On a country-by-country basis, the United States leads global oil demand in absolute terms at 20.4 million barrels per day (mmbbl/d) or 20.5 percent out of the total world demand of 99.8 mmbbl/d in 2018. However, there is a gradual shift towards emerging economies especially countries in the Asia Pacific region. While global demand surged by 1.4 mmbbl/d in 2018, the region contributed circa 72 percentage of the global growth (48 percentage and 20 percentage by China and India respectively) with United States share at 35 percentage, based on information gleaned from BP statistical review of world energy.
In 2019, world oil demand growth is expected to slightly diminish to 1.02 mb/d in 2019 and increase by 1.08 mb/d in 2020, less than 2018 actual growth volume, according to the Organisation of the Petroleum Exporting Counties (OPEC). On the other hand, The International Energy Agency (IEA) on the back of global economic outlook, estimates a growth corridor of between 1.2 -1.4 mmbbl/d. Barring any major swing in global events, actual demand may not deviate significantly from these estimates.
On the supply side, the US is projected to lead global oil-supply growth over the next few years due to increased activities from shales formations, following the unprecedented 16.8 percentage supply expansion seen in 2018. However, increased shale activities will be largely dependent on the price of conventional crude.
To underscore US production growth trajectory, whereas production by non-OPEC members such as Brazil, China, the UK, Australia and Canada. Mexico and Norway are also set to increase, the US alone will account for 70 percentage of the increase in global production capacity up until 2024, adding a total of 4 mmbbl/d according to IEA projections. As a result, the US should surpass Russia in crude export and closely follow Saudi Arabia in the near term.
The supply scenario above could portend either good or bad omen. The impact will vary across jurisdictions depending on each country’s energy status and level of dependence on crude oil revenue to finance public expenditure. Supply growth from non-traditional oil plays will spur increased liquidity and greater diversity of supplies in the global crude oil market. From the perspective of major demand centres, this should strengthen supply security, enhance trading flexibility and exert downward pressure on price subject to demand-supplier drivers such as global economic growth outlook, likelihood and impact of geopolitical disruptions, amongst other factors.
Conversely, a more diversified supply source may not particularly bode well for countries hooked on oil revenue. Security of demand may be threatened with consequential macroeconomic pressures and social political disruptions. That said, out of every (seeming) adversity lies immense opportunity for self-regeneration. Therefore, this once again emphasises the crying need for structural reforms and diversification to enhance macroeconomic resilience by oil dependent economies including Nigeria.
On a related note, how does this positive outlook for supply growth align with the quest for fugitive emissions reductions and transition to a low carbon economy? What it simply means is that the world is yet to wean itself off hydrocarbons, its prominence not likely to diminish so soon. Till date, even “old king coal” has retained its dominance in global electricity fuel mix at 38 percentage, followed distantly by natural gas and hydro at 23 percentage and 16 percentage respectively.
Though, share of coal in global electricity generation by fuel type remained constant at 38 percentage between 2017 and 2018, coal-fired electricity however grew by 3 percentage year-on-year in 2018 and total consumption spiked by 9.3 percentage in the last ten years (or by 321 million tonnes of oil equivalent) with varying growth profile across regions. Even the EU Emission Trading Scheme (EU-ETS) has not helped in significantly reducing coal consumption in some countries within the region.
As I wrote a few years ago in an article titled “shale, coal and global energy consumption,” the world will continue to seek greener alternatives but ultimately the global energy arc bends towards energy security much more than environmental consideration.
Meanwhile, the global oil sector will also have to adapt to new marine fuel specifications mandated by the International Maritime Organisation (IMO) which takes effect from January 1, 2020. The regulation on lower sulfur marine fuel quality requires the implementation of maximum 0.50 percentage Sulphur content from the current limit of 3.5 percentage in a bid to slash marine sector emissions in international waters by over 80 percentage, the largest single reduction of marine fuel Sulphur content undertaken at a time.
No doubt, marine vessels constitute a critical component of today’s global economy. More than 80 percentage of global trade is transported by marine vessels in volume terms (more than 70 percentage by value) and account for about 4 percentage of global oil demand according to Energy Information Administration (EIA). Therefore, there are implications for businesses on a global scale. As operators seek to comply with the new regulation, it could trigger growing demand for middles distillates and non-petroleum-based fuel, such as LNG, with lower sulphur content and as such result in upward price pressure on the costs of ocean-going freight in the short to medium term.
Changes in refining operations by refiners and installation of scrubbers in the exhaust of vessels to reduce the quantity of emission are other possibilities in a bid to complying with the regulation. Whichever option is adopted, there are cost implications for global trade especially in the short term.
GLENN UBOHMHE
Glenn (FCA, FCTI) is a 2013 recipient of Society of Petroleum Engineers’ (SPE) award for international recognition of excellence as a technical editor of SPE’s peer-reviewed journal in Louisiana, US.
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