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18 April 2016

Shifting Dynamics of Oil Demand

In a report "Oil and Gas Reality Check 2015" by consulting firm Deloitte one of the issues discussed was the dynamics of the demand for oil. Among some of the points raised in the report on the shifting dynamics of oil demand, were:

  • The International Energy Agency forecasted that demand for oil would grow by 0.9 MMbbl/d in 2015. 
  • China's demand for oil is strong and remains a "demand center", with projected demand for oil at 18 MMbbl/d in 2040. However, its main sources for oil may change in time.
  • European demand for oil is expected to maintain at 14 MMbbl/d in 2040.
  • In the US, crude oil imports have dropped 3% year-on-year as of January 2015. Players in the oil industry are starting to focus on domestic (US) demand, which are seen as more stable.
  • Japan's oil demand has dropped 22% since 2000, with increasing reliance on natural gas and nuclear. Nuclear is seen as a viable main source of energy.
  • The Asia Pacific oil-importing countries accounted for 70% (estimate) of global oil demand from 2010 to 2020.
  • The recent drop in oil prices was a boon to many governments. Many countries took the opportunity to cut fuel subsidies: Mexico, Brazil, India, China, Indonesia, Kuwait , Oman, Egypt, Tunisia, Morocco and Malaysia

Challenge of Drying Wells

In 2014 the IEA confirmed that global demand for oil is increasing. However, the challenge to this is, as Primeast describes it:
It is no secret that oil wells are drying up, but many people underestimate just how quickly this is happening. Whilst total OECD commercial oil inventories inched down by 6.5 million barrels in February, to 2,567 million barrels, this doesn't tell the whole story.

Companies are having to work exceptionally hard to increase their stocks. New sources are being identified, but these are often much deeper than existing fields and extracting oil is far more dangerous. This means the very latest technology is required to access these wells, which obviously costs a lot of money.

Challenge of the 3 D's.

In another Primeast article on the "Top 5 Challenges Facing Oil and Gas Gompanies", it was further stated:
Businesses are finding new sources, but these are proving to be extremely hard to access. In many cases they are deep underground, difficult to drill and distant from companies' existing sites. You could call this the 3D effect, and it is essentially three challenges rolled into one.

To extract oil from these new wells, firms need cutting-edge technology and highly-skilled engineers - both of which come at a price. The demand for oil and gas is continuing to rise at a time when resources are at their most stretched and this is putting a huge amount of pressure on businesses.

What I Think

With the number of challenges facing the oil and gas sector, I wonder why it is that oil companies are not already investing in alternative energy industries. It would be great if oil companies invested in electric vehicles. With all the money they have, they could easily fund innovation in affordable electric vehicle motor engines.

National Oil Companies (NOC's) are estimated to control 90% of the world's oil reserves. (source: 2015 report by Deloitte, look above for link) That means that they are sitting on a lot of money.

It is a terrible irony when the world's governments agree that reducing their carbon emissions is a very pressing concern, but the world's national oil companies (NOC's) want to increase their production and do everything they can to push demand further. Obviously, a more consistent approach is required to deal with the challenges of climate change. This would require a more unified approach among climate change stakeholders - which include oil and gas companies.

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