovery might ollow. At present, despite the boldscal and monetary intervention rom governments, global economic conditions re-main gloomy, although some green shoots have recently appeared. In addition, thepotential impacts o government intervention, especially in the medium-term, in suchareas as infation, interest rates or the actual solvency o some countries, are dicultto predict. Perhaps the most important question, however, is whether this recession is


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a game-changer that indeed brings about proound changes in the longer term, muchas happened ater the Great Depression.

It is not the role o this publication, however, to delve into the details o suchimportant potential developments and their implications. It concentrates on explor-ing the possible developments o oil supply and demand.

OPEC, as an Organization, has maintained its commitment to ensure stablesupplies o crude oil to the market at all times, undertaking an ambitious programmeo investment, aware o the importance o responding to the demand or its crude ina timely manner, while oering an adequate level o spare capacity. However, it is not

without concern that the Organization observes a repetition o the past, where a largedrop in oil demand leads to damagingly high levels o unused capacity.

Nevertheless, we also believe in the widely held view that low oil prices are notsustainable. The levels or most o the rst hal o 2009 were considerably belowthat required to attract industry-wide investments and ensure sucient productioncapacity to meet uture demand. Stable and air prices should take into account en-ergy supply, demand and investments, including such core issues as costs and humanresources, over all timerames.

And this is obviously true across the entire energy industry. Each energy source, eachtechnology, and each project, has a price when it is viable; and a price when it is not.

The signicance o this can be viewed when weighing up expected demand inthe longer term. Whilst it is obvious that oil demand levels will drop in the short- tomedium-term leading to a rise in overall spare capacity looking urther out,demand will rebound again, particularly as the global economy recovers. And withoil, and ossil uels in general, expected to retain their preeminence in the globalenergy mix it is essential that the petroleum resources, o which there are plenty, aredeveloped in a timely manner. This will provide consumers with required supplies,producers with stable and adequate revenues or their non-renewable natural resourcesand investors with air returns.

The WOO 2009 also underscores other drivers o uncertainty concerning utureoil demand requirements. This year there are a number o downside risks stemmingparticularly rom the global economy, unreliable market signals and major policydevelopments.

Whilst OPEC welcomes diversity in the overall energy mix, including renew-ables and nuclear, we need to give careul thought to how we proceed. The uncertain-


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stress the importance o a positive and constructive dialogue between producers andconsumers.

The publications goal is to provide a useul reerence guide or the coming year:it is an important tool that helps urther the common interest among all stakehold-ers or energy market stability as we look to bring more clarity to the oil market anddevelop solutions and ways orward in the years ahead.

Abdalla Salem El-BadriSecretary General


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Executive summary


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The year that has passed between the publication o the 2008 edition o the WorldOil Outlook (WOO) and the nalization o this years has been one o unprecedentedturbulence. Oil prices have roller-coastered: starting 2008 at US$92/b, the OPECReerence Basket rose to a record $141/b in early July beore alling to $33/b by theend o the year, the lowest level since summer 2004. The central element linked tothis collapse in oil prices, o course, was the global nancial crisis that originated inthe US, and the ensuing deep recession in Organisation or Economic Co-operationand Development (OECD) countries and sharp slowdown o economic activity indeveloping countries. This, in turn, has choked demand or oil. Against this backdrop,a host o new challenges have arisen in preparing this outlook.

One o these challenges relates to assumptions or uture price developments.For the Reerence Case, the oil price assumption is the perception o the behaviouro upstream costs in general, and in particular, the cost o the marginal liquids barrel.

Already in last years reerence case, the long-term real price assumption refected theexpectation that high costs would eventually peak and then decline as cyclical ele-ments separate rom structural ones. This has already started to occur. Over the pro-

jection period, nominal prices are assumed to stay in the range $70100/b. However,it is important to note that this is an assumption, and does not refect or imply anyprojection o whether such a price path is likely or desirable.

The assumptions made or economic growth or the medium- and long-termconsider the potential depth and length o the global economic contraction. Thisincludes the lessons learned rom past recessions in OECD countries, and the possibleimplications o the responses by governments and monetary institutions around the

world, in particular in terms o expansionary policies and monetary easing. There is agrowing perception that the economic slowdown will be U-shaped, that is the recov-ery will gather momentum only gradually. Although the timing and strength o therecovery remain uncertain, or the Reerence Case, it is assumed that the end o 2009represents the bottom o the cycle, with the global economy actually contracting. In2010, recovery is underway, but ar rom complete, and gains momentum in 2011. By2012, the Reerence Case assumes that economic growth is back to trend values.

Long-term world economic growth assumptions in the Reerence Case are basedupon demographic trends and productivity growth assessments. The strongest growthis expected in developing countries and regions, in particular China and South Asia,

which expand at an average rate o 6.3% per annum (p.a.) and 4.7% p.a. respectivelyover the period 20092030. The average rate or global growth is 3% p.a. over thesame timerame. This is lower than the gure appearing in the previous WOO. Thisis partly due to the considerable downward revisions to economic growth prospectsas the global nancial crisis has evolved. Another reason is that the average growth or


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the world is calculated using updated purchasing power parity actors, which meansthat the weight is reduced or some o the ast growing developing countries, such asIndia and China.

Another major issue to address in developing the Reerence Case is the extentto which energy policies are introduced into the outlook. In this years ReerenceCase, two sets o policies have been incorporated: the United States (US) EnergyIndependence and Security Act (EISA), which has been passed into law, and theEuropean Unions (EU) climate and energy legislative package, or which relat-ed directives have now been adopted by both the EU Council and the EuropeanParliament.

Under all scenarios, energy use is set to rise. In the Reerence Case, it increases by42% rom 20072030. Developing countries will account or most o these increases,by virtue o higher population and economic growth. However, energy use in devel-oping countries will remain much lower on a per capita basis. Globally, renewableenergy will continue to grow ast, but rom a low base. Nuclear grows aster than inthe previous outlook, while hydropower is also set to expand. Realistically, however,ossil uels will continue to satisy most o the worlds energy needs, contributing morethan 80% to the global energy mix over this period. And oil will continue to play theleading role to 2030.

The medium-term prospects or oil demand are adversely impacted by the lowereconomic growth assumptions. OECD oil demand alls rom 47.5 mb/d in 2008to 45.5 mb/d by 2010, and remains at that level to 2013. The main source o in-cremental oil demand will be developing countries. However, given the anticipatedslow recovery, the annual increments in demand or 2010 and 2011 are below that o2012, once economic growth is assumed to return to its trend potential. This, in total,represents a major reassessment rom the previous reerence case. By 2013, oil demandis 5.7 mb/d lower than in last years outlook, with a dierence o more than 4 mb/dalready witnessed in 2009.

As we look urther into the uture, oil demand patterns become increasinglyinfuenced by the implementation o policies. Eciency improvements are strongerthan previously assumed, and this, compounded with the downward revision to me-dium-term expectations due to the global recession, has led to a signicant downwardadjustment to oil demand in the longer term. Oil demand in the Reerence Case is lessthan 106 mb/d in 2030, down rom 113 mb/d last year.

Developing countries are set to account or most o the long-term demandincrease, with consumption rising 23 mb/d over the period 20082030 to reach


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56 mb/d. Almost 80% o the net growth in oil demand rom 20082030 is in de-veloping Asia. Nevertheless, per capita oil use in developing countries will remain arbelow that o the developed world. For example, oil use per person in North America

will still be more than ten times that o South Asia. OECD oil demand alls over theentire projection period, having peaked in 2005.

The transportation sector is the main source o uture oil demand growth, ac-counting or over 60% o the total increase to 2030, although it is also lower than theprevious years assessment, due again to the current global economic slowdown, as wellas the assumed greater eciency improvements. The total stock o cars rises rom justover 800 million in 2007 to well over 1.3 billion by 2030, with three quarters o thisincrease coming rom developing countries. Car ownership per capita in developingcountries rises rapidly rom a low base o just 31 cars per 1,000 people in 2007 to 87per 1,000 by 2030. This remains well below OECD levels, however, which average530 per 1,000 by 2030. The expansion in commercial vehicles in developing countriesis also stronger than elsewhere, accounting or over 80% o the increase.

Oil use is at the heart o much industrial activity. In addition to the petrochemi-cals industry, diesel and heavy uel oil, in particular, are needed in construction andother major industries such as energy, iron and steel, machinery and paper. The stron-gest increase in the industry sector comes rom developing Asia and OPEC MemberCountries, particularly due to the ast growing oil demand or petrochemicals.

On the products side, the continuing shit to middle distillates over the entireperiod remains a dominant eature o the uture demand slate. This is clearly refectedin the act that out o 20 mb/d o additional demand by 2030, compared to 2008,almost 60% is or middle distillates.

Turning to supply, total non-OPEC oil supply is expected to continue to riseslightly over the medium-term, increasing by just over 1 mb/d or the years 20082013. This increase comes mainly rom non-conventional oil. Non-OPEC crude oilplus natural gas liquids (NGLs) are expected to stay fat over this period, reaching alevel in 2013 that is more than 3 mb/d below last years reerence case. This downwardrevision is largely the result o lower oil prices leading to cancellations and delays, debtnancing becoming more dicult and lower earnings limiting equity nance. Non-conventional oil, mainly Canadian oil sands, continues to grow in the medium-term,but again the low oil price environment has dampened growth prospects compared tothe previous outlook.

The Reerence Case thereby points to demand or OPEC crude oil, hav-ing allen in 2009 in the ace o the global global economic contraction, thereater


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rising slowly over the medium-term, returning back to 2008 levels by around 2013.Large investments are currently underway in OPEC Member Countries to expandupstream capacity. Although a low price environment may lead to the delaying or evenpostponing o some projects beyond 2013, spare OPEC crude oil capacity is never-theless set to remain at comortable levels. In the Reerence Case, OPEC upstreamdevelopment investment requirements to 2013 amount to around $110120 billion.

In the long-term, total non-OPEC oil supply continues to rise as the increasein non-crude sources is stronger than the slight decline in total non-OPEC crudesupply. Up to 2020, crude production increases in Russia, the Caspian and Brazillargely compensate or declines in the OECD. Non-conventional oil supply (exclud-ing biouels), mainly rom Canadian oil sands, rises in the Reerence Case by 4 mb/drom 20082030. The Reerence Case also sees strong biouels growth. On top o this,OPEC and non-OPEC NGLs are expected to grow. As a result o these developments,the amount o OPEC crude that will be needed continues to rise, reaching just over41 mb/d by 2030, albeit some 2.5 mb/d lower than last years reerence case.

The expansion in Reerence Case demand is largely met with non-crude supplyrom both OPEC and non-OPEC sources, leaving the contribution o crude onlymodest. Indeed, while global crude oil supply in 2015 is 71 mb/d, the same as 2008,by 2030 there is only a need or 77 mb/d. The resource base o conventional crude,together with non-conventional oil, is more than sucient to meet uture demand.Thereore, the key issue is not related to availability, but to deliverability and sustain-ability, as well as the uncertainties surrounding the extent to which increases in thedemand or crude will actually materialize.

This points to the issue o investments along the entire supply chain, some-thing that is crucial to both producers and consumers. Up to 2030, cumulativeupstream investment requirements are estimated to amount to $2.3 trillion (2008dollars) in the Reerence Case. Costs have been sharply infated since 2003, but areversal, albeit still slow, has recently been observed, which might indicate a shittowards a new cost cycle. This has been actored into estimates or upstream invest-ment requirements.

The possible implications o a recession that is deeper and longer than assumedin the Reerence Case are explored in the Protracted Recession scenario. Risks or theglobal economy remain skewed toward the downside, despite recent economic dataindicating a slowdown in the rate o contraction, and an improvement in businessand consumer condence. Interest spreads in the inter-bank lending markets havecome down, but are still much higher than in normal times. Risks stem in particu-lar rom possible delays in implementing policies to stabilize nancial markets, the


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urther deterioration o the health o banks that could lead to more tightness in creditavailability, country rating downgrades, defation dangers, and the insucient accesso emerging economies to oreign nancing. In addition to the more pessimistic viewo the rate o the global economic recovery, the Protracted Recession scenario also as-sumes that crude oil prices are signicantly soter than in the Reerence Case. In thisscenario, world demand in 2013 is 2.4 mb/d lower than the Reerence Case, withdemand at 85.5 mb/d.

Low prices have signicant impacts upon oil supply prospects, reducing bothprotability and cash fows. Indeed, the rst signs o a reaction to the recent oil priceall are appearing: the rig count has already allen switly in the US, and a similarpicture is emerging elsewhere. The link between price movements and upstream ac-tivity is nothing new. This has also been observed in the past. The economics o non-conventional oil supply would also be adversely aected by a prolonged sot priceenvironment.

This scenario also has important implications on OPEC Member Country in-vestment activity. Indeed, history has clearly shown the dilemma o having to makeinvestment decisions in a climate o demand pessimism and low oil prices. OPECMember Countries have concerns over the problem o security o demand, and therisk that large investments will be made in capacity that is not needed. The ProtractedRecession scenario combines the mix o low oil prices, demand uncertainty, and sig-nicant initial levels o spare capacity, as a result o a tide o investments undertakenin the ace o high oil prices. In this scenario, the additional element o the increaseddiculty in securing credit compounds the investment hindrances.

In the Protracted Recession scenario, OPEC is assumed to respond to the in-creased demand or its oil as non-OPEC supply is reduced due to the low oil price,

while upstream capacity investment is primarily ocused on compensating or naturaldeclines. Nevertheless, i non-OPEC supply continues to be aected through a lacko investment, then spare capacity in OPEC Member Countries would dwindle. Thescenario suggests that spare capacity could be reduced to less than 3 mb/d by 2012and below 2 mb/d by 2013. Should this tightness occur, prices must react. The lack ocapacity that emerges is a result o the low prices that are assumed over the medium-term. This is similar to the period o low prices in 1998/1999 which was a driver orthe capacity shortages that presaged the 20042008 price rise. In this scenario, his-tory, to an extent, repeats itsel, as low prices sow the seeds o unstable markets andprice spikes.

The recent price turbulence, the ongoing global nancial crisis, and many o theuncertainties that complicate upstream investment decisions are also relevant to the


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downstream. Rising oil prices rom 20032008, together with rening tightness andhigh margins, have in recent years brought orward an increasing number o proj-ects. However, several actors are now acting to delay, postpone or even cancel someprojects. These include, among other things, the prospect o sharply reduced oil de-mand across almost all world regions, diculties in arranging debt and equity nanc-ing and expectations o urther alls in construction costs.

It is estimated that around 6 mb/d o new crude distillation capacity willbe added to the global rening system rom existing projects by 2015. Almost50% o this new capacity is located in Asia, mainly China and India. In additionto distillation capacity, 5 mb/d o associated new conversion capacity and over6 mb/d o desulphurization capacity is expected to be constructed worldwiderom 20092015.

The implication o these capacity additions, in combination with demand pro-jections and increases in non-crude supply, is or a sustained period o low reneryutilizations and hence, poor rening economics. In the Reerence Case, the continu-ing increases in reneries potential to run crude, and the slow return to positiveadditional required crude runs, result in the distillation capacity surplus widening toover 4 mb/d by 2010, and around 5 mb/d by 2012, where it remains or some years.I the current recession extends urther than the Reerence Case assumes, this surplus

will evidently be even greater.

Indeed, in the Protracted Recession scenario the surplus crude run capabilityexpands to well over 7 mb/d by 2014. The clear result is stronger downward pressureson rening margins. While last years WOO oresaw that an easing in the reningsector could begin as early as 2009 and intensiy through 20102013, the results othis years outlook go ar beyond the eects previously envisaged, mainly due to thedeep recession and the inclusion o policy impacts.

In the Reerence Case, global crude runs will not have recovered to 2007 levelsuntil sometime around 2015. And even when they do, it is expected that they willcontinue to rise slowly, so that by 2030 crude runs are only 9 mb/d above 2007 levels.On the basis that the Reerence Case refects the uture, it is clear that the reningindustry will ace some major challenges and restructuring in order to maintain itsviability.

The impacts are not, however, regionally uniorm. As already identied in lastyears WOO, the rening sector in the US & Canada is projected to be most im-pacted, by a combination o an ethanol supply surge, a decline in gasoline demand,as well as the continuing eects o dieselization in Europe that generates low-cost


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ivesummary

gasoline or US export. Based on the outlook, not only do crude throughputs in theUS & Canada never recover to 2007 levels, they also steadily decline throughout theperiod to 2030.

Thus, it is expected that the OECD regions will suer a seriously depressedperiod or reneries, especially those ocused on gasoline rather than distillates. Thisindicates a need or widespread consolidation and closure to bring back operatingrates and renery viability. To examine this in more detail, a series o model cases toindicate the possible scale o the restructuring and consolidation needed were run asvariants o the 2015 Reerence Case. The results suggest that no less than 10 mb/do closures, predominantly in the US & Canada, Europe and the OECD Pacic, areneeded to restore utilization rates and rening margins to protable levels.

The outlook in these three regions stands in stark contrast to that or developingregions, especially the Asia-Pacic. The vast majority o the rening capacity expan-sions to 2030 are projected to be in the Asia-Pacic and the Middle East, at around10 mb/d and 3 mb/d respectively, out o a global total o 18 mb/d. Expansions in the

Asia-Pacic are dominated by China with more than 5 mb/d.

In respect to conversion capacity, projections highlight a sustained need orincremental hydro-cracking as some 4.3 mb/d o the 5.4 mb/d o global conversioncapacity requirements to 2030 above existing projects are or this process type.Conversely, recent substantial coking capacity additions together with expected de-clines in the supply o heavy sour crudes in the medium-term, is leading to a cokingsurplus. It means that coking additions only appear to be required ater 2020. Therequirements or catalytic cracking units are adversely impacted by declining gaso-line demand growth and rising ethanol supply, especially in the Atlantic basin.

Substantial desulphurization capacity additions will be necessary to meet sul-phur content specications, with some 14.5 mb/d required to 2030, which is overand above existing projects o 6.4 mb/d. Taking these gures together, o the 21 mb/do global desulphurization capacity additions rom 20082030, more than 70%, or15 mb/d, are or distillate desulphurization. The bulk o the remainder, 5 mb/d, is orgasoline sulphur reduction.

To have this capacity in place, the global rening system will require around$780 billion (2008 dollars) o investment to 2030. The Asia-Pacic region should at-tract the highest portion o these investments.

Global oil trade, including crude oil, rened products, intermediates and non-crude based products, will see a moderate change in the period to 2015, recording less


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than a 2 mb/d increase rom 20072015, rising rom 52.5 mb/d to 54.6 mb/d. Thesame period, however, will experience a shit in the structure o this trade as crude oil ex-ports are anticipated to decline by almost 1 mb/d, with the trade in oil products increas-ing by 3 mb/d. In the period beyond 2015, oil trade will resume its growth. By 2030,inter-regional trade increases by almost 12 mb/d, rom 54.6 mb/d in 2015 to more than66 mb/d by 2030. Both crude and products exports will increase rom 20152030, butcrude exports will gain bigger volumes than products. By the end o the orecast period,both crude and products exports will be approximately 7 mb/d higher than in 2007.

The tanker market is also exposed to a combination o the allout rom thecurrent economic turmoil, stagnant medium-term demand or oil movements, evendeclining in the short-term, and a relatively large increase in tanker capacity over thenext ew years as a result o record order books. Longer term, growth in the inter-regional crude oil trade and rened products will necessitate increases in global tankercapacity. However, this is limited, with the global tanker feet expected to expand byaround 100 million deadweight tonnes, or 25%, by 2030, compared to its capacity atthe end o 2008.

The estimations o price dierentials points to a number o implications. Arst and obvious consequence is that the excess rening capacity and excess gaso-line output capability will lead to closures, especially o those reneries that aregasoline-oriented. Secondly, the projected dierentials raise the question o howproduct demand will react. In this regard, several options exist that could alter theuture demand pattern, such as higher naphtha demand in the petrochemical sector,increased demand or naphtha as a uel, and shiting diesel demand back to gasoline,although the eects would likely be limited. A third and central question relates torenery process technology as sustained wide dierentials between naphtha/gaso-line and diesel present incentives or adaptations and new developments in reneryprocesses and catalysts. These are aimed at converting surplus naphtha/gasoline todiesel either through the revision o fuid catalytic cracker operations or by convert-ing naphtha more directly to diesel.

A principal theme that emerges rom the outlook, in both upstream and down-stream assessments, is cyclicality, with its ensuing challenges o making the appropri-ate investments in an environment o uncertainty and in an industry characterized bymassive upront capital requirements and long-lead times. This has been underscoredas the current global nancial and economic crisis has unolded. The need or counter-cyclical measures to support stability in markets is now recognized more than ever.

It is evident rom both the Reerence Case and the Protracted Recession sce-nario that the overarching challenge acing the energy industry in general, and


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OPEC in particular, stems rom the large uncertainties about uture demand levelsor energy and oil. The uncertainties that lie ahead, and the corresponding dicul-ties associated with making appropriate and timely investment decisions, underlinethe importance o exploring other oil supply and demand paths outside o thosedepicted in the Reerence Case. With this in mind, lower growth and higher growthscenarios have been developed.

In the lower growth scenario, downside demand risks rom lower economicgrowth than in the Reerence Case are coupled with a strong policy drive, over-and-above Reerence Case assumptions, to urther increase oil use eciency in the longerterm. In a higher growth scenario, the possibility o a switer recovery rom the globalrecession than assumed in the Reerence Case is considered, combined with a morepositive outlook or longer term growth prospects. The results show a wide range inOPEC upstream investment requirements. By 2020, investments under the higher

growth scenario are $430 billion in real terms, whereas under the lower growth scenariothey are just $180 billion. Even to 2013, which represents a timerame over whichinvestments are eectively locked in, requirements could be as low as $70 billion oras high as $170 billion.

In addition, there are various other challenges acing the oil industry. Clearly, ormost individuals, businesses and governments, the dramatic changes to the economiclandscape over the past year as the global nancial crisis has unolded are the currentoverriding concern. While the recession-driven demand destruction has demonstrated

worries over security o demand, the current environment also clearly reveals the beneto OPECs counter-cyclical measures. For example, OPECs substantial supply increasebetween 2002 and 2006 had a strong mitigating eect on pro-cyclical movements, when

world demand sharply increased and non-OPEC supply declined. Reciprocally, OPECsrecent supply adjustment has had a similar eect in the ace o the current deep globaleconomic crisis and the ensuing steep oil demand decline.

The economic stimulus packages put in place are another example o the neces-sity o counter-cyclical policy measures. They demonstrate broad agreement on therequirement or sound regulation in nancial markets. For oil, there is a need to im-prove the unctioning o utures and over-the-counter (OTC) markets, byinter alia,upgrading the availability o, and access to inormation on paper oil market partici-pants and transactions, better monitoring, imposing a cap on speculative activity, andstrengthening regulations to close various loop-holes.

Further uncertainties and challenges include those related to upstream anddownstream costs and the uture availability o skilled human resources. On the costissue, or the past ew years, the oil industry has seen costs that have been signicantly


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infated, in part as a result o the low oil price environment and low margins ten yearsor so ago that led to the implementation o downsizing and cost-cutting strategies.

While costs have allen a little, the question is whether this cost behaviour is structuralor cyclical. Regarding human resources, the past has shown that it is critical to main-tain and enhance the adequacy o the industrys skills base, even during an economicdownturn. There is a need to advance the numbers o students taking energy-relatedcourses, and to make sure these are open to all students rom across the world. More

work needs to be done to help make the industry more attractive to employees, as wellas to uture graduates, including easing university enrolment across national board-ers. To this end, urther coordinated eorts should be undertaken by international oilcompanies, national oil companies, service companies, governments, regulators andacademia.

The outlook points to rising environmental challenges. The oil industry has agood track record in reducing its environmental ootprint. And with the world ex-pected to rely essentially on ossil uels or many decades to come, it is vital to ensurethe early and swit development, deployment, diusion and transer o cleaner ossil-uels technologies. This is true or both local and global environmental protection.The need to adapt to a carbon-constrained environment will make the use o thesecleaner technologies all the more pressing. O particular note is carbon capture andstorage, a proven technology that has a high economic potential or mitigation. De-veloped countries, having the nancial and technological capabilities, and bearing thehistorical responsibility or the state o the Earths atmosphere, should take the leadin mitigation and adaptation eorts, as well as in providing technology and nancialresources, as enshrined in the United Nations Framework Convention on ClimateChange, its Kyoto Protocol and the Bali Action Plan.

Moreover, the outlook points to a broader set o challenges, such as the issueo sustainable development and its corollary, ghting energy poverty. It is importantto remember that poverty eradication is the very rst UN Millennium Goal. And amajor part, as well as a catalyst in helping alleviate poverty, is making sure that everyperson has access to modern energy services. It is critical that the world communitymakes sure access to reliable, aordable, economically viable, socially acceptable andenvironmentally sound energy services is available to all.

Addressing all o these challenges should involve the strengthening andbroadening o the dialogue between energy producers and consumers, in particu-lar through the International Energy Forum. Cooperation among national, inter-national and service companies should be enhanced, and should encompass, interalia, the development, deployment and transer o more advanced upstream anddownstream technologies.


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Section One


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Oil supply and demand outlook to 2030


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Chapter

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Chapter 1

W o r l d e n e r g y t r e n d s :

o v e r v i e w o t h e R e e r e n c e C a s e

Main assumptions

Oil price

The year that has passed since the publication o last years World Oil Outlook (WOO)and the nalization o this years has been one o unprecedented turbulence. Oil priceshave roller-coastered: starting 2008 at US$92/b, the OPEC Reerence Basket rose toa record $141/b in early July beore alling to $33/b by the end o the year, the lowestlevel since summer 2004. The central element linked to this reeall, o course, was thenancial crisis that originated in the US beore spilling over to most other countries,

which has led to rapidly deteriorating global economic conditions and prospects. Thisin turn has choked demand or oil. For the rst time since the early 1980s, worldoil demand contracted in 2008, by 0.3 mb/d, and it is expected to urther declineby a hety 1.4 mb/d in 2009, according to OPECs April Monthly Oil Market Re-port (MOMR). The rapidly sotening undamentals, with burgeoning stock levelsaccompanied by a rise in production capacity in OPEC Member Countries has clearlycontributed to the drop in oil prices. This is in addition to the now recognized actthat the unsustainably high price levels observed in the middle o 2008 were to a largeextent due to signicant speculative investment infows in oil and product utures andover-the-counter (OTC) markets.

Against this backdrop, a host o new challenges have also arisen, and the inputassumptions or OPECs World Energy Model (OWEM), which is used to prepare theoutlook. This is clearly borne out in the assumptions that need to be made concerninguture price developments.

Although at present attention is inevitably xed upon the low oil price environ-ment, alling demand, and rising levels o unneeded capacity, it is important that thelessons learnt rom the surge in prices to record levels in mid-2008 are not orgotten.The rise was not purely related to how supply and demand undamentals were evolv-ing indeed, throughout the period o high oil prices, the market was always wellsupplied. It is important, thereore, to recognize the role played by regulated uturesmarkets and unregulated OTC exchanges in driving the crude oil price, in particularthrough increased though dicult to monitor speculative activity. The emer-gence o oil as an asset class contributed signicantly to the price volatility seen in the


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recent past. Indeed, at the Jeddah Energy Meeting o June 2008, it was already evidentthat there were widespread calls or improved nancial market regulation. In addition,the ongoing nancial turmoil has also provided more broad-based evidence o the pos-sible adverse impacts o loosely regulated nancial markets.

This is not to say, however, that undamentals played no role over that period: aspart o the explanation or the oil price rise stems rom the low oil prices that prevailedor much o the 1980s and 1990s. This meant that investments were scaled downand cost-cutting strategies were implemented, leading to reductions in skilled labour,in the number o graduates in energy-related elds, and in research & development(R&D) investments. These low oil prices were bad or the oil industry, and in the lon-ger term they were also bad or consumers, when the world was caught unprepared orthe dramatic surge in energy demand in 20032004, and the emergence o developingcountries as the key engine o commodity demand growth.

Thus, one lesson or the low oil price environment at the beginning o 2009 isthat undamentals are not necessarily ully refected in oil price movements, whetherupwards or downwards, and thereore an extrapolation can be misleading. To someextent, non-commercial investor activity in oil utures is necessary to provide liquid-ity and acilitate market price discovery and risk hedging unctions. However, whenlet unchecked and with no cap, their activity tends to exacerbate price movementsand weakens their correlation with undamentals, especially when aced with such anuncertain environment as today. And as mentioned, low prices have historically sownthe seeds o later price rises.

The decision in Oran, Algeria, in December 2008, to urther reduce OPEC sup-ply by a total o 4.2 mb/d against the September 2008 level refects a decisive eort byOPEC Member Countries to restore oil market stability. Similar action has been seenelsewhere. In the ace o alling demand, production has been cut in other industriesto try to avoid a damaging build-up o inventories. This has occurred, or example, inthe steel, lead, zinc, copper, automotive and electronics industries.

In making a long-term oil price assumption or the WOOs Reerence Case, akey determinant is the perception o the behaviour o upstream costs and the cost othe marginal liquids barrel. In last years reerence case, the long-term real price as-sumption refected the expectation that high costs would eventually peak and thendecline as cyclical elements separate rom structural ones. This has already started tooccur. For the next decade, nominal prices are assumed to be in the range $70100/b.These are only assumptions and do not refect any price path that could be consideredlikely or desirable. However, as we move orward, it is acknowledged in this ReerenceCase that two structural elements are likely to play a role in pushing upstream costs


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Jul0

8

Aug0

8

Sep08

Oct0

8

Nov0

8

Dec0

8

Jan09

Feb

09

Mar

09

Apr09

May

09

Jun09

%

US

Japan

Eurozone

Date of projection

7

6

5

4

3

2

1

0

1

2

Source: OPEC MOMR, various issues.

Figure 1.1GDP growth orecasts or 2009: coming down ast

Table 1.1Real GDP growth assumptions in the medium-term % p.a.

2009 2010 2011 2012 2013 20092013

North America 3.0 0.5 1.7 2.6 2.6 0.9

Western Europe 4.1 0.3 1.5 2.0 2.0 0.5

OECD Pacifc 5.2 0.2 1.5 2.0 2.0 0.1

OECD 3.8 0.4 1.6 2.2 2.2 0.6

Latin America 0.7 2.4 3.0 3.3 3.2 2.3

Middle East & Arica 1.7 3.3 3.3 3.5 3.5 3.1

South Asia 5.1 5.0 5.4 5.4 5.3 5.1

Southeast Asia 1.6 2.5 3.3 3.8 3.8 2.4

China 7.0 7.3 7.7 7.7 7.7 7.4

OPEC 0.9 3.5 3.6 3.6 3.7 3.2

DCs 2.9 4.6 5.1 5.2 5.3 4.6

Russia 4.7 2.5 3.0 3.3 3.2 1.7

Other Europe 3.7 1.5 2.6 3.2 3.2 1.8

Transition economies 4.2 2.1 2.8 3.3 3.2 1.7

World 1.3 2.1 3.0 3.5 3.5 2.3


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Chapter

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other growth stimulus measures taken today will aect medium- and even long-terminfation, interest rates, country ratings, productivity and thus growth potential. Thepossibility o a prolonged adverse impact upon economic growth cannot be ruled out.This is explored in the context o analyzing downside uncertainties in Chapter 5.

Table 1.2 documents the revisions that have been made or the 20092011 GDPgrowth assumptions, compared to the reerence case appearing in the WOO 2008.The changes result in a cumulative loss in GDP o 8% compared to the previousassumption or the OECD, 11% or transition economies, and 4% or developingcountries.

Table 1.2Changes to real GDP growth Reerence Case assumptions in the medium-termcompared to WOO 2008 % p.a.

2009 2010 2011

OECD 6.0 1.9 0.7

DCs 3.0 0.9 0.0

Transition economies 9.1 1.8 0.5

Long-term economic growth

Demographics

There are many important linkages between economic growth and demographics. Pop-ulation growth rates, together with changes in age structure, aect the pool o workingage people, and the resulting labour orce expansion is a key determinant o economicgrowth potential. Population growth can also bring with it economies o scale that cancontribute to the potential. However, there are also demographic-related hindrances toan economy. Age structure changes have a host o implications, or example, related tohealth care costs, state pension expenditures and savings rates, and easibly, as a conse-quence, interest rates. There is also a concern that population growth that is too strongcan be an obstacle to sustainable development. For all o these reasons, as well as thepossible result o demographic developments on energy demand, it is important to lookat the expected population growth patterns over the period to 2030.

Since 1970, the worlds population has risen by more than three billion to reachthe current level o 6.8 billion people. The population growth rate, however, has beensteadily declining in all world regions and this slowdown will continue in the uture,at least over the projection period to 2030. As can be seen rom Table 1.3, the rate o


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expansion o the worlds population throughout the 1980s and 1990s averaged closeto 2% per annum (p.a.), but this ell to 1.4% p.a. over the period 19902007. Worldpopulation is expected to grow by an average o 1% p.a. over the years to 2030, reach-ing 8.3 billion, an increase o 1.6 billion rom 2007. These gures are based upon themedium variant projections rom the United Nations Department o Economic andSocial Aairs (UNDESA). Practically all o this growth will occur in developing coun-tries. Some world regions will even experience declining population levels, mainly dueto low ertility rates, with the OECD Pacic seeing a all in its aggregate population

within the next decade. It should also be noted that the population o some transitioneconomies, including Russia, is already contracting (Figure 1.2).

Demographic projections are couched in relatively robust terms. Firstly, thepopulation over the next two decades will predominantly consist o those alreadyalive. Secondly, birth and death rates tend to change slowly, and perceptible trends

Table 1.3Population levels and growth

Levels Growth Growth

millions millions % p.a.

2007 2030 20072030 20072030 20072015 20152030

North America 451 539 88 0.8 0.9 0.7

Western Europe 541 567 27 0.2 0.3 0.1

OECD Pacifc 201 197 4 0.1 0.1 0.2

OECD 1,193 1,304 111 0.4 0.5 0.3

Latin America 421 526 106 1.0 1.2 0.9

Middle East & Arica 821 1,302 481 2.0 2.2 1.9

South Asia 1,567 2,078 511 1.2 1.5 1.1

Southeast Asia 630 783 153 0.9 1.2 0.8

China 1,329 1,458 129 0.4 0.6 0.3OPEC 378 553 175 1.7 1.9 1.5

DCs 5,145 6,700 1,555 1.2 1.3 1.1

Russia 142 123 18 0.6 0.5 0.6

Other transition economies 196 196 0 0.0 0.1 0.0

Transition economies 338 320 18 0.2 0.2 0.3

World 6,676 8,323 1,648 1.0 1.1 0.9

Source: United Nations Department of Economic and Social Affairs (UNDESA), Population Division.


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Chapter

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Figure 1.2Average annual population growth rates

Source: UNDESA, Population Division.

NorthAmerica

NorthAmerica

NorthAmerica

OtherOECD

OtherOECD

OtherOECD

China

China

China

Otherdevelopingcountries



Transitioneconomies

Transitioneconomies

Transitioneconomies

0.5

0

0.5

1.0

1.5

2.0

% p.a.

20072010 20102020 20202030

are embodied in these projections. Nevertheless, it is worth noting that, although

demography is a relatively exact discipline, it is subject to a number o uncertain-ties. In particular, alternative easible projections o ertility rates can give rise tomarkedly dierent uture population gures. Figure 1.3 illustrates the low and highvariants o the United Nations (UN) population orecasts, as well as the mediumvariant used in the Reerence Case. The gures vary only due to alternative assump-tions or ertility patterns.2 The gure extends to 2050 to illustrate the ull range oexpectations.

For the period to 2030, the average growth in the low variant is 0.7% p.a., whilethe high variant case sees average growth o 1.3% p.a. Thus, with these variants theaggregate population is subject to a +/0.3% p.a. deviation that will contribute touncertainty over uture energy demand patterns. This points to a dierence in ex-pected world population between the high and low variants o 1.2 billion in 2030 andaround 3 billion by 2050. This is oten overlooked.

In OECD countries, the proportion o the population that is o working age (de-ned as people aged 1564 years old) is currently around 67%. However, this gureis already shrinking, as the ageing o the population continues. This means that the


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Figure 1.3UN projections o world population to 2050: high, medium and low variants

0

2

4

6

8

10

12

1900 1925 1950 1975 2000 2025 2050

billions


available labour orce in Western Europe will begin to decline beore total popula-tion starts to all, while the labour orce percentage in the OECD Pacic is already

decreasing. North America continues to experience labour orce growth, a key ele-ment in expectations or stronger uture GDP growth in North America relativeto other OECD regions. Over the period to 2030, the North American workorceis expected to increase by 32 million, while the rest o the OECD will decline by29 million. According to UN calculations, by 2030, the share o the working agepopulation in the OECD will be down to 62%. This decline may, to an extent, bemitigated by increases in the retirement age, made all the more likely given the con-tinuous rise in average lie expectancy.

In developing countries, the labour orce is set to grow. The key exception tothis is China, where the share o the working age population will all rom the currentlevel o 72% to 67% by 2030. Taken together with the total population growth, thisimplies that the Chinese labour orce will begin to shrink ater 2015. Other develop-ing country regions will see the share o the working population gradually rise, as pre-dominantly young populations see a more rapid rate o workorce entry than the rateo retirement. Russia and other transition economies, on the other hand, will continueto see a diminishing workorce share in the total population. Figure 1.4 demonstratesthese projections in terms o average annual growth rates.


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There will also be a strong shit in the population distribution between rural andurban areas. Today, hal o the world lives in cities and towns, and the proportion is setto rise to more than 60% by 2030 (Figure 1.5). Arica, South Asia and OPEC regions

will see growth in both urban and rural populations (Table 1.4). Elsewhere, however,population growth is only expected in cities. The dominant pattern or China is or amassive relocation rom the land to the city.

Urbanization trends have important uture implications, including or en-ergy demand. For example, there should be increased access to modern energyservices, in particular electricity, and there will be greater mobility requirements.There are also local, regional and global environmental urbanization implications.

At the local level, a decreased reliance upon traditional uels or cooking shouldhave positive health impacts, but at the same time, local air pollution may worsen.

And at the global level, the expected rise in electricity demand will have implica-tions or CO2 emissions, depending upon which primary energy source is usedor its generation.

Table 1.4Population by urban/rural classiication millions

2007 2030 Increase 20072030

Urban Rural Urban Rural Urban Rural

North America 364 87 469 70 105 16

Western Europe 391 150 444 123 54 27

OECD Pacifc 145 56 155 41 10 15

OECD 900 293 1,069 235 169 58

Latin America 343 77 463 63 120 15

Middle East & Arica 314 506 660 642 346 135

South Asia 455 1,112 866 1,213 394 117

Southeast Asia 287 344 488 295 203 50

China 537 792 879 579 342 213

OPEC 231 147 404 149 148 27

DCs 2,168 2,978 3,760 2,940 1,554 1

Russia 103 38 94 29 9 9

Other trans. economies 108 88 124 72 11 10

Transition economies 211 127 218 101 2 20

World 3,279 3,397 5,047 3,276 1,724 77



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Chapter

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Economic growth

The other link to long-term real GDP growth relates to the assumptions madeor what is termed actor productivity. Modern growth theory emphasizes the im-portance o technological advancement, as well as the relative productivity o hu-

man and physical capital. Recent work has, or example, stressed the signicance inchanges to human capital, such as through education, in understanding dierentregional growth rate patterns. For the purposes o the Reerence Case, total actorOECD productivity growth is assumed to be 2% p.a. in the early years o the pro-

jection, alling to 1.5% p.a. by 2030, while higher rates are assumed or developingcountries.

World economic growth in the Reerence Case averages 3% p.a. over the period20092030 (Table 1.5). This is lower than last years assumption or two reasons.

Firstly, as noted earlier, there have been considerable downward revisions to short- tomedium-term economic growth in light o the ongoing global economic crisis. Ontop o this, average world economic growth is calculated using updated purchasingpower parity (PPP) actors, which reduce the weight o large, ast growing developingcountries, such as India and China. South Asia (dominated by India) and China are

Table 1.5Average annual real GDP growth rates in the Reerence Case (PPP basis) % p.a.

20092020 20212030 20092030

North America 1.8 2.4 2.1

Western Europe 1.3 1.6 1.4

OECD Pacifc 1.1 1.5 1.2

OECD 1.5 1.9 1.7

Latin America 2.8 2.8 2.8

Middle East & Arica 3.2 3.2 3.1

South Asia 5.0 4.2 4.7

Southeast Asia 3.1 3.2 3.3

China 7.1 5.4 6.3

OPEC 3.3 3.3 3.4

DCs 4.8 4.3 4.5

Russia 2.2 2.5 2.3

Other transition economies 2.3 2.4 2.3

Transition economies 2.2 2.5 2.3

World 2.9 3.1 3.0


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in act the astest growing regions over the projection, averaging 4.7% and 6.3% p.a.respectively. OECD countries grow by an average that is below 2%, while transitioneconomies expand at 2.3% p.a.

Figure 1.6 demonstrates what this implies or the relative share o each regionto the global economy. In 2008, North America and Western Europe were by ar thelargest economies, representing 25% and 23% o the global economy respectively,measured in 2005 prices. At this time, China was the third largest economy, but itaccounts or just 11% o the world total. By 2030, real world output will have ap-proximately doubled, and China will become larger than either o these two OECDregions, doubling its share o the world economy to 22% to become the largest econ-omy in the world.

Yet the developments o GDP per capita paint a somewhat dierent picture.Figure 1.7 shows that the relative ranking does not undergo such a striking change:the OECD regions are, and will remain the regions with the highest GDP per capita,by some way. Among developing countries, China increases rapidly to become the

wealthiest region per head, equivalent to that o North America in 1973, and that oWestern Europe in 1992. However, it remains well under hal o the North Americaper capita wealth by 2030. South Asia, on the other hand, although witnessing risingGDP per capita, through 2030, only reaches the level that has already been reachedby China today.

Energy policies

Another major issue to address in developing the Reerence Case is the extent to whichrecently adopted or envisaged energy policies are actored into the outlook.

The WOO 2007 assumed that there was no signicant departure rom currenttrends with regard to energy policies. In the WOO 2008, while this assumption

was retained, it had been amended to refect the act that policy announcements areunlikely to be without impact, with the specic additional assumption that allowedor more rapid increases in car feet eciencies, compared to WOO 2007 gures.However, in the 2009 WOO Reerence Case, two sets o policy initiatives impact theoutlook: the US Energy Independence and Security Act (EISA) and the EuropeanUnion (EU) climate and energy legislative package.

The US EISA is already signed into law. In the WOO 2008, scenarios were de-veloped to assess the potential impact on oil demand and the call on OPEC oil. Thatanalysis pointed to the stricter Corporate Average Fuel Economy (CAFE) standardsreducing demand by 1.1 mb/d in 2020, and 2.1 mb/d by 2030 (this was the central


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Figure 1.6Real GDP in 2008 and 2030

$(2005) trillion

$(2005) trillion

0

5

10

15

20

25

30

2030

0

2

4

6

8

10

12

14

16

18

2008

Othertransitioneconomies

Othertransitioneconomies

Russia

Russia

MiddleEast&Africa

MiddleEast&Africa

OPEC

OPEC

SoutheastAsia

SoutheastAsia

LatinAmerica

LatinAmerica

SouthAsia

SouthAsia

OECDPacific

OECDPacific

China

China

WesternEurope

WesternEurope

NorthAmerica

NorthAmerica


50/296


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Commission proposals o January 2008, and entails legally binding targets or theyear 2020 that will oblige EU countries to reduce CO2 emissions by 20% rom 1990levels, to improve energy eciency by 20% and to reach a minimum 20% share orrenewable energy.

Six proposals were agreed upon:

To revise the EUs Emissions Trading System (ETS)This is seen as a key tool in achieving the 20% greenhouse gas reduction by

2020. The revision involves expanding the coverage to include urther industries suchas petrochemicals, and the introduction o ull auctioning by 2013. The Directive alsoprovides or agreements with other mandatory greenhouse gas trading systems.

CO2 reduction targets or sectors not covered by the ETSThis oresees a corrective action whereby countries will have to compensate or

underachievement in the ollowing year.

A legal ramework or CCSThe new directive sees the ETS setting aside up to 300 million allowances or

carbon capture & storage (CCS) projects, with an estimated resulting unding o69billion. This is suggested to be sucient or nine or 10 demonstration projects.

Binding targets or CO2 emissions rom new carsThe new legislation sees a binding target o 120g CO2/km, phased in over the

period 20122015, with nes payable by manuacturers or excessive emissions. Thisrepresents a reduction o 25% rom current levels. A long-term target, although notyet binding, o 95 g/km by 2020 is also included in the agreement.

A binding target o 20% renewable energy in the energy mix by 2020Energy produced rom hydro, solar, wind, biomass or geothermal sources in the

EU is to rise to 20% by 2020. This includes a 10% share o renewables in the trans-port sector.

GHG reduction targets along the entire uel supply chainThe uel quality directive sees GHG reductions o 6% rom 2010 levels by 2020.

This covers the entire lie-cycle o transport uels.

There are ve specic changes to the new Reerence Case.

Since its launch in January 2005, the perormance o the EU ETS has not beenas smooth as originally envisaged. Yet the expansion o coverage, as well as the phasing


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in o ull auctioneering is likely to bring about greater eciency improvements thanpreviously assumed in both the industry and power sectors. The Reerence Case in-troduces an additional eventual eciency increase in Western Europes industrial sec-tor. In addition, the share o coal is lower than the previous reerence case, especiallyin the electricity generation sector. Nevertheless, some resistance is expected to limitthe damage to the regional coal sector, and some competition with gas is expected,especially in light o security o supply concerns. The share o renewables in electricitygeneration also rises at aster rates.

The CO2 targets or new passenger cars represent a signicant challenge or carmanuacturers. To an extent, it is assumed that this target will not be ully met, assome manuacturers may choose to pay the nes (this has happened in the past withrms exporting to the US). The impact o greater eciencies upon the whole car stock

will initially be limited, growing over time, as the stock gradually turns over. It is as-sumed that eciency improvements or Western Europes transportation sector in thelonger term increase by 0.5% p.a. compared to the previous reerence case.

The renewables target o 20% was identied in the WOO 2008 as being ambi-tious, with CCS likely to have to become an integral part o measures to reach thetargets. CCS is to receive nancial support rom the ETS, but this will probably turnout to be insucient and it is still unlikely that the target will be reached. The renew-ables share is increased rom previous levels, but not to EU target levels.

The 10% renewables target or the transportation sector translates into a volume obiouels that is 0.4 mb/d higher by 2020 than in the previous reerence case. There is stilldoubt, however, as to whether this level o biouels supply is achievable in the timerame.Thus, the new Reerence Case increases the longer term projection or biouels supplyrom Western Europe by 0.4 mb/d by 2030, compared to the previous reerence case.

These assumptions will already go some way to achieving the overall target orCO2 reduction, including that in sectors not covered by the ETS. However, the resi-dential/commercial/agriculture sector is likely to receive increased support or e-ciency improvements, especially given the provision or corrective action outlinedabove. An additional eventual rate o eciency improvement o 0.2% p.a. is assumedto occur in the energy demand or these sectors.

This years OECD Pacic projections take into account the May 2008 revisionto Japans Law Concerning the Rational Use o Energy, aimed at stepping-up energysaving measures or actories and oces, residences and buildings. In June 2008, apartial amendment was also passed to Japans Law Concerning the Promotion o theMeasures to Cope with Global Warming. As a result, around 50% o businesses will


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supply o energy has helped world economies grow, create jobs and improve the livingconditions o billions o people.

Under all scenarios, energy use is set to rise. In the Reerence Case, it increasesby 42% rom 20072030. Developing countries will account or most o these in-creases, by virtue o higher population and economic growth. However, energy usein developing countries will remain much lower on a per capita basis. Moreover, alarge part o the world population will continue to lack access to modern energyservices.

Globally, renewable energy will continue to grow ast, but rom a low base.Nuclear grows aster than in the previous outlook, at an average o 1.6% p.a., whilehydropower is also set to expand. Realistically, however, ossil uels will continue tosatisy most o the worlds energy needs, contributing more than 80% to the globalenergy mix over this period. And oil will continue to play the leading role to 2030,although its overall share will all (Figure 1.8 and Table 1.6). Gas is expected to growat ast rates, while coal retains its importance in the energy mix. The trends in sharessuggest, however, that coal could become the dominant uel by the middle o thecentury.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

mtoe

Oil

Coal

Gas

Historical Projection

Nuclear/Hydro/Biomass/Other renewables

Figure 1.8World supply o primary energy by uel type


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Figure 1.9Coal reserves, 2008 (Top 10 countries)

Figure 1.10Coal demand, 2008 (Top 10 countries)

0 200 400 600 800 1,000 1,200 1,400 1,600

China

US

India

Japan

South Africa

Russia

Germany

South Korea

Poland

Australia

mtoe

Source: BP Statistical Review of World Energy, 2009.


0 50,000 100,000 150,000 200,000 250,000

US

Russia

China

Australia

India

Ukraine

Kazakhstan

South Africa

Poland

Brazil

million tonnes


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why CCS is an integral part o the EU climate change objectives. There is also scopeor developing a new generation o processes, as well as implementing existing ones,to improve the eciency o coal use. Certainly, i stringent CO2 emissions targets areto be met, it will be paramount to develop and disperse appropriate technologies orcoal use to remain at its current level.

The Reerence Case, however, is not carbon-constrained, other than to the ex-tent that the policies highlighted are taken on board. Reerence Case projections orcoal appear in Table 1.7. Developing country demand growth rises by an average o2.6% p.a. There is assumed to be little growth in Russias use o coal, with uturepower plants expected to take advantage o domestic natural gas or new nuclear. Theseare similar results to the previous assessment.

Table 1.7World coal and gas demand growth, 19902007 and 20072030 % p.a.

Coal Gas

19902007 20072030 19902007 20072030

North America 1.2 0.1 1.3 0.0

Western Europe 1.9 0.7 3.2 0.3

OECD Pacifc 2.8 1.1 4.3 0.4

OECD 0.4 0.4 2.2 0.2

China 5.2 2.6 8.5 4.3

OPEC 0.8 3.5 5.9 4.5

Other developing countries 4.1 2.6 7.4 3.9

DCs 4.9 2.6 6.8 4.2

Russia 3.1 0.1 0.0 1.3

Other transition economies 3.0 0.0 1.1 1.0

Transition economies 3.1 0.1 0.4 1.3

World 2.0 1.5 2.3 1.9

For the OECD, the picture has changed somewhat rom the 2008 reerencecase, with coal use projections lower than beore. This is due to the joint eects oreduced demand in the early years o the projection, as a result o lower economicgrowth because o the global nancial crisis, and the impact o a rising renewablesshare in the energy mix. In North America, coal use is approximately fat. Coalsshare in electricity generation continues to all in the Reerence Case, and the as-sumption is made that despite the spate o applications or new coal-red based


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generation, eciency gains are likely to compensate or the introduction o anyadditional plants. In addition, nuclear is expected to play a greater role in USelectricity generation. Coal use in Western Europe is projected to all at an averageannual rate o 0.7%, but this decline could be even switer i the renewable energytargets are ully met. This all is assumed to take place despite the apparent resur-gence o coal in discussions about uture energy needs. In the OECD Pacic theassumed increase in nuclear and renewables will limit the role that coal will play inelectricity generation.

The Reerence Case assumes that the opposing infuences o energy securityand the environment are relatively balanced, albeit with environmental pressuresslightly prevailing. The outlook or coal use, however, could be markedly dier-ent should either actor come to dominate energy planning over the coming twodecades.

Natural gas

Natural gas is the uel that has the most diverse range o uses across sectors. Whileelectricity generation represents the largest portion o global gas use, there is alsoconsiderable industry usage, particularly in petrochemicals, as well as the residential/commercial/agricultural sector, or heating and cooking. Nevertheless, the importanceo electricity generation to natural gas prospects remains strong. For example, in theOECD in the 1970s, less than 20% o total gas usage was in this sector, but this gurehas now doubled. A similar pattern is observable in developing countries. And Rus-sian gas use is concentrated mostly in electricity generation, at around two-thirds oall demand.

Close to three-quarters o the worlds gas reserves are in either OPEC Mem-ber Countries or Russia. Figure 1.11 shows the latest assessment o natural gas re-serves, or the top ten countries o the world, while the top consumers appear inFigure 1.12.

The Reerence Case projections or gas use are shown in Table 1.7. The evolu-tion o gas demand rom 19602030 is shown in Figure 1.13. The largest consumero gas is the US, but growth prospects are considered to be limited, particularly dueto the expected limits on uture supply growth. The Reerence Case thereore seesNorth Americas gas demand remaining fat. Gas demand has increased sharply overthe past two decades in Western Europe and the OECD Pacic, with average annualincreases over the period 19902007 o 3.2% and 4.3% respectively. While someuture growth is to be expected, the supply network is not anticipated to continueto expand as switly, so average growth or 20072030 is down to 0.30.4% p.a.


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Figure 1.12Natural gas demand, 2008 (Top 10 countries)


mtoe

0 100 200 300 400 500 600 700

US

Russia

I.R. Iran

Canada

United Kingdom

Japan

Germany

China

Saudi Arabia

Italy

Figure 1.11Natural gas reserves, 2008 (Top 10 countries)


trilion

cubic

metres

0 5 10 15 20 25 30 35 40 45 50

Russia

I.R. Iran

Qatar

Turkmenistan

Saudi Arabia

US

UAE

Nigeria

Venezuela

Algeria


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Figure 1.13Natural gas demand, 19602030

Source: Energy balances of OECD and non-OECD countries, IEA/OECD, Energy Statistics Yearbook, United

Nations.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1960 1970 1980 1990 2000 2010 2020 2030

mtoe

Russia and other

transition economies

Developingcountries

OECD

As a result, total OECD gas demand increases by just 5% over the entire projectionperiod.

In contrast, gas demand in developing countries is expected to grow rapidly.The rate o expansion is projected to be lower than over the past two decades, mainlya result o slowing economic growth, but also because earlier high growth rates wererom a low base. For the period to 2030, an average increase o 4.2% p.a. is predicted.This means that, by 2020, developing countries will be consuming more gas thanOECD countries.

Two-thirds o gas use in the transition economies group is in Russia, the secondlargest global consumer. Beore the collapse o the Former Soviet Union, transitioneconomy gas use was approaching OECD levels. Following the collapse, however,demand ell signicantly and in recent years growth has only been mod

opec: world oil outlook 2009

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