IEA Medium-Term Oil Demand

Demand DevelopmentsDemand Developments

World Petroleum CongressWorld Petroleum Congress

© OECD/IEA - 2007

Demand DevelopmentsDemand Developments

© OECD/IEA - 2008

Oil Industry & Markets Division

Madrid, July 1, 2008

MEDIUMMEDIUMTERMTERM

Are “Speculators” to Blame?

S1

Price

A

Investors enter the market:• Price increases from P1 to P2

• A stock build (A – B) is necessaryto balance the market in D1P2

B

Stock build

© OECD/IEA

2008

Oil Oil Market Market ReportReport

P1

QuantityQ1

D1


If not stocks, then demand…

S1

Price If there is no stock build andsupply remains unchanged, theprice increase from P1 to P2 isdriven by an increase in demand:shift from D1 to D2P2

© OECD/IEA

2008


P1

QuantityQ1

D1

D2


If not demand, then supply…

S1

Price

If there is no stock build anddemand remains unchanged, theprice increase from P1 to P2 isdriven by an reduction in supply:shift from S1 to S2

P2

S2

© OECD/IEA

2008


P1

QuantityQ2

D1

Q1


More oil, same price, no buyers

S1Price

If more supply is offered, then ithas to be discounted to clear

S2

© OECD/IEA

2008


P1

QuantityQ2

D1

Q1


The big picture: it’s a question of balanceGDP & Oil Demand per Capita, 2007

OECD

World

Non-OECD-

2

4

6

8

10

12

14

16

18

- 5 10 15 20 25 30

Oil

Dem

and

per

Cap

ita

(bb

ls)

© OECD/IEA

2008


Backdrop of supply constraintsIn most developing countries, oil demand per capita is much lower than in the OECD

OECD: 15.2 bbls per inhabitant (2007)Non-OECD: 2.5 bblsWorld: 4.8 bbls

This correlates with lower GDP per capitaOECD: $27,400 per inhabitant (2007, at 1995 prices)Non-OECD: $1,800World: $6,400

If supply is constrained, demand has to fall in the OECD

- 5 10 15 20 25 30

GDP per Capita (US$1,000, 1995 PPP)


Weak dollar causing flight to safety?ICE Brent by Currency (Jan 06 = 100)

100

150

200

250

© OECD/IEA

2008


Due to dollar’s weakening and global economic downturn, there may be some price effect from investors moving into commodities

50Jan 06 Jul 06 Jan 07 Jul 07 Jan 08

US Dollars Euros

Source: Plat ts


Refining imbalance adding to tightness

US Gulf Coast Upgrading Margins(Coking - Cracking Margin)

5

10

15

20

$/bbl

© OECD/IEA

2008


Widening imbalance between light and heavy ends of barrel (-> as seen in upgrading margins) is tightening marketMany simpler refineries cannot run profitably under these conditions

0

5

Jan 06 Jul 06 Jan 07 Jul 07 Jan 08Mars


Spare capacity still low by historical standardsStrong demand growth, upstream bottlenecks, low refining flexibility, producer policy, lower inventory cover, geopolitics, speculative money and tight spare capacity all contribute to higher prices

60

70

80

90

100

US$/Bbl

5

6

7

8

mb/dOPEC 'Effective' Spare Capacity Dated Brent

© OECD/IEA

2008


0

10

20

30

40

50

Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08

0

1

2

3

4

•Spare capacity is not a perfect barometer of prices• will it be released to the market?• is it marketable?

•Low spare capacity: lasting desire to hold more stock


Refinery tightness can have an impact

3 mb/dcrude

3 mb/ddiesel

$60/bbl

© OECD/IEA

2008


If there is ample refinery capacity, the balance between crude and refined product supply is pretty smooth

$60/bbl $60/bbl


Refinery tightness can have an impact

3 mb/dcrude

3 mb/ddiesel

$60/bbl

Demand rises but supply cannot increaseSo price rises

© OECD/IEA

2008


If there is refinery tightness, then value of output rises and refiners would be prepared to pay more for crude

$60/bbl $60/bbl

Price of refinery output rises so refiners willing to pay more for crude


Refinery tightness= more crude oil useLack of upgrading boosts crude demand & negates spare capacity

Increasing signs of producers integrating downstream?

Barrels of Crude needed to product one barrel of gasoline

5.92

1.680

12

3

4

56

7

USGC Maya Coking NWE Brent Hydroskimming

bbl

© OECD/IEA

2008


1

NWE Brent Refining Margins

-8

-6

-4

-2

0

2

4

6

8

10

1995 1997 1999 2001 2003 2005 2007

$/bbl

Hydroskimming Upgrading (Cracking - Hydroskimming)


DEMAND

© OECD/IEA

2008



Record prices – record oil burden?

World: Oil Burden & Price

2%

3%

4%

5%

6%

7%

8%

inal

Oil

Exp

end

itu

res

as %

o

f N

om

inal

GD

P

35

45

55

65

75

85

95

105

115

$/bbl

2008 f'cast

1st oil shock

2nd oil shock 3rd oil

shock?

© OECD/IEA

2008


If prices remain at current levels, the global “oil burden” (nominal oil expenditures as % of nominal GDP) may reach the levels seen in the 1980sDespite increasing energy efficiency, this situation could well herald a third oil shock

0%

1%

2%

1971 1976 1981 1986 1991 1996 2001 2006

No

min

15

25

35

Oil Burden WTI (real, 2007 base)


Mature vs emerging economies

In mature countries, economic activity – albeit important – is no longer the main driver

OECD Oil Demand Growth vs. GDP Growth

-1%

0%

1%

2%

3%

4%

5%

OECD Real GDP Growth OECD Oil Demand Growth

© OECD/IEA

2008


The GDP-oil demand relationship holds essentially in non-OCDE countries

-1%1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Non-OECD Oil Demand Growth vs. GDP Growth

0%

1%

2%

3%

4%

5%

6%

7%

8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Non-OECD Real GDP Grow th Non-OECD Oil Demand Growth


What about prices?

Global Oil Demand Growth vs. Oil Prices

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

30

35

40

45

50

55

60

65$/bbl

Global Oil Demand Growth

Real Brent (2005 US$/bbl)

© OECD/IEA

2008


After a time-lag, rising oil prices have an effect on overall

demand patterns

This has been quite noticeable since 2005

Yet demand keeps on growing, albeit modestly

0.0%

0.5%

1.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200720

25

30


The big picture

Average Global Demand Growth 1998-2003/2003-2008/2008-2013thousand barrels per day

6

-19-3287

102

-21

14120 62

308389

North America

Middle East

Europe FSU

678 673

Asia

© OECD/IEA

2008


(mb/d)

1998-2003 1.07 1.4%2003-2008 1.45 1.8%2008-2013 1.45 1.6%

Avg Global Demand Growth

238 218

-32

129

308

66 8656

Latin America Africa

590


Demand has changed…

The barrel is gradually “lightening” – higher demand for transportation fuels, lower for heating and fuel oil

World: Total Oil Product Demand byType of Product, 1996

53%

22%

25%

TransportationFuels

Heating & FuelOil

Other Products

© OECD/IEA

2008


This is occurring in bothOECD and non-OECD countries – environmental concerns and arbitrage pricing factors at play

48% of demand growth in middle distillates

World: Total Oil Product Demand byType of Product, 2007

58%

15%

27%

TransportationFuels

Heating & FuelOil

Other Products


Developing countries and transportOECD vs. Non-OECD Cumulative Oil Demand Growth by Use

1997-2013

5

10

15

20

25

30mb/d

Non-OECD - Other

Non-OECD - Transportation

OECD - Other

OECD - Transportation

© OECD/IEA

2008


Usage shift: transportation fuels will account for the bulk of oil demand

Geographical shift: oil demand growth will come from non-OECD countries

(5)

-

1997 1999 2001 2003 2005 2007 2009 2011 2013

Vehicle Ownership, 2005

-

200

400

600

800

1,000

- 10 20 30 40 50 60GDP per Capita (1,000 US$)

Singapore

Luxembourg

Italy

Germany France

Qatar

US

IndiaChinaV

ehic

les

per

1,0

00 in

hab

.


Parity by 2015 – but it won’t stop there

OECD countries will still

account for the bulk of

global oil demand in the

medium-term…

World: Total Oil Product Demand by Region, 1996

63.9%

36.1%

OECD Non-OECD

© OECD/IEA

2008


…yet several key non-OECD

regions, particularly in Asia

and the Middle East, are

catching up fast –developing

countries will overtake the

OECD by around 2015

OECD Non-OECD

World: Total Oil Product Demand by Region, 2013

51.3% 48.7%

OECD Non-OECD


SUPPLY

© OECD/IEA

2008



Supply Growth Looks Front End Loaded

0.5

1.0

1.5

2.0

2.5

3.0

mb/d World Supply Capacity Growth

© OECD/IEA

2008


Underlying forecast is 2.6 mb/d lower than last year for 2012OPEC crude & liquids drive 2008-2010 growthLull in 2011/2012 on project slippage and mature field declineBut fledgling signs of recovery from 2013?

-0.5

0.0

2008 2009 2010 2011 2012 2013

OPEC Capacity Growth OPEC NGLs Growth

Biofuels Growth Non-OPEC Growth (excl. Biofuels)


Mature Field Decline an Ever-Present

-20.0

-10.0

0.0

10.0

20.0

30.0

mb/dSteeper Global Decline Assumed in 2008

2007 forecast 2007-2012 2008 forecast 2008-2013

4% implied

5% implied

© OECD/IEA

2008


Global net decline seen around 5% pa for 2008-2013Implies that over 3.5mb/d of new start-ups needed every year just to stand stillOECD facing mature field decline >10% pa, but no sign that aggregate non-OPEC rate accelerating in past decade

-30.0

-20.0

Gross Additions

Net Change

Implied Decline

Gross Additions

Net Change

Implied Decline

OPEC Non-OPEC

5% implied


Key Projects are Slipping & Getting Costlier

0%50%100%150%200%250%300%350%

0200400600800

10001200

loc

me

un

e

on

lve

alia rip

um

nti

s

ade

etc hil

flo

r

TL

lyn

FK ga

rse

gan

Cost (%)Volume (mb)Impact of Upstream Project Delays

Lost Volume Cost Over-run

© OECD/IEA

2008


Non-exhaustive look at key recent project announcements suggests average 1 mb/d loss due to slippageA doubling of investment costs……and 12-15 months slippage on average

Gal

o

Ym

Nep

tun

Ho

rizo

n

Vo

lv

Dal

ia

Ban

yu U

rip

Up

per

Zak

hu

m

Atl

anti

Fra

d

Man

gal

a et

Sh

ah, A

sab

, Sah

i

Paz

flo

Pea

rl G

TL

Josl

yn

AF

K

Bo

ng

Th

un

der

Ho

rs

Kas

hag

a


Non-OPEC Output: Headed for a dip in 2010-2012

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

mb/dIncremental Non-OPEC Production

Australia

China

Azerbaijan

US ethanol & NGL

Kazakhstan

US GOM

Brazil

Canada

Key Non-OPEC Increments 2008-2013

© OECD/IEA

2008


Net increase of 1.2 mb/d expected for 2008-2013Total masks a weak OECD picture….…and the fact that gas liquids, non-conventionals and biofuels are drivers of growth, not crude

-0.6

-0.4

-0.2

2007 2008 2009 2010 2011 2012 2013

OECD Non-OECDProc. Gain/Oth. Biofuels Total Non-OPEC -1.0 -0.5 0.0 0.5 1.0 1.5

Mexico

UK

US other crude

Norway

Oth Europe

mb/d


Non-OPEC crude in decline…until 2013

15.0

20.0

25.0

30.0

35.0

40.0

mb/d Non-OPEC Crude Supply

0.0

0.5

1.0

1.5

mb/dSource of Incremental Non-OPEC Oil 2001-2013

© OECD/IEA

2008


Non-OPEC growth is despite, not because of, crude oilOECD decline outstrips modest non-OECD crude growthBut can crude growth re-emerge from mid-decade onwards if major discoveries in Russia, Caspian, US GOM, Brazil & China are tapped?

10.0

15.0

2000 2002 2004 2006 2008 2010 2012

Non OECD crude OECD crude

-0.5

2001 2003 2005 2007 2009 2011 2013

Non-OPEC CrudeNon-OPEC NGL, Non-Conv. & Proc. GainOPEC NGL, etc.Biofuels


Saudi Arabia drives OPEC crude growth

-0.3

0.0

0.3

0.6

0.9

1.2mb/d

Expected Increments in OPEC Capacity

Saudi Arabia, 1.78

Incremental OPEC Capacity, 2008-2013, mb/d+2.5 mb/d

© OECD/IEA

2008


Strong 2009/2010 capacity growth driven by Saudi lighter/ sweeter crude additions, plus initial Iraqi recoveryLater phase growth comes from Saudi Arab Heavy additions plus Nigerian deepwater

-0.6

-0.3

2007 2008 2009 2010 2011 2012 2013Saudi Arabia Iraq IranOther MEG Nigeria AngolaOther OPEC Total OPEC

Iraq, 0.41

Nigeria, 0.29

UAE, 0.27


OPEC Gas Liquids: A forgotten source of growth

0

2

4

6

8

10

12

0

1

2

3

4

5

6

7

8

2003 2005 2007 2009 2011 2013

kb/d per bcmmb/d OPEC Gas Liquids Output

NGL Condensate

GTL liquids to gas ratio

0

1

2

3

4

5

6

7

8

2003 2005 2007 2009 2011

mb/d OPEC Gas Liquids Output

Others Iran NigeriaQatar UAE Algeria

© OECD/IEA

2008

Oil Oil Market Market ReportReport 2013 supply reaches 7.2 mb/d

7% pa growth looks strong....but matches 2003-2008 levels

Iran, 398

Kuwait, 177

Qatar, 417

Saudi Arabia, 560

UAE, 313

Nigeria, 249

Incremental OPEC NGL 2008-2013, kb/dTotal = +2.1 mb/d

GTL liquids to gas ratio Qatar UAE AlgeriaSaudi Arabia


BIOFUELS

© OECD/IEA

2008



Strong growth in Biofuels output

Biofuels Output

0.0

0.5

1.0

1.5

2.0mb/d

© OECD/IEA

2008


Biofuels supply maintains strong growth seen in previous forecasts: from 1.35 mb/d in 2008 ► 1.95 mb/d by 2013 (in volumetric terms)

0.02000 2002 2004 2006 2008 2010 2012

US Ethanol OECD EUR EthanolBrazil Ethanol Asia EthanolOther Ethanol OECD EUR BiodieselOther Biodiesel


Growth potential even higher

Biofuels Output & Potential Capacity

0.00.51.01.52.02.53.03.5mb/d

© OECD/IEA

2008


Potential supply capacity much higher: 3.3 mb/d by 2013 (were all announced projects to come online!)But, due to downside risks, have capped output in 2010 for all countries bar Brazil!

0.02007 2008 2009 2010 2011 2012 2013

US Ethanol OECD EUR EthanolBrazil Ethanol Asia EthanolOther Ethanol OECD EUR BiodieselOther Biodiesel Potential Capacity


Biofuels contribute to supply growthSource of Incremental Non-OPEC

Supply Growth 2008-2013

0.0

0.2

0.4

0.6

0.8

mb/d

© OECD/IEA

2008


Biofuels contribute 50% of (faltering) non-OPEC supply growth in 2008-2013Lion’s share of this is fuel ethanol

-0.2

0.0

2008 2009 2010 2011 2012 2013

Non-OPEC (excl. Biofuels) Biofuels


REFINING AND PRODUCT SUPPLY

© OECD/IEA

2008



Refining Industry: Significant Growth Ahead

0.5

1.0

1.5

2.0

2.5mb/d Crude Distillation Capacity Additions

© OECD/IEA

2008


Growth peaks in 2009, before dropping to a trough in 2011. Middle East projects revive growth thereafterOECD regions account for only 20% of the increase; largely in North AmericaSignificant slippage as costs soar

0.0

2008 2009 2010 2011 2012 2013

OECD ChinaOther Asia Middle EastOther Non-OECD


Middle East and Asia Dominate Growth

OECD N America

OECD Europe

OECD Pacific

Middle East

Non-OECD Europe

Latin America

Distribution of Crude Distillation Capacity Additions

© OECD/IEA

2008


Increased capacity is largely dependant on projects in:Middle East – Mega projects e.g Al Zour, Ras Tanura etc.

China – Continued expansion from CNPC & Sinopec

Other Asia – Jamnagar refinery expansion in 2009

Other Asia

China

FSU

Africa


Product supply: tensions persist

Difficulty keeping up with rapid growth in distillate demand48% of gobal demand growth in distillate

Gasoline to move into surplus in the Atlantic BasinTrend towards more fuel efficient cars could accelerate that trendBiofuels part of that balance

Petchems to absorb NGL increase

© OECD/IEA

2008


Petchems to absorb NGL increaseFuel oil to tighten through upgrading additions

Wide current fuel oil discounts reflect surplusIncreasing fuel oil demand from Middle East for power generation

Tighter fuel oil supplies at same time Middle East and Europe looking for more gas

No refining limits on producing more fuel oilBut will need more crude runs or fuel efficiency elsewhere


What the next five years hold in store

High prices reflect strong non-OECD growth and poor non-OPEC supply performance

No obvious sign speculators behind high pricesstocks normal to low, distillates very tightProducers operating close to flat out

Opposing trends in supply and demand to 2013Demand growth weak, then picks up

© OECD/IEA

2008


Demand growth weak, then picks up• Led by non-OECD

Bunching of projects bolsters 2009 spare capacity, but then dips

• Ongoing slippage, cost inflation, service sector constraints• Non-OPEC crude supplies to continue to contract• More oil beyond 2013 – Saudi, Khashaghan, Tupi

More investment needed

Refining investment continues apace• Struggles to keep up with distillate demand• Fuel oil to tighten, competition with other fuels


Q & A

Thank You

© OECD/IEA

2008


Q & A

Business

IEA Medium-Term Oil Demand