Oil outlook: challenges and opportunities

A slide presentation by Dr. Adnan Shihab-Eldin, Acting for the Secretary General, to the National Academies Workshop, Washington, D.C. - 20 October, 2005

Summary of the presentation:

This reviews the oil outlook, challenges and opportunities in the early 21st century. It provides assurances of supply security at a time when there has been much market volatility and rising prices, and unprecedented demand growth. There are six sections: current oil market assessment, medium-to-long-term outlook, outlook beyond 2010, reserves/resources, uncertainties and technology.

The current market is characterised by resilient economic growth, and high oil demand growth, in particular from large developing countries with low consumption per capita. Supply chain tightness, particularly downstream, has contributed to a loss of market confidence. OPEC has increased production significantly to help stabilise the market, resulting in global supply exceeding demand for the last three years and rising oil inventories. But geopolitical tensions, hurricanes and other unpredictable events, together with increased activity in futures markets, have translated into significant volatility and rising prices.

In the medium term, OPEC is committed to continuing upstream capacity expansion at an accelerated rate, and this is expected to rise cumulatively by 5.5 million barrels a day to 38 mb/d by the end of 2010, and other liquids by 1.5–1.8 mb/d. OPEC will also add downstream capacity, well in excess of 2 mb/d. Oil supply is thus forecast to stay well above demand, whereas the downstream situation may only improve in 2007, when product demand and refinery capacity expansion could come close together.

Beyond 2010, demand growth will continue rising steadily. OPEC, with nearly four-fifths of proven global reserves, will supply increasingly the incremental barrel. But, despite the upstream investment challenge being not too dissimilar to the past, ensuring market stability will be complicated by considerable uncertainties, such as consuming countries’ energy policies.

The global reserve/resource base can easily meet forecast demand growth for decades to come. Estimates of ultimately recoverable reserves (URR) have increased over time, with advancing technology, enhanced recovery and new reservoir development. For example, according to an established industry source, reserve growth from improved recovery alone in existing fields amounted to 175 billion barrels in 1995–2003; combined with new discoveries of 138 bn b, total reserve growth was therefore well above the cumulative production of 236 bn b for that period. Moreover, technology continues to blur the distinction between conventional and non-conventional oil, of which there is also abundance, as well as with other fossil fuels. We expect the world’s URR to continue to increase in the future. Therefore, the real issue is not reserve availability, but timely deliverability, and here enhanced cooperation and dialogue among all parties is essential to ensure security of demand, as well as security of supply.

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