Gurumurthy Kalyanaram reports on research insights by Paul Kutasovic on oil demand. This research was published in NMIMS Management Review, which is edited by Gurumurthy Kalyanaram.
Over the past decade, oil has become a global commodity. In this global marketplace, there have been fundamental changes which will have a large impact on the future price of oil. This study examines these changes focusing on factors determining global supply and demand. On the supply side, the primary issue is peak oil. This refers to the concern that the world is running out of oil and that oil production will soon peak. Numerous doomsday predictions have been made by oil professionals at various times over the past two decades and have failed to come to fruition. Yet, the evidence is growing that these pessimistic forecasts may be right this time and that the era of cheap energy may be over. What is surprising is that despite the critical importance of the issue of peak oil, the topic has not been more widely discussed.
On the demand side, global composition of demand is shifting away from the advanced economies in Europe, Japan and North America towards developing economies, especially those in Asia. This means the impact of the US in determining oil price is becoming less and less of a factor.
The results show that oil production capacity must increase by a staggering 75.5 mbd by 2030 to meet demand growth and replace depleted supply. This capacity increase is more than twice the level of current OPEC production. The loss of capacity will have more important impact on future supply needs than the increase in demand. What makes the situation even more challenging is that peak oil analysis indicates that the rate of decline will accelerate with the increase in the age of oil fields. If this prediction is correct and peak production occurs in the next few years, there will be an even greater need to discover more oil to offset the larger declines in production.
See the following URL for the paper and further analysis and discussions: