Long Term Outlook: Crude Oil Prices to 2030

October 2010

World Oil Demand and Supply to 2030

World crude oil production follows demand. Production often falls simply because there is no demand. In some instances, demand can be limited by a lack of available supply. This could happen when productive capacity of wells is already fully utilized, and it takes some time (months, years) to develop additional productive capacity. In theory, demand could also drop if supply dropped. In short, oil demand and supply influence each other and cannot be analyzed completely separately.

The IEA's analysis of the 2008 to 2030 period indicates that world oil supply and demand are projected to grow by 1.0% per year.41 An overview chart of the IEA outlook for global oil supply and demand to 2030 is shown in table 4.

Focus on Long-Term Oil Demand

Between 2008 and 2030, countries not within the OECD account for all of the growth in global oil demand. In fact, OECD oil demand is actually expected to fall by an average rate of -0.3% per year from 43.2 Mb/d in 2008 to 40.1 Mb/d in 2030.

Table 4
World Oil Supply and Demand (Mb/d)
World Oil Supply in the Reference Scenario
1980 2000 2008 2015 2030 2008-2030
Non-OPEC 36.8 44.3 46.8 46.3 49.2 0.20%
OPEC 26.7 30.8 36.3 40.3 53.8 1.80%
Processing Gains 1.7 1.7 1.5 1.8 2.2 1.70%
World 65.2 76.8 84.6 88.4 105.2 1.00%

World Oil Demand in the Reference Scenario

OECD 41.3 44.7 43.2 41.2 40.1 -0.30%
Non-OECD 20.0 26.6 35.0 40.2 56.2 2.20%
Marine Bunkers 3.4 5.2 6.5 7.0 8.9 1.50%
World 64.8 76.5 84.7 88.4 105.2 1.00%
Source: International Energy Agency World Energy Outlook 2009

Focus on Long-Term Oil Supply

Based on its Reference Scenario, the IEA expects non-OPEC conventional oil production to peak around 201042. However, non-OPEC oil supply still grows, due to unconventional production. Non-OPEC oil supply grows by 0.2% per year to 49.2 Mb/d in 2030 from 46.8 Mb/d in 200843 from unconventional sources, such as Canada's oil sands. By 2030, unconventional oil represents 6.2% of world oil supply, up from 1.7% in 2008.44

In the 2008 to 2030 period, most of the increase in global oil output comes from OPEC countries, which control most of the world's remaining recoverable resources. OPEC oil supply grows by 1.8% per year to 53.8 Mb/d in 2030 from 36.3 Mb/d in 2008.45

The IEA has an alternative scenario for world oil production. Under the so called "450 Scenario" world oil demand is limited due to government climate change policies. The demand for global fossil fuels peaks around the year 2020. This limits supply growth. Global oil production reaches 91 Mb/d by 2030 versus 105 Mb/d in the Reference Scenario.

The projected increase in world oil output is contingent on adequate and timely investment. In its Reference Scenario, the IEA has projected that $5.9 trillion (2008 dollars) will need to be invested in global oil supply infrastructure over the 2008 to 2030 period.46

Theoretical Considerations for Long-Term Oil Prices

There is a very large, unknown amount of crude oil in the earth's crust. As geological knowledge and extraction technologies improve, more and more of this oil will become recoverable. Technological improvement also constantly reduces the real cost of extraction of crude oil of any particular quality, depth, and reservoir type. On the other hand, as the best oil pools are depleted, there is a need to move from high quality, shallow, very permeable crude oil reservoirs to lower quality, deeper, and lower permeability reservoirs. This "depletion effect" tends to cause higher extraction costs.

It then becomes a question of which effect predominates. At times, and for some resource types, technological improvements may overwhelm any resource depletion effect, with a net result of lower production costs over time. The price of most metals, in real terms, has declined since the 1950s.

A qualitative schematic of how future crude oil prices could evolve, based solely on the two main theoretical considerations - resource depletion effects and technological improvement effects - is given in figure 8.

Figure 8
Qualitative profile for long-term oil prices
larger image

Crude oil has many other complicating factors, of course, not least of which is the presence of a cartel organization (OPEC), and a heavy concentration of global crude oil resources controlled by NOCs. These factors mean that the above theoretical model is for some of the time, simply not relevant.

It is impossible to predict with complete accuracy whether any particular event that could have an impact on the price of crude oil will occur, or their timing. This means that to a certain extent, future crude oil prices and price fluctuations are not predictable. This could explain the significant variability in the reference forecasts shown in table 5.

Table 5
Long-Term Projections of World Oil Prices
(Constant 2008 Dollars Per Barrel)
Reference
(unless indicated)
2015 2020 2025 2030
High Price Case
2010 U.S. EIA AEO - Reference
Low Price Case
$144.72
$94.52
$51.48
$185.51
$108.28
$51.90
$196.51 $115.09
$52.02
$203.90 $123.50
$51.90
High Price Case
NEB - Reference
Low Price Case
$116.98
$85.30 $56.98
$121.16
$89.60
$61.16
N/A N/A
Deutsche Bank - Reference $93.18 $105.81 $114.65 $121.16
INFORUM - Reference $92.50 $107.98 $109.74 $116.81
IEA Reference $86.67 $100.00 $107.50 $115.00
IEA 450 Scenario $86.67 $90.00 $90.00 $90.00
IHS Global Insight - Reference $85.07 $81.93 $74.86 $77.27
Energy Venture Analysis - Reference $80.35 $84.45 $90.98 $100.45
Energy SEER - Reference
Energy SEER - Multi-Dimensional
$79.20
$99.03
$74.31
$101.52
$69.73
$105.81
$65.43
$113.19
Average Reference Cases $87.27 $94.10 $96.57 $101.20
Source: U.S. Energy Information and Natural Resources Canada
Oil prices converted into constant 2008 dollars.

Reference forecasts project crude oil prices out into the future based on current market conditions. As seen in table 5, to deal with uncertainty, several organizations including the U.S. Energy Information Administration and the National Energy Board have high and low price forecasts, in addition to their reference cases. These forecasts take in account a wide range of factors which could affect their oil price forecasts. For these groups, the reference case is an average of their high and low price forecasts and represents their best estimate of where crude oil prices could be in the future.

Scenarios project crude oil prices based on specific factors which could occur in the future. For example, the IEA's so called "450 Scenario", shows the possible impact of greenhouse gas emissions regulations on oil prices. By 2030, under the IEA's "450 Scenario", stringent greenhouse gas emissions regulations result in crude oil prices which are $25 per barrel or 22 percent lower than its Reference forecast.

Bank, Consultant, & Government Oil Price Forecasts

As seen in table 5, oil price forecasts vary dramatically. Forecasts which show a long-term trend towards falling prices place more emphasis on technological advances or on the view that oil demand will be weaker than expected by others (improvements in energy efficiency are cited as playing a strong role in reducing the demand for oil).

Figure 9
Crude oil price references forecasts
larger image

Other forecasts, which see higher oil prices, place more emphasis on factors such as a continued rise in Asian oil demand, the large volume of institutional investment in the crude oil market, the falling value of the U.S. dollar, the fact that most global oil resources are controlled by NOCs, rising marginal costs of oil production, and the established pattern of slow non-OPEC supply growth.

When the eight reference forecasts are graphed (see figure 9), one can imagine the "philosophy" of each forecast. The forecasts labelled "A" appear to place more emphasis on the view that technological effects (which drive down supply costs and demand) will cause prices to fall over time. The group labelled "B" appear to believe that the depletion effects and/or the market power of NOCs and OPEC will prevail. Finally, the forecast labelled "C" falls somewhere in the middle view.


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