Global oil production to rise while demand falls, putting pressure on prices and investments
Energize Weekly, July 10,2024
Increasing global oil production in the face of plateauing demand will put price pressures on producers and challenge the large capital investment the industry is making, according to the International Energy Agency’s (IEA) annual market analysis and forecast.
The IEA is projecting a 3.2 million barrel a day (mb/d) increase in oil demand to 105.4 mb/d in 2030, while supply capacity increases 6 mb/d to 113.8 mb/d – “a staggering 8 mb/d above projected global demand,” the IEA said.
“A ramping up of world oil production capacity, led by the United States and other producers in the Americas, is expected to outstrip demand growth over the 2023-2030 forecast period and inflate the world’s spare capacity cushion to levels that are unprecedented,” according to the agency.
At the same time, oil producers are making significant investments in exploration, development, and infrastructure. Global upstream capital expenditure rose to $538 billion in 2023, the highest level since 2015.
It was the first time in nine years investment did not move in sync with oil prices, and the IEA is forecasting a 7 percent annual increase in capital spending in 2024 – cooling from the 14 percent annual increases over the last three years.
Petrochemicals will be the main driver of global demand growth. Natural gas liquids and condensates, which are key to petrochemical production, will account for 45 percent of the capacity increases from 2023 to 2030.
“Divergent regional economic trajectories and the accelerating deployment of clean and energy-saving technologies are combining to progressively slow the pace of oil demand growth, with a plateau emerging in the final years of our forecast,” the IEA said.
Emerging economies in Asia, particularly China and India, will account for all global demand growth, while advanced economies continue a decades-long decline, falling from 45.7 mb/d in 2023 to 42.7 mb/d by 2030.
Apart from the pandemic, the last time demand for those countries was that low was in 1991, the IEA said. Over the same time, oil demand from emerging and developing economies will have increased 2.5 times.
The large surplus in production could thwart the OPEC+ market management strategy aimed at supporting prices. The organization has a road map for unwinding extra voluntary cuts of up to 2.2 mb/d from between the fourth quarter of 2024 and the third quarter of 2025.
Saudi Arabia has put on hold a planned crude oil capacity increase and will now focus on expanding natural gas liquids and condensates, which aligns with its efforts to boost domestic gas supply, the agency said.
The United Arab Emirates, Saudia Arabia, and Iraq will account for a 1.4 mb/d rise in OPEC+ oil capacity, as African and Asian members face continuing declines.
A lower price environment would also challenge the U.S. shale industry, traditionally the fastest respondent to changing market circumstances.
“As the pandemic rebound loses steam, clean energy transitions advance, and the structure of China’s economy shifts, growth in global oil demand is slowing down and set to reach its peak by 2030. This year, we expect demand to rise by around 1 million barrels per day,” Fatih Birol, IEA executive director, said in a statement.
