The International Energy Agency said that world-wide energy demand will reach a new high this year as the global economic recovery continues. Of course, if growth slows, all bets are off. Reuters has the details in this report.
The Paris-based adviser to industrialized economies raised its forecast for world oil demand growth this year to 1.67 million barrels per day (bpd), up 100,000 bpd.
The agency said in its monthly Oil Market Report that world oil demand would reach an average of 86.60 million bpd this year, up from 84.93 million in 2009.
The previous record high for world oil demand was 86.5 million bpd in 2007 before the onset of the global financial crisis and economic slowdown.
“There are signs of oil demand picking up in North America and the Pacific, Asia and the Middle East although consumption in Europe still looks weak,” David Fyfe, head of the IEA’s Oil Industry and Markets Division, told Reuters.
But the extra demand will largely be met by production from outside the Organization of the Petroleum Exporting Countries.
The group noted that the return of economic growth is fueling stronger demand for oil and, as anyone who has looked at these forecasts in detail knows all too well, the former (economic growth) is simply plugged into a formula to generate the latter (oil demand).
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Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
- No peak in global production
In next 10 years we must find 44 million BOPD:
- 26 million BOPD to maintain supply – 30% of current production, almost 3 times Saudi Arabia’s output
- 18 million BOPD to keep up with demand – 22% of current production, almost 2 times Saudi Arabia’s output
If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%
If you want to try the model for yourself using your own assumptions it can be found at Petrocapita: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86