World Oil Prices and Production Trends in AEO2009 |
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The oil prices reported in AEO2009 represent the price of light, low-sulfur crude oil in 2007 dollars [50]. Projections of future supply and demand are made for “liquids,” a term used to refer to those liquids that after processing and refining can be used interchangeably with petroleum products. In AEO2009, liquids include conventional petroleum liquids—such as conventional crude oil and natural gas plant liquids—in addition to unconventional liquids, such as biofuels, bitumen, coal-to-liquids (CTL), gas-to-liquids (GTL), extra-heavy oils, and shale oil. Developments in the world oil market over the course of 2008 exemplify how the level and expected path of world oil prices can change even over a period of days, weeks, or months. The difficulty for projecting prices into the future continues when the period of interest extends through 2030. Long-term world oil prices are determined by four fundamental factors: investment and production decisions by the Organization of the Petroleum Exporting Countries (OPEC); the economics of non-OPEC conventional liquids supply; the economics of unconventional liquids supply; and world demand for liquids. Uncertainty about long-term world oil prices can be considered in terms of developments related to one or more of these factors. Recent Market Trends The first 6 months of 2008 saw the continuation of the previous years’ increases in oil prices, spurred by rising demand that was satisfied by relatively high-cost exploration and production projects, such as those in ultra-deep water and oil sands, at a time when shortages in everything from skilled labor to steel were driving up costs of even the most basic production projects. An apparent lack of demand response to high prices in developing countries, China and India in particular, led to expectations of continuing high oil prices and the bidding up of prices for the inputs needed to increase supply, such as labor, drilling rigs, and other factors. Given the apparent lack of consumer response to price increases, lags in increasing supply, and the limited availability of light crude oils, some analysts believed that a price of $200 per barrel was plausible in the near term. By July 2008, when world oil prices neared $150 per barrel, it had become apparent that petroleum consumption in the first half of the year was lower than anticipated, and that economic growth was slowing. August saw the beginning of the current global credit crisis and a further weakening of demand; and since September 2008, the global economic downturn has reduced consumers’ current and prospective near-term demand for oil while at the same time the global credit crunch has restricted the ability of some suppliers to raise capital for projects to increase future production. In the second half of 2008, producer and consumer expectations regarding the imbalance of supply and demand in the world oil market were essentially reversed. Before August, market expectations for the future economy indicated that demand would outpace supply despite planned increases in production capacity. After September, expectations became so dismal that OPEC’s October 24 announcement of a 1.5-million-barrel-per-day production cut was followed by a drop in oil prices. Although the impacts of the current economic downturn and credit crisis on petroleum demand are likely to be large in the near term, they also are likely to be relatively short-lived. National economies and oil demand are expected to begin recovering in 2010. In contrast, their impacts on oil production capacity probably will not be realized until the 2010-2013 period, when current new investments in capacity, had they been made, would have begun to result in more oil production. As a result, just at the time when demand is expected to recover, physical limits on production capacity could lead to another wave of price increases, in a cyclical pattern that is not new to the world oil market. Long-Term Prospects Developments in past months demonstrate how quickly and drastically the fundamentals of oil prices and the world liquids market as a whole can change. Within a matter of months, the change in current and prospective world liquids demand has affected the perceived need for additional access to conventional resources and development of unconventional liquids supply and reversed OPEC production decisions. The price paths assumed in AEO2009 cover a broad range of possible future scenarios for liquids production and oil prices, with a difference of $150 per barrel (in real terms) between the high and low oil price cases in 2030. Although even that large difference by no means represents the full range of possible future oil prices, it does allow EIA to analyze a variety of scenarios for future conditions in the oil and energy markets in comparison with the reference case. Reference Case The AEO2009 reference case is a “business as usual” trend case built on the assumption that, for the United States, existing laws, regulations, and practices will be maintained throughout the projection period. The reference case assumes that growth in the world economy and liquids demand will recover by 2010, with growth beginning in 2010 and continuing through 2013, when world demand for liquids surpasses the 2008 level. In the longer term, world economic growth is assumed to be roughly constant, and demand for liquids returns to a gradually increasing long-term trend. As the global recession fades, oil prices (in real 2007 dollars) begin rebounding, to $110 per barrel in 2015 and $130 per barrel in 2030. Meeting the long-term growth of world liquids demand requires higher cost supplies, particularly from non-OPEC producers, as reflected in the reference case by a 1.1-percent average annual increase in the world oil price after 2015. Increases from OPEC producers will also be needed, but the organization is assumed to limit its production growth so that its share of total world liquids supply remains at approximately 40 percent. The growth in non-OPEC production comes primarily from increasingly high-cost conventional production projects in areas with inconsistent fiscal or political regimes and from expensive unconventional liquids production projects. The return to historically high price levels would encourage the continuation of recent trends toward “resource nationalism,” with foreign investors having less access to prospective areas, less attractive fiscal regimes, and higher exploration and production costs than in the first half of this decade. Low Price Case The AEO2009 low price case assumes that oil prices remain at $50 per barrel between 2015 and 2030. The low price case assumes that free market competition and international cooperation will guide the development of political and fiscal regimes in both consuming and producing nations, facilitating coordination and cooperation between them. Non-OPEC producers are expected to develop fiscal policies and investment regulations that encourage private-sector participation in the development of their resources. OPEC is assumed to increase its production levels, providing 50 percent of the world’s liquids in 2030. The availability of low-cost resources in both non-OPEC and OPEC countries allows prices to stabilize at relatively low levels, $50 per barrel in real 2007 dollars, and reduces the impetus for consuming nations to invest in the production of unconventional liquids as heavily as in the reference case. High Price Case The AEO2009 high price case assumes not only that there will be a rebound in oil prices with the return of world economic growth but also that they will continue escalating rapidly as a result of long-term restrictions on conventional liquids production. The restrictions could arise from political decisions as well as resource limitations. Major producing countries, both OPEC and non-OPEC, could use quotas, fiscal regimes, and various degrees of nationalization to increase their national revenues from oil production. In that event, consuming countries probably would turn to high-cost unconventional liquids to meet some of their domestic demand. As a result, in the high price case, oil prices rise throughout the projection period, to a high of $200 per barrel in 2030. Demand for liquids is reduced by the high oil prices, but the demand reduction is overshadowed by severe limitations on access to, and availability of, conventional resources. Components of Liquid Fuels Supply In the reference case, total liquid fuels production in 2030 is about 20 million barrels per day higher than in 2007 (Table 5). Decisions by OPEC member countries about investments in new production capacity for conventional liquids, along with limitations on access to non-OPEC conventional resources, limit the increase in production to 11.3 million barrels per day, and their share of total global liquid fuels supply drops from 96 percent in 2007 to 88 percent in 2030. Global production of unconventional petroleum liquids rises in the reference case. Production from Venezuela’s Orinoco belt and Canada’s oil sands increases but remains less than is economically viable because of access restrictions in Venezuela and environmental concerns in Canada. As a result, unconventional petroleum liquids production increases by only 3.6 million barrels per day, to 6 percent of global liquid fuels supply in 2030. Relatively high prices also encourage growth in production of CTL, GTL, biofuels, and other nonpetroleum unconventional liquids (which include stock withdrawals, blending components, other hydrocarbons, and ethers) from 1.7 million barrels per day in 2007 to 7.4 million barrels per day (7 percent of total liquids supplied) in 2030. In the low price case, from 2015 to 2030, oil prices are on average almost 60 percent lower than in the reference case. As described above, a lower price path could be caused by increased access to resources in non-OPEC countries and decisions by OPEC member countries to expand their production. In the low price case, conventional crude oil production rises to 93.6 million barrels per day in 2030, the equivalent of 89 percent of total liquids production in 2030 in the reference case. Total conventional liquids production in the low price case rises above 100 million barrels per day in 2024 and continues upward to 108.1 million barrels per day in 2030. Production of unconventional petroleum liquids is also higher in the low price case than in the reference case, despite their generally higher costs. The increase is based on assumed changes in access to resources. In the low price case, Venezuela’s production of extra-heavy oil in 2030 increases to 3.0 million barrels per day, compared with 1.2 million barrels per day in the reference case—a 150-percent increase that more than compensates for a decrease of 0.5 million barrels per day in production from Canada’s oil sands. As a result, total production of unconventional petroleum liquids in 2030 is 1.1 million barrels per day higher in the low price case than in the reference case. Production of CTL, GTL, biofuels, and other unconventional liquids in 2030 (primarily in the United States, China, and Brazil) is 2.9 million barrels per day lower than in the reference case, because the profitability of such projects is reduced. In the high price case, from 2015 to 2030, oil prices average 56 percent more than in the reference case because of severe restrictions on access to non-OPEC conventional resources and reductions in OPEC production. Conventional liquids production in 2030 is 71.9 million barrels per day, down by 9.2 million barrels per day from 2007 production. Access limitations also constrain production of Venezuelan extra-heavy oil, which in 2030 totals 0.8 million barrels per day, or 0.4 million barrels per day less than in the reference case. Production of unconventional liquids from Canada’s oil sands in 2030 is 0.9 million barrels per day higher than in the reference case, however, at 5.1 million barrels per day in 2030, which more than makes up for the decrease in production of extra-heavy oil. Production of CTL, GTL, biofuels, and other unconventional liquids totals 3.5 million barrels per day more in 2030 in the high price case than in the reference case, primarily because China’s CTL production in 2030 is approximately 0.8 million barrels per day more than in the reference case, and Brazil’s biofuels production is 1.0 million barrels per day more than in the reference case. In the United States, GTL production starts in 2017 and increases to 0.4 million barrels per day in 2030 in the high oil price case.
50. Appendix tables in this report also include projections for the average prices of all grades of imported crude oil.
Contact: Lauren Mayne
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