This article copyrighted by the International Association for Energy Economics The article first appeared in Economics of Energy

& Environmental Policy (Vol. 1, No. 1).

Visit this paper online at http://www.iaee.org/en/publications/eeepjournal.aspx

The Oil Market to 2030Implications for

Investment and Policy

Mark Finleya

abstract
Oil is (an important) part of a larger global energy market, which is expected to
see continued consumption growth (largely in emerging markets) and a continued
shift toward natural gas and renewable forms of energy. While oil continues to lose
market share, overall consumption and production are likely to continue growing
though more slowly than they have in the past due to expected policy changes aimed
at slowing oils growth as well as the impact of higher prices seen in recent years.
Consumption in OECD countries has likely peaked; the growth in global oil use will
be entirely due to continued growth in emerging economies, most importantly
China. Oil supply growth will be dominated by OPEC, although non-OPEC supply
should continue rising modestly due to biofuels and other unconventional sup
plies. This outlook suggests that the centers of gravity for both consumption and
production will shiftto Asia for consumption and to Middle-East OPEC for pro
duction. Continued investment will be required for supply to meet expected demand
growth; energy security will remain an important driver of policy (though U.S.
import dependence should improve); and CO2 emissions appear likely to continue
rising. Market-oriented policies can help address the twin challenges of sustainability and security.
Keywords: Oil, Outlook, Policy, Investment
http://dx.doi.org/10.5547/2160-5890.1.1.4

INTRODUCTION

The oil market outlook is not just a matter for energy companies: its an issue for all of us.
Will oil demand continue to grow? What are the prospects for other fuels to displace oil,
especially in transportation? Will supply be able to keep up. . .and from where? What are the
implications of these trends for climate change and energy security? And what are the oppor
tunities for consumers, industry, and governments to impact these trends?
Around the world, there is a lively and important conversation taking place on the choices
that face us allas consumers, producers, investors and policy-makers. By sharing this out
look, based on BPs Energy Outlook 2030, we hope to contribute to that discussion. Our
starting point in contributing to this debate has been BPs Statistical Review of World Energy,
which this year celebrated its 60th anniversary.1 We feel it is our responsibility as a company

1. The BP Energy Outlook 2030 may be found at www.bp.com/energyoutlook2030; the Statistical Review of World Energy
may be found at www.bp.com/statisticalreview.
a

General Manager, Global Energy Markets & U.S. Economics, BP, 1101 New York Avenue, NW, Suite 700, Washington,
DC 20005. E-mail: mark.nley@bp.com.
The views expressed are solely those of the author and do not represent the position of his employer.
Economics of Energy & Environmental Policy, Vol. 1, No. 1. Copyright 2012 by the IAEE. All rights reserved.

25

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Economics of Energy & Environmental Policy

to make information and analysis available for public debateall the more so if the issue at
hand is as vital to all of us as is the oil market, including its relation to key issues such as
energy security, economic development, and climate change.

A BRIEF HISTORY

Oil is the worlds dominant fuel (at 33% of current global primary energy consumption), but
it has been losing market share since the 1970s. The pace of oils market share erosion mirrors
the price cycleoil lost share rapidly in the 1970s and early 1980s when prices where high;
lost share slowly from the mid 1980s to the late 1990s when prices were low; and accelerated
again when prices began to go up over the past decade. Oil has lost market share globally for
11 consecutive years, and oils share of U.S. energy consumption is near the lowest levels ever
recorded.2 Demand has grown, but predominantly outside the OECD, with non-OECD
countries accounting for 47% of global consumption, up from 25% in 1970 (OECD con
sumption has fallen by 3.6 Mb/d or 7% since 2005.). Sectorally, oil consumption is dominated
by transport (more than 50% of global consumption and roughly 60% of OECD consump
tion); oil has lost signicant market share in the power and industrial sectors. As with other
fuels, demand and supply have been impacted over the years, primarily by the rate and dis
tribution of global economic growth, but also by technological change (such as the emergence
of nuclear power or advances in deepwater exploration, development, and production capa
bility); competition from other fuels (cheap natural gas currently, especially in North America);
and government policy (such as consumption taxes/subsidies, fuel efciency standards, and
resource nationalism).
On the supply side, OPEC holds a heavy majority (77%) of global proved reserves, but
has not gained market shareindeed, OPECs market share in 2010 (42%) was well below
the 47% share seen in 1970 (OPECs global share peaked at 51% in 1973). Outside of OPEC,
production continues to increase despite mature declines in the North Sea, Mexico, parts of
the U.S., and elsewhere: Output has grown in recent years in Russia and Central Asia; the
deepwaters of the U.S. GoM, West Africa, and Brazil; and in the oil sands of Alberta. In
addition, onshore production in the U.S. has begun to increase due to innovations in the
development of shale resources (both oil and natural gas-related liquids); biofuels have been
another key source of liquids supply growth (primarily the U.S. and Brazilboth enabled by
rising oil prices in recent years with the U.S. also receiving a boost from tax credits and
mandates).
Oil prices have increased in recent years, averaging about $80 in 2010 and well above
$100 so far this year, which would be the highest (nominal) price on record. Oil prices have
increased in absolute terms and relative to other fuels, with a record premium to natural gas
prices in North America in 2010 (and so far this year). The oil market has been prone to
disruptions, with major shocks to supply and prices in the early and late 1970s, 1990, and
several times in the past decade. In response, both consuming- and producing countries have
adopted strategies for dealing with unexpected outages, including the maintenance of spare
capacity as well as investment in strategic stockpiles (which have recently been put to use).

2. See U.S. Energy Information Administration (2010).

Copyright 2012 by the IAEE. All rights reserved.

The Oil Market to 2030Implications for Investment and Policy

f

BUILDING THE OUTLOOK

27

Of course, the oil market outlook does not take place in a vacuum; oil is (an important) part
of the global energy mix. To set the stage for the oil market discussion, it is therefore appro
priate to briey sketch out the broader global energy market outlook. The BP outlook seeks
to identify long term energy trends based on the expected evolution of the worlds population
and economy, adding our best judgments of policy and technology to develop a projection
for world energy markets to 2030. The outlook is a projection, not a proposition, and this is
an important distinction. For example, our outlook expects global CO2 emissions to continue
rising, along with import dependence in many key consuming regions. This does not mean
BP downplays the importance of climate change or the role of energy security in international
relations. Rather, it reects a to the best of our knowledge assessment of the worlds likely
path from todays vantage point.
This outlook is not a business as usual extrapolation, nor an attempt at modelling policy
targets. Instead it is built to the best of our knowledge, reecting our judgement of the most
likely path for global energy markets to 2030. Assumptions on changes in policy, technology
and the economy are based on extensive internal and external consultations. Key assumptions
as they pertain to the oil market outlook will be discussed in the narrative to follow. In
addition, a Policy Case (a fully built-up alternative case) is developed based on more aggressive
policies to address climate change, assessing the impact of possible policy changes on energy
consumption and production. We use this caseand other sensitivitiesto explore the un
certainties of the Energy Outlook, a critical part of the exercise given the tremendous range
of possible outcomes under any long-term forecasting exercise. We do not attempt to forecast
long term energy prices as part of this Outlook.
The outlook highlights the central role markets and well-designed policy can play to
meet the dual challenges of solving the energy needs of billions of people who aspire
to better lifestyles, as well as the opportunities and challenges of doing so in a way that
is sustainable and secure.
Population and income growth are the two most powerful driving forces behind the
demand for energy.3 The next 20 years are likely to see continued global integration, and
rapid growth of low- and medium-income economies. Population growth is slowing, but
income growth is trending up: Over the last 20 years world population has increased by 1.6
billion people, and it is projected to rise by 1.4 billion over the next 20 years; the worlds real
income has risen by 87% over the past 20 years and it is likely to rise by 100% over the next
20 years. Energy consumption per capita to 2030 is likely to grow at about the same rate as
in 197090 (0.7% p.a.), but energy intensitymeasured very broadly as energy per unit of
GDPcontinues to improve globally, and at an accelerating rate. In 201030 this is expected
to remain the case for the global average and for almost all of the key countries and regions.
This expected continued acceleration in energy intensity improvement is important: It re
strains the overall growth of primary energy. Energy intensity gains and a long-term structural
shift away from industry and toward less energy intensive activitiesrst in rich and then in
newly industrialized economiesunderpin this trend.

3. Population and GDP estimates are drawn, respectively, from the UN (2009) and Oxford Economics Ltd (2010).
Copyright 2012 by the IAEE. All rights reserved.

28

Economics of Energy & Environmental Policy

Billion toe
18

Billion toe
18

16

16

14

14

Renew ables

12

12

Hydro

10

10

Nuclear

Coal

Non-OECD

2
0
1990

OECD

Gas
Oil

2
0

2000

2010

2020

2030

1990 2000

2010 2020 2030

* Includes biofuels

FIGURE 1
Energy 2030: Non-OECD economies drive consumption growth

Another key factor is the resource base. Our work is based on an assessment of global
proved reserves for oil, gas, and coalthose quantities that geological and engineering infor
mation indicates with reasonable certainty can be recovered in the future from known reser
voirs under existing economic and operating conditions.4 While it is important to recognize
that sovereign nations do not all apply the same standards in reporting proved reserves, the
ndings are generally consistent with other assessments of proved reserves, and the data clearly
show that global proved reserves of fossil fuels are sufcient to meet expected consumption
growth in the decades to come. For oil, world proved reserves at the end of 2010 stood at
1.38 trillion barrelsthe highest gure on record (with data going back to 1980) and sufcient
to meet current production for just over 46 years (for natural gas, that gure is 59 years, and
for coal it is over 100 years). Estimates of oil proved reservesboth in barrel terms and
expressed as a reserves/production ratiohave tended to grow over time as new discoveries
and improved recovery rates have more than offset volumes produced. OPEC countries possess
the heavy majority (77%) of global proved reserves, but both OPEC and non-OPEC proved
reserves have tended to grow over time, with each increasing by about 25% over the past
decade. We conclude that globally, resources are not likely to be a constraint for oil supply
availability over the coming decades; above-ground considerations such as investment regimes,
access policies, and industrial capacity are separately factored into the supply outlook discussed
below.
f

KEY FINDINGS: REFERENCE CASE

In our reference case (Figure 1), world primary energy consumption is expected to grow by
39% over the next 20 years, slightly slower than the 45% increase seen from 1990-2010.
Global energy consumption growth is expected to average 1.7% p.a. from 2010 to 2030, with
4. See BP (2011a).
Copyright 2012 by the IAEE. All rights reserved.

The Oil Market to 2030Implications for Investment and Policy

29

growth decelerating gently beyond 2020. The outlook for energy consumption growth is more
rapid than the International Energy Agencys World Energy Outlook (Existing Policies
scenario), driven by the continued rapid industrialization of developing economies; at the
same time, switching to lower carbon fuels (from coal to gas, and from fossil fuels to renewables
and nuclear) drives a slightly slower growth rate for CO2 emissions.5
Non-OECD energy consumption is expected to be 68% higher by 2030, averaging 2.6%
p.a. growth from 2010, and accounts for 93% of global energy growth. OECD energy con
sumption in 2030 is just 6% higher than today, with growth averaging 0.3% p.a. to 2030.
From 2020, OECD energy consumption per capita is on a declining trend (-0.2% p.a.).
The fuel mix changes relatively slowly, due to long asset lifetimes, but gas and non-fossil
fuels gain share at the expense of coal and oil. The fastest growing fuels are renewables (in
cluding biofuels) which are expected to grow at 8.2% p.a. 201030; among fossil fuels, natural
gas grows the fastest (2.1% p.a.). The three fossil fuels are expected to converge on market
shares of 2627%, and the major non-fossil fuel groups on market shares of around 7% each.
In our outlook, oil continues to suffer a long run decline in market share (falling from 46%
of total energy consumption in 1970 to 39% in 1990 and 34% in 2010), while natural gas
steadily gains. Coals recent gains in market share, on the back of rapid industrialisation in
China and India, are reversed by 2030. Taken together, the contribution of all non-fossil fuels
to growth over the next twenty years (36%) is, for the rst time, likely to be larger than that
of any single fossil fuel. Renewables (including biofuels) account for 18% of the growth in
energy to 2030. The rate at which renewables are expected to penetrate the global energy
market is similar to the emergence of nuclear power in the 1970s and 1980s. Sectorally, power
generation is the key driver of energy consumption, accounting for 57% of growth 201030,
and raising its share of global energy consumption from 41% currently to 47% by 2030.
Oil (Figure 2) is expected to be the slowest-growing fuel over the next 20 years. Global
liquids demand (oil, biofuels, and the other liquids conversion technologies) nonetheless is
likely to rise by 16.5 Mb/d, exceeding 102 Mb/d by 2030. As is the case in the IEA outlook,
consumption growth comes exclusively from rapidly-growing non-OECD economies. Con
sistent with our intention to develop a most likely outlook, our reference case global oil
consumption growth rate is less rapid than the IEAs Current Policies Scenario and slightly
more rapid than the New Policies Scenario. Non-OECD Asia accounts for more than threequarters of the net global increase, rising by nearly 13 Mb/d. The Middle East and South &
Central America will also grow signicantly. OECD demand has likely peaked (in 2005), and
consumption is expected to decline by just over 4 Mb/d by 2030.
Rising supply to meet expected demand growth should come primarily from OPEC
again a conclusion broadly consistent with the IEA outlookwhere output is projected to
rise by 13 Mb/d. In essence, the growth in non-OECD Asian consumption will be met by
OPEC supply. The largest increments of new OPEC supply will come from natural gas liquids
(NGLs), as well as conventional crude in Iraq and Saudi Arabia. Non-OPEC supply will
continue to rise, albeit modestly. A large increase in biofuels supply, along with smaller incre
ments from Canadian oil sands, deepwater Brazil, and the FSU should offset continued de
clines in a number of mature provinces.

5. The IEA stresses that none of the WEO scenarios should be viewed as forecasts; rather, they represent outcomes based on
specic policy assumptions, with no assessment made on the likelihood of those policy assumptions. The BP outlook, by contrast,
seeks to construct a most likely path, including judgments on future policy changes.
Copyright 2012 by the IAEE. All rights reserved.

30

Economics of Energy & Environmental Policy

M b/d

Dem and

Supply

105
Other

100
95
90
85

2030 level

Other

S& C Am

Iraq

M id East

Oil Sands

Saudi

Other
Asia

Biofuels

NGLs

China

Brazil
FSU

80
75
2010

OECD
Declines

NonOECD
Grow th

2010

NonOPEC
Grow th

NonOPEC
OPEC
Grow th
Declines

FIGURE 2
The liquids supply-demand balance to 2030
Liquids demand by region

Liquids demand by sector

Mb/d

M b/d
105

105

Non-OECD Ind
& Other

Other

90

90
FSU

Non-OECD
Transport

75

75

M iddle East

60

60
Other nonOECD Asia

45

OECD Ind &

Other

45

China

30

30

OECD
Transport

US

15

15
Other OECD
1990

Pow er
0

0
2010

2030

1990

2010

2030

FIGURE 3
Demand growth driven by non-OECD transport and industry

Oil Consumption
Overall oil consumption growthor rather, total liquids consumption as described
abovewill be restrained by the increases in crude oil prices seen in recent years; the contin
ued, gradual reduction of subsidies in non-OECD oil-importing countries; and new policies
that seek to improve the efciency of consumption, most notably in the transport sector.
Global consumption growth in this outlook (Figure 3) is projected to slow to 0.9% p.a. (from
1.3% in 1990-2010); with other fuels growing more rapidly, oil continues to lose market
share to other fuels & is matched by coal around 2015, and by natural gas around 2030.
Copyright 2012 by the IAEE. All rights reserved.

The Oil Market to 2030Implications for Investment and Policy

31

OECD consumption will fall to 41.5 Mb/d, roughly the 1990 level. Non-OECD consump
tion is projected to overtake the OECD by 2015, and to approach 61 Mb/d by 2030more
than double the 1990 level. However, excluding the FSU (where demand collapsed along with
the economies of the Former Soviet republics in the 1990s) non-OECD growth is likely to
be slower than 1990-2010 (2.2% vs 3.8% p.a.). With rapid growth of biofuels (discussed
below), the oil portion of liquid fuels demand is expected to grow even less rapidly, by 0.6%
p.a.
Under our outlook, OECD consumption has already peakedit most likely will never
again reach the level seen in 2005. Consumption will be impacted by a combination of
economic maturity, consumer reactions to the higher oil prices seen in recent years, and
additional policies aimed at reducing consumptionmotivated by a combination of revenue
requirements, energy security concerns and a desire to reduce CO2 emissions. For example,
we expect both new fuel taxes and greater fuel efciency standards for vehicles in the OECD
countries. With natural gas currently priced competitively, we also see some displacement of
oil by gas in power generation, industrial applications, and residential/commercial use.
By sector, liquids demand growth should come from non-OECD transport (nearly 13
Mb/d), with non-OECD industry also contributing (nearly 7 Mb/d, largely for petrochemi
cals). Price impacts in these cases are outweighed by continued rapid economic growth, al
though the continued removal of subsidies in many non-OECD oil-importing countries will
begin to weigh on consumption patterns, as will policies aimed at improving fuel efciency
(such as the targets already adopted in China). Expected OECD declines are concentrated
outside the transport sector, in sectors where oil can be displaced by gas and renewables; post
2015, OECD transport demand is also expected to fall as technology and policy lead to
improved engine efciency and more efcient vehicles begin to enter the eet.
Energy used for transport will continue to be dominated by oil, but the transport sector
should see its share of global energy use decline as other sectors grow more rapidly. Growth
of energy consumption in the transport sector is expected to slow over the next twenty years
to average 1.1% p.a. vs 1.8% p.a. during 1990-2010, with OECD demand slowing and then
declining post-2015. The slowing of growth in total energy in transport is related to higher
oil prices and improving fuel economy, vehicle saturation in mature economies, and expected
increases in taxation and subsidy reduction in developing economies. The growth of oil in
transport slows even more dramatically, largely because of displacement of oil by biofuels, and
is likely to plateau in the mid-2020s. Currently, biofuels contribute 3% on an energy equiv
alent basis and this is forecast to rise to 9% at the expense of oils share. Rail, electric vehicles
and plug-in hybrids, along with compressed natural gas in transport, are likely to grow, in
part due to policy support. But the cost of these options (including batteries and/or refuelling
infrastructure) combined with the long economic lives of the existing transportation stock
mean that these alternatives are unlikely to make a material contribution to total transportsector energy consumption before 2030.
China is the largest source of oil consumption growth in our outlook, with consumption
forecast to grow by 8 Mb/d to reach 17.5 Mb/d by 2030, overtaking the U.S. to become the
worlds largest oil consumer. Growth is expected to remain concentrated in the industrial and
transport sectors through 2020. Industrial growth slows post-2020 as industrial expansion
becomes less energy-intensive and population growth slows; transport will then be the dom
inant growth driver. Despite contributing almost half of net global oil consumption growth
to 2030, our outlook projects a slower increase in Chinese per capita consumption than seen
Copyright 2012 by the IAEE. All rights reserved.

32

Economics of Energy & Environmental Policy

Liquids supply by region

Liquids supply by type

M b/d
105

M b/d
105
Asia Pacif ic

90

Af rica

75

M iddle East

60

FSU

45

OPEC NGLs
90
OPEC crude

75
60

Biof uels

45

Oil Sands

Europe

30

30

Other nonOPEC

S & C Am erica

15

15
Non-OPEC
conventional

North Am erica
0
1990

0
2010

2030

1990

2010

2030

FIGURE 4
Supply growth comes primarily from OPEC

historically in other Asian economies. China is much less dependent on oil in its overall fuel
mix (18% in 2010) than many other emerging economies at similar points in their devel
opment. In addition, China is likely to implement policies to slow oil consumption growth
such as modestly increasing taxes on transport fuels, raising vehicle efciency standards, and
maximising use of other fuels. Finally, oil prices are higher than faced historically by other
emerging economies; and rising import dependence is a policy concern.
Oil Production
Globally, liquids production of course is expected to increase to meet the growth in
consumption, though the sources of growth will change the global balance. As is the case for
consumption, global liquids supply is set to rise by about 16.5 Mb/d by 2030 (Figure 4).
OPEC accounts for over 75% of global supply growth in our outlook, with OPEC NGLs
expected to grow by more than 4 Mb/dthe largest increment to OPEC supply in our
outlookdriven in part by rapid growth of natural gas production in our outlook. Iraqi crude
output is projected to grow from about 2.5 Mb/d currently to more than 5.5 Mb/d; Saudi
output is likely to expand by nearly 3 Mb/d.
Non-OPEC output will rise by nearly 4 Mb/d. Unconventional supply growth should
more than offset declining conventional output, with biofuels adding nearly 5 Mb/d and
Canadian oil sands rising by nearly 2 Mb/d. Declining conventional crude supply in Europe,
Asia Pacic and North America is partly offset by growth in deepwater Brazil and the FSU,
resulting in a net decline of just over 3 Mb/d. In this outlook, Russia and Saudi Arabia will
each sustain their current market share of roughly 12% over the next 20 years.
Biofuels production (largely ethanol) is expected to exceed 6.5 Mb/d by 2030, up from
1.8 Mb/d in 2010contributing 30% of global supply growth over the next 20 years, and
all of the net growth in non-OPEC supply. Continued policy support, high oil prices in recent
years, and technological innovations all contribute to the rapid expansion. The U.S. and Brazil
will continue to dominate production; together they account for 68% of total output in 2030
Copyright 2012 by the IAEE. All rights reserved.

The Oil Market to 2030Implications for Investment and Policy

33

(down from 76% in 2010). First-generation biofuels are expected to account for most of the
growth, with improved yields helping to avoid pressure on the world food system. After 2020,
roughly 40% of global liquids demand growth will be met by biofuelsup from 13% in
2010with the U.S. and Europe leading consumption growth. By 2030, this gure ap
proaches 60%.
The importance of OPEC is expected to grow. On our projections, OPECs share of
global production would increase from 42% in 2010 to 46% in 2030 (a level not reached
since 1977). In the early years of the outlook, OPEC production growth can be met by
utilizing current spare capacity.6 Over time, production capacity must expand to meet expected
demand growth. In addition to growth in NGLs production, we project an increase in crude
oil production capacity of nearly 5 Mb/d by 2030to nearly 40 Mb/dlargely in Iraq and
Saudi Arabia. Prospects for growth in other OPEC countries are conservative, partly due to
the expectation that investment regimes in many countries will remain restrictive. These
projections imply that Saudi production capacity, currently at 12.5 Mb/d, is likely to be
sufcient to meet demand and maintain a reasonable buffer of spare capacity until around
2020; thereafter a modest expansion appears likely. While we do not attempt to forecast longterm energy prices, the ability and willingness of OPEC members to expand capacity and
production clearly is one of the main factors determining the path of the oil market.
The pace of Iraqi capacity expansionand production growthis another key source of
uncertainty for this outlook. Iraq is expected to account for 20% of global supply growth
from 2010 to 2030. Service contracts awarded since mid-2009 have signaled the notional
(contractual) possibility that Iraqi capacity could reach 12 Mb/d by 2020. However, limited
project development capacity and infrastructure constraints may result in project delays and
cost ination. Key challenges exist in developing export pipelines, terminals and water injec
tion infrastructure. Security challenges, as well as political constraints, are also likely to weigh
on capacity expansion plans. A rapid increase in Iraqi output could have an impact on oil
prices, and OPEC is likely over time to seek to reintegrate Iraq into the quota system, which
is an additional source of uncertainty. While substantial capacity growth is likely, a number
of factors should constrain the pace of expansion. Weighing these factors, we assume Iraqi
production exceeds 4.5 Mb/d by 2020 and 5.5 Mb/d by 2030, but the range of possible
outcomes is large.
Growth in the call on renery throughput will be impacted by the supply growth of
biofuels (5 Mb/d) and non-rened NGLs (2 Mb/d). Increases in processing gains and growth
in supplies of liquids derived from gas and coal are likely to add another 1 Mb/d to product
supplies that do not require rening. All of these supply sources will compete directly with
reneries to meet total liquids demand growth of 17 Mb/d, suggesting that the call on renery
throughput could grow by only 9 Mb/d over the next 20 years. Existing spare capacity will
accommodate some of the future growth in renery throughput. Moreover, about half of
global liquids demand growth is expected to be in China, and that countrys renery expansion
plans will affect product balances globally. A continuation of Chinas strategy to be selfsufcient in rened products would severely limit crude run increases for reners outside of
China.
6. This outlook was prepared in early 2011, before the disruption of Libyan oil exports. The extended loss of Libyan production
would have adverse implications for the buffer of spare capacity assumed in this outlook. We have not yet assessed the implications
of widespread unrest in the region for the pace of investment in production capacity, price objectives, or attitudes toward private
investment.
Copyright 2012 by the IAEE. All rights reserved.

34

Economics of Energy & Environmental Policy

f

KEY FINDINGS: POLICY CASE AND SENSITIVITIES

Our Policy Case explores the implications of more aggressive policies to address climate
change. We assume that a wide range of policy tools are deployed, including putting a price
on carbon (particularly in OECD countries). Richer countries achieve signicant cuts in
carbon emissions, while developing countries focus on reducing the carbon intensity of their
economies. In this case, global CO2 emissions would peak just after 2020 and be 14% lower
than the Base Case by 2030, but still 21% above 2005 levels. The emission reduction is
achieved through a combination of more rapid efciency gains and switching to lower carbon
fuels. Oil consumption by 2030 is 5% below the base case; natural gas consumption is reduced
by 4%, while coal use is reduced by 23%. There is limited scope for fuel switching in transport,
although electric vehicles start to make an impact by 2030, so the main effect here comes
through greater vehicle efciency. The greatest scope for fuel switching is in power generation,
where renewables are the big winner (up 33% versus the base case in 2030) and coal the big
loser. Globally, natural gas gains share even as it loses volume overall.
The oil market path in the Policy Case will depend crucially on the degree of OPECs
accommodation of lower demand to manage prices. Based on historical experience, we assume
that OPEC members reduce output to match only a portionnot the entiredecline in
consumption, resulting in prices that are lower than our reference case (but not as low as they
would have been with no OPEC response). As with other fuels, lower oil prices (because of
lower demand) partly counteract the initial demand response to stricter policies. Netting out
these feedback effects, global liquids demand is expected to reach just 97.5 Mb/d (+0.6%
p.a.) in 20305 Mb/d below the base case. Consumption declines are likely to be concen
trated in the OECD (with the most aggressive policies) and the Middle East and FSU (where
oil intensity is highest). Again, the reaction of OPEC producers to sharply lower demand
would be a key driver of the price path in such a scenario.
Recognizing the large range of uncertainty that comes with any long-term forecasting
exercise, we further examine the sensitivity of energyincluding oildemand to alternative
paths for economic growth. A high-growth case takes an optimistic view on globalisation:
expanding international trade ows would support widely-shared long-run growth in produc
tivity and incomes. Adding 0.9% to the long-run growth rate leaves global GDP in 2030
18% higher than in the base case. With income elasticity of energy demand being less than
one, and holding all other factors equal, total energy demand would be 11% higher than in
the base case, and oil consumptionbeing slightly more sensitive to changes in GDP than
energy overallwould be 13% higher. The low GDP growth case assumes that protectionism
and other interventions reduce long-run trend growth rates. This cuts one percentage point
from the long-run growth rate, leaving global GDP 18% below the base case level; energy
demand would be 13% lower than the base case, and oil consumption would be 14% lower.
f

IMPLICATIONS . . .

. . . for Investment
Even though oil is expected to lose global market share to other forms of energy in this
outlook, consumption is still expected to grow signicantly. Accordingly, producers will be
required to make substantial investments to increase outputin addition to the very large
investments needed merely to offset decline rates. While resources are not constrained globally,
Copyright 2012 by the IAEE. All rights reserved.

The Oil Market to 2030Implications for Investment and Policy

35

this outlook suggests that national policies governing access and investment terms have the
potential to signicantly impact the trajectory of production (and therefore prices); clearly,
the investment decisions of OPEC memberswith 77% of current global proved oil re
serveswill be critical. Given the measured pace of investment expected in this outlook among
many OPEC countries, prospects for development of higher-cost resources elsewhere appear
likely to remain attractive. Given the preponderance of proved reserves under their control
(or inuence), the role of National Oil Companies appears likely to continue growing in
importance; consuming country NOCs offering access to rapidly-growing markets also appear
likely to increase their inuence.
For rening, investment prospects appear likely to remain challenging, due to the com
bination of modest growth in global consumptionand declining consumption in mature
OECD marketscombined with robust growth from liquids that are not rened, such as
biofuels and non-rened NGLs.
. . . for CO2 Emissions
In our reference case, global CO2 emissions from energy consumption continue growing
through 2030, driven by strong growth in non-OECD energy consumption, especially of coal.
The growth of global CO2 emissions from energy averages 1.2% p.a. over the next twenty
years (compared to 1.9% p.a. 19902010), leaving emissions in 2030 27% higher than today.
CO2 emissions from oil consumption rise by about 14%, with all of the increase coming from
non-OECD countries; OECD emissions from oil consumption decline in both the reference
and policy cases. With oil losing market share to other fuels, oils share of global CO2 emissions
falls from about 37% currently to about 33% by 2030. Under a more aggressive climate policy
case, global CO2 emissions from energy consumptionand for oilbegin to decline, though
the level of CO2 emissions from energy use by 2030 remain above 2010 levels. Clearly the
trajectory of energy consumption and CO2 emissions will depend on the outlook for economic
growth. Also clearly, the robust availability of global proved reserves of oil and other fossil
fuels means that growth of CO2 emissions is unlikely to be constrained by resource availability
over the next 20 years (although, as discussed earlier, above-ground considerations will sig
nicantly impact the development of future production capacity).
. . . for Import Dependence
There are some positive implications under the reference case outlook. While global
dependence on OPEC supply rises as discussed above, U.S. import dependencein both
volume and percentage termsfalls to levels not seen since the 1980s, due falling consumption
and rising domestic production of ethanol and shale-related liquids, which displace oil imports.
In contrast, import dependence for the EU and China rises. In the EU, import dependence
in percentage terms continues rising as domestic production falls, although import volumes
decline in the face of rapid declines in consumption. In Chinawhich was a net oil exporter
in the early 1990simport dependence rises signicantly, from just over 50% currently to
nearly 80%.
In the more aggressive policy case, import dependence in the U.S. and EU falls relative
to the reference case due to reductions in consumption of roughly 1 million b/d and 700 kb/
d, respectively, by 2030in each case about 6% of reference case oil consumption. (Chinese
oil consumption in the policy case is not signicantly impacted.)
Copyright 2012 by the IAEE. All rights reserved.

36

Economics of Energy & Environmental Policy

f

CONCLUSIONS

Oil consumption appears likely to continue growing, driven by rapidly-growing emerging

economies and despite the likelihood that OECD consumption has peaked. That said, oil is
likely to grow less rapidly than other fuels, due to a combination of consumer reactions to
higher prices and government policies aimed at slowing oils growth. Global resources are
adequate to meet the expected growth in consumption, but the policies of countries that own
the majority of the resources are likely to constrain the pace of development, leaving highcost supply options viable. Oil (and biofuels) will likely remain dominant in the transport
sector to 2030, with cost and the long economic lives of oil-consuming equipment limiting
prospects for other fuels to win substantial market share over the next 20 years.
Policy choices made by governments matter. For supply, policy will govern the ability of
investment (whether by NOCs or private companies) to access prospective resources, as well
as the incentives to develop alternatives such as biofuels. For demand, policies appear likely
to slow consumption growth (whether motivated by concerns for climate, security, or budgets).
Budget constraints may challenge subsidies (for consumption in many emerging economies
and for biofuels and other renewables in mature OECD economies).
Markets matter as well. Consumers and producers alike clearly respond to price signals
where they are able to do so. Production is rising in U.S. on the back of a rapid increase in
drillingand technological innovationmotivated by higher prices. Consumption in the
OECD countries was declining even before the recession due to higher prices. Shifting relative
prices between fuels is driving changes to both the supply and demand picture. However,
there are critical areas where policy and markets are not (yet) connected, such as CO2 emissions
from energy usea classic example of an externality. And unfortunately there are also many
instances of government policy hindering the ability of market participants to response to
price signalssuch as subsidy regimes that shield consumers from recent price increases, and
restrictions on access to resources in many countries. Those interested in sustainable and secure
oil market solutions should give greater weight to policies aimed at expanding, rather than
constraining, the reach ofappropriately designed and overseenmarket forces.
References
BP (2011). BP Energy Outlook 2030.

BP (2011a). BP Statistical Review of World Energy. 60th edition.

International Energy Agency (2010). World Energy Outlook 2010.

Oxford Economics Ltd (2010). Data source for world GDP forecast.

United Nations (2009). UN World Population Prospects: 2008 Revision.

U.S. Energy Information Administration (2010). Annual Energy Review.

Copyright 2012 by the IAEE. All rights reserved.