International Energy Agency (IEA) is an organization whose members are OECD countries that qulify a certain set of pre-requisites. Of the 30 member countries, almost all of them, including Turkey, are energy dependent.

The organization’s main objective is “advocating policies that will enhance the reliability, affordability and sustainability of energy in its 30 member countries and beyond.” Its mission is focused on four areas: “energy security, economic development, environmental awareness and engagement worldwide.”

The agency’s work is not geared only towards oil and natural gas, but it encompasses all sorts of energy sources, and it conducts widespread studies and reports in a wide array of notions including demand-side energy management. Here, we will try and summarize the agency’s findings and predictions for the next five-year period, 2019-2024.

General Assessment

Global energy markets are undergoing an extraordinary period of change. The United States is still the number one oil supplier worldwide[1]. There seems to be certain supply-demand imbalances in the oil sector, due to declining production from certain countries due to sanctions. Although the US continued to be at the top of global oil demand in 2018, we see a certain shift in demand from industrialized countries towards developing Asian countries. Furthermore, the increase in demand is now mostly observed in the petrochemical industry. These structural changes create significant effects on oil trade and the refining industry.

This sector is particularly expected to be affected by the International Maritime Organization’s new standards that will be effective from 2020 onwards for maritime fuel and the necessary transformations and investments for that purpose.

The United States Leads the World in Oil Production Increase

US is expected to keep her dominant producer role in the medium term. They have already shown an unexpected jump in production in 2018 by 2.2 million barrels per day, and they are expected to account for 70% of the increase in global oil production to 4 million barrels per day by 2024.

Non-OPEC countries such as Brazil, Canada, Norway and Guyana are also expected to boost their production in the next five years to 2.6 million barrels per day. Non-OPEC countries, overall, are expected to produce an additional 6.1 million barrels per day during the same period.

With regards to OPEC countries, the only members that are expected to up their production are Iraq and the UAE. If they manage to improve their production levels, we may say that the imbalances resulting from sanctions and political upheavals in Iran and Venezuela may at least partially make up for the current unevenness in the markets.

Overall, it is projected that the effective production levels by OPEC will have fallen by 0.4 million barrels per day by 2024.

United States is expected to augment its position as a global oil trading partner

Thanks to its impressive rise in oil production, the United States is projected to become a net oil exporter (based on crude oil and its products) from 2021 on. As we approach 2024, their oil exports will likely be close to 9 million barrels which will make them overtake Russia and catch Saudi Arabia.

US’ position as a (potential) net oil exporting country is partly due to the outcomes of Shale Revolution. The IEA believes that the production increase in US has so far been a positive factor for energy security. It will certainly provide flexibility and diversity for the Asian countries with surging demand in looking at alternative sources for their needs.

Brazil is the other country that is expected to up their production game. They are expected to increase their output by 0.8 million barrels by 2024. Brazil is closely followed by Norway who has successfully reversed its declining production by a “Renaissance” and is expected to surpass Kazakhstan and Kuwait in 2024.

Despite the increases in 2019, there is need for more investments

IEA’s predictions for oil production are largely based on anticipated investments in the sector. The agency, until recently, has been saying that the only way for the increase in demand to be met would be by investments that sill sustain reserve production capacities. Their report from last year stated that due to the production decreases in current fields (as the reserves have limited volumes, the pressure as well as the production naturally falls with time) could only be compensated by additional production as large as the totality of the North Sea production fields. This determination still holds water today. Just like the last two years, the only way for the demand to be met in 2019 will be if and only if the oil and natural gas companies heed by their investment assurances. Although the US will likely cover for the increased in demand in 2024, there are questions as to whether the demand wil be fully satisfied in the interim.

Increase in oil demand has calmed down, but there is no sign of a downturn yet

The increase in oil demand is projected to slow down when compared to the last few years. But that does not mean that the demand itself is slowing down. Demand for oil depends on the worldwide economic trends and cycles. The IMF has been lowering its expectations for economic growth. Trade conflicts between major EU members and the UK, due to Brexit negotiations, are causing global trading levels to get smaller, and thus oil demand to slow down.

Despite the economic woes, demand for oil is still expected to increase, even if less than it has recently been. Economic growth in developing countries are expected to contribute to the increase.

Global oil demand in 2024 is projected to increase by 7.1 million barrels per day. 44% of this increase will be shouldered by India and China. Although GDP growth in China is smaller, the country has doubled its GDP in the last 10 years and is still showing healthy signs of continued growth. Their per capita income is still rising, and their demand for oil will likely move from heavy industries to consumer demand. India’s per capita income is only one-fifth of that in China, but India’s oil demand is increasing fast and they are likely to reach China level demand b y 2024.

Petrochemicals and jet fuel will account for the increase in demand

Another point to consider is how the increase in oil demand will play for different industries. The demand will likely come more from petrochemical sector than the gasoline sector. Plastics are products of the petrochemical sector, and despite efforts to decrease the use of plastic, the demand for plastic and petrochemicals is rising fast.

International Energy Agency has determined 50 large scale projects in this sector which are mostly by the United States and China. IF these projects come to life there will be an additional demand for 2.2 million per day. This accounts for 33% of the total oil demand.

Aviation is another industry that is pulling the oil demand up. Rise in global wages, new airports and the growing airplane fleets all contribute to this. Asian countries are expected to account for 75% of the increase in demand by 2024. China will certainly have the largest demand in volume while India is likely to hold the #1 spot for the increase in demand (8.2% average annually).

The aggregate demand will increase despite the increased efficiency and the market saturation in certain growing economies. For example, demand for gasoline is expected to increase by less than 1% thanks to improved efficiency measures. However, the demand in developing countries is expected to be above 2% as wages and the number of vehicles on the road continue to climb.

International Maritime Organization’s regulations

IMO has published new guidelines for marine fuel standards that will be effective in 2020, and these new regulations are expected to cause problems for shipping companies and refineries.

Still, the industries will probably adapt to the new standards in the medium term. The production by the new standards will mostly be carried out by the US, China and Middle East countries. We may expect a constriction in the production by new standards in the first few years. Demand for fuel oil rich in sulphur will take a dive while kerosene and low-sulphur fuel oil will take its place. Although this may make a case for kerosene prices to go up, terrestrial demand for this product will be low, resulting in more-or-less stable prices in the market. High-sulphur fuel oil is expected to be used for electricity production, especially in the Middle East.

A double-edged sword for refineries: capacity blow up and product quality

The refinery industry will face a capacity increase of 9 million barrels per day by 2024. China is expected to come ahead of the US for this increase. In order for the markets to stabilize in the face of increased production climbing higher than the demand, some refineries will have to be closed down. But it is not exactly certain when and where these closures will take place. Globally, the average crude oil production concerns mid-gravity sulphur oil, but the heavier oil production sector is under some doubt due to geopolitical developments and cuts in production.

Light oil production has been increasing its share in total production thanks to diminished demand for fuel oil and the increased demand from petrochemical sector. The United States is slowly taking the top position as the top light crude oil producer. Shale oil is also expected to play an important role in producing energy products that satisfy the new IMP standards and in naphtha production which is used by the petrochemical industry.

To conclude

The Oil Market Outlook (2019 – 2024) of the IEA predicts the following conclusions:

  • The United States is expected to provide 70% of the increase in global oil supply over next five years, with contributions Iraq, Brazil, Norway & Guyana and others
  • Global oil demand growth is expected to slow modestly, with an average 1.2 million barrels/day (Key driver being the petrochemicals sector)
  • To cut its carbon footprint, the energy industry has to do much more than the current “business as usual” practices including on flaring & methane leakages, and should invest more on Carbon Capture Utilization and Storage (CCUS), Enhanced Oil Recovery (EOR), hydrogen & renewables
  • While there may be some problems, refiners & shippers are relatively well prepared to respond to the new IMO bunker fuel regulations
  • The second wave of the US shale revolution is coming – it will shake-up international oil & gas trade flows, with profound implications for the geopolitics of energy

[1] It may seem surprising to those who are not familiar with the oil market basics however it worths mentioning that the US is also the biggest oil consumer and is still a net oil importer.