The global energy outlook
LONDON, February 24, 2020 – The beginning of 2020 was dogged by the coronavirus epidemic and its effect on global oil demand. The price of a barrel of crude oil has fallen 15% since the outbreak was announced in the Chinese city of Wuhan, and 20% if we take into account the maximum price in the world stock exchanges in early January, when the barrel of Brent was at USD 68.7. The appearance of the coronavirus damaged the consumption of the Lunar New Year holiday and as a result of the epidemic, factories, offices and stores remain closed.
China, the world’s largest importer of oil, which generally consumes about 14 million bopd, needs much less oil to power its machinery, vehicles or even keep the lights on. The largest oil refinery operator in Asia, Sinopec, has reduced the amount of crude oil it processes by approximately 600,000 bpd, which is 12% less and its biggest cut in more than a decade. In its February 2020 report, OPEC said it expects 19% less demand growth for 2020 than previously forecasted and until end of March OPEC+ has a pact to cut oil output by 1.7 million bopd, a further 600,000-bopd supply cut.
RISKS OLD AND NEW: Attacks in Saudi Arabia in September 2019 have shown that traditional security risks have not disappeared. At the same time, new risks – from cybersecurity to extreme weather events – require constant vigilance on the part of governments. The IEA estimates that almost one-fifth of global growth in the energy consumption in 2018 is attributable to warmer summers pushing upwards the demand for cooling and cold waves resulting in increased heating requirements.
PRODUCTION SHIFTS: US shale oil and gas production has remained high longer than expected, recomposing markets, trade flows and security worldwide. Annual production growth in the USA has also slowed down from the hectic pace of recent years. However, with resources revised upwards according to the latest official estimates, the USA accounts for 85% of the increase in global oil production by 2030 in the “stated policies” scenario, with 30% of that being gas. This strengthens the position of the United States as an exporter of these two fuels. By 2025, production of US shale oil and gas will exceed total oil and gas production by Russia.
Increased US oil production has reduced the share of OPEC countries and Russia in overall production. This contribution will drop to 47% in 2030, down from 55% in the mid-2000s, with their ability to influence the oil market becoming increasingly counterbalanced. The pressure on income from hydrocarbons from some of the world’s largest producers also highlights the relevance of efforts to diversify their economies.
Whatever path the energy system takes, the world continues to depend heavily on Middle East oil supplies. The region remains by far the world’s leading net oil exporter and retains a major share of LNG exports. The Strait of Hormuz, one of the busiest shipping centres in the world, maintains its position as a crucial artery for global energy trade, especially for Asian countries such as China, India, Japan and South Korea, which are heavily dependent on fuel imports. According to the “stated policies” scenario, 80% of trade oil is headed to Asia by 2040, largely due to the doubling of import needs from India.