Global Trends in Oil Industry Industry

Surbhi - UPES

Global Trends in Oil Industry

Analysis of:

Global oil demand

Global oil supply

Global oil price

Future issues

Global Oil Demand

It’s a known fact that while world oil reserves are decreasing; the demand for world oil is increasing.

World Energy Basket

From 2006 to 2030

Coal = 61% Oil = 27% Gas = 53% Nuclear = 24% Biomass = 40%

World Energy Basket

Oil Production Forecast Non OPEC Countries OPEC Countries

Global Oil DemandFactors Deciding Global Oil Demand:

Economic growth in the : OECD (Organization for Economic

Cooperation & Development) countries’

economies in Asia (excluding Japan). Industrialized countries are expanding Developing countries are growing

rapidly.

Global Oil DemandFactors Deciding Global Oil Demand (Cont….)

Adverse changes in the environment is now global concern as the impact of environmental changes influences economic decisions.This has a direct influence on the demand for crude oil.

Global Oil DemandFactors Deciding Global Oil Demand (Cont….)

Political events also have a great influence the oil market. Political events greatly influence the oil markets before & after the hostilities.

e.g. the conflict in the Persian Gulf

Global Oil Demand Energy is an essential input for

all economic activity. Close relationship between

economic activity and energy (variety of forms) consumption.

Out of several energy sources, Oil & gas remains as two of the most important sources of energy.

Global Oil Demand Oil currently accounts for about

34% of the world commercial energy supplies.

International Energy outlook anticipates oil demand to rise by about 1.8% per year.

Global Oil Demand

Because of technological advances, the world oil demand – supply picture has undergone a huge transformation.

Global Oil Demand

Between 1992 and 2002, the world’s proven oil reserves grew from 1006.7 barrels to 1047.7 barrels (at the end of 2002) despite consumption of 288 billion barrel during the same period.

Global Oil Demand

The most remarkable example of the technological advances is that of off shore oil production.

Global Oil Demand Because of technological

advances, the world oil demand – supply picture has undergone a huge transformation.

International Energy outlook anticipates oil demand to rise by about 1.8% per year.

Global Oil Demand Although, technological

advances made by the oil industry have helped in:

- reducing production costs- improved exploration- efficiencies in development- efficiencies in production

Global Oil Demand

BUT technology cannot breathe new life into commercially depleted reserves.

Depletion & DeclineDepletion of a reservoir refers to the decrease in the amount of oil contained in the reservoir.

Decline of a reservoir refers to the decrease in the rate of oil production in the reservoir.

Global Oil DemandProjections based on rising global demand and declining discovery rates indicate that the present age of conventional crude oil will soon be approaching stagnancy and probably by the mid of century there may not be enough oil around the world.

Global Oil Demand

The International Energy Outlook anticipates a rising demand by about 1.8 per cent per year, causing oil requirements to reach about 119 million barrels per day by 2025.

Global Oil Demand

The bulk of the demand growthwill occur in OECD countries, more in the United States (where demand remains particularly strong) than OECD Europe.

Why?

Global Oil DemandEuropeA decade of mediocre economic growth and the penetration of NG have acted to constrain overall oil consumption.

Global Oil DemandEurope (Cont….)Although demand for diesel fuel in western Europe has grown since 1990, future growth in diesel demand may be constrained due to controversial findings linking possible carcinogenic properties of particulate emissions to the burning of diesel fuel.

Global Oil DemandNorth AmericaN.America is the largest consumer of oil in the world.Most of the oil demand growth is projected for the transportation sector, with cars and light truck fleets – including sport utility vehicles (SUVs) – being the largest consuming segment of the sector.

Global Oil DemandIn 2030, oil is expected to represent 30% of total energy supply . The decline in the energy share reflects primarily a trend towards switching to NG and other types of fuel.

Global Oil DemandOil demand in the “industrialised countries” is projected to increase at only about 1.3% per year over the next two decades.The region that accounted for about 60% of oil demand in 1990 will account for only 40% of anticipated demand growth in 2025.

The remaining 60% of demand growth is projected for developing countries.

Global Oil DemandThe developing countries’ share of world oil demand is projected to increase from 36% in 2001 to 43% in 2025, with a corresponding drop in the industrialized countries’ share from 57% in 2001 to 50% in 2025.

Global Oil SupplyExpansion of OPEC Production Capacity:OPEC members with large proven reserves and relatively low costs for expansion of production capacity can accommodate sizable increases in petroleum demandOPEC supplies is projected to grow at an annual rate of 2.5% through 2025.

Global Oil SupplyNon - OPEC Supply:OPEC’s market share has been decreasing as Non – OPEC supplies play significant role.• N. America dominated Non - OPEC

supply in the early 1970s.• The North Sea and Mexico evolved

as major producers in 1980s.• In 1990s much of the production came

from the developing countries of Latin America, West Africa, and China.

Global Oil SupplyNon - OPEC Supply:World oil production from conventional sources is expected to reach peak after two decades.Non – conventional oil is expected to contribute to just about 8% to total world oil, supplied over a period of over two decades.The increase is mainly expected from technological improvements that reduce the cost of production.

Global Oil Prices Price of Crude oil is the most

important international price quoted globally.

It has a market influence on not only the global energy consumption as well as on overall economic growth and inflation.

Global Oil PricesDuring 1980s:Between 1978 and 1981, world oil

price jumped by 152%, resulting in “peak of oil demand” in non-communist world and later dropped 12.3% by 1983.

Global Oil PricesDuring 1980s:

Over this 4 year period, the demand response to this “price increase” was 0.9% drop in demand for every 10% increase in price relatively inelastic demand.

Global Oil PricesThe drop in oil demand and the world wide economic slowdown, put downward pressure on crude prices in the early 1980s.

Global Oil PricesWhen demand fell sharply – a massive crude oil production capacity surplus developed which led to intense price competition in the oil market.

Global Oil PricesThe drop in oil demand and the world wide economic slowdown, put downward pressure on crude prices in the early 1980s.

When demand fell sharply – a massive crude oil production capacity surplus developed which led to intense price competition in the oil market.

Global Oil Prices One of the most significant recent

pricing events occurred in late 1985.

Saudi Arabia adopted the role of “swing producer” to help support prices during the period of declining demand for OPEC oil. They cut their production to help tighten the market.

Global Oil PricesBut, Saudi Arabia’s production fell below 2 million barrel per day and they did not get cooperation from other OPEC countries in cutting production to support prices.

So, Saudi Arabia abandoned their role of crude exporter and decided to concentrate on maintaining a ‘fair share’ of the oil market.

Global Oil PricesDuring 1990s:In this period there was relative stability in the world oil market.

The new era’s price system was under a balance mechanism that kept oil price within a finite range – set at around $15 per barrel and a ceiling placed at around $20 per barrel..

Global Oil PricesThere were 4 major exceptions to the $15 - 20 per barrel consensus during the decade:1. During second half of 1988 – with $10

per barrel2. sharp peak of 1990, consequent to the

outbreak of Middle East hostilities3. extended decline during the winter of

1993-944. unexpected surge over $20 per barrel in the

last quarter of 1996 as Iraqi oil was making its comeback in the world markets.

Future IssuesSeveral Middle East countries and all OPEC members, account for 2/3 of world oil reserves. With a special mention for Saudi Arabia which possesses almost a quarter of these reserves. OPEC has 78 % of world reserves, whereas it currently produces only 43 % of the oil consumed worldwide – a situation that gives a very high number of years of reserves, approaching, or often exceeding, 100 years. Thus, the logical conclusion: the Middle East, already a strategic zone for oil production, is going to become more and more so as the years go by.

Future IssuesAt the present time, oil reserves represent 40 or so years of consumption. But that has been the situation for many years. Until now, the oil consumed was able to be replaced by new reserves - discoveries as a result of exploration, improvement of recovery rates in existing fields, oil price increases making the development of expensive fields an economic proposition. We are at a turning pointExploration to find new fields is no longer sufficient by itself for renewal of reserves

Future Issues

At the present time, oil supplies will be exhausted in a few decades.

But well before this point of total exhaustion, in the very near future,  in 5 years for the pessimists and in 25 for the most optimistic, the threat of shortage will be present.

It is unlikely that the oil on offer will continue to be able to meet an ever-increasing demand - we will have reached the Hubert peak for oil.

Future IssuesThe ‘after-oil’ scenario should be of great concern to all of us today.

It is absolutely necessary to find rapidly alternative energy sources, so that the remaining oil could be totally devoted to essential uses (such as plastics and synthetic fibre manufacture, agricultural applications – mechanisation, fertilisers, pesticides etc.)

Those new energy sources could also allow very significant energy savings, particularly in the developed countries.

OECD Countries

The Organisation for Economic Co-operation and Development (OECD) is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade.

It came into existence through Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961.

(OECD) shall promote policies:

to achieve the highest sustainable economic growth and employment and a rising

standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy.

to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development

to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations.

List of OECD Country 1. AUSTRALIA 17. ITALY2. AUSTRIA 18. JAPAN 3. BELGIUM 19. KOREA 4. CANADA 20.

LUXEMBOURG 5. CHILE 21. MEXICO 6. CZECH REPUBLIC 22.

NETHERLANDS7. DENMARK 23. NEW

ZEALAND 8. ESTONIA 24. NORWAY9. FINLAND 25. POLAND 10. FRANCE 26. PORTUGAL11. GERMANY 27. SLOVAK

REPUBLIC 12. GREECE 28. SLOVENIA 13. HUNGARY 29. SPAIN 14. ICELAND 30. SWEDEN 15. IRELAND 31.

SWITZERLAND16. ISRAEL 32. TURKEY

33. UNITED KINGDOM

34. UNITED STATES