EXECUTIVE SUMMARY
The journey to 2023 is starting from a relatively comfortable place. An overhang in global oil stocks has all but disappeared and oil prices have recovered. The oil price rally has rewarded those taking part in output cuts and has also unleashed a new wave of growth from the United States. Coupled with gains from Brazil, Canada, and Norway, oil markets now look adequately supplied through 2020. There is no call for complacency, however, and more investment is needed now to ensure secure supplies to meet robust demand growth.
Oil demand growth in the next five years rests on solid outlook for the global economy A strong world economy is expected to underpin solid increases in oil demand. The International Monetary Fund sees global economic growth at 3.9% in the early part of our forecast period with all regions expected to perform well. Strong economies will, in turn, use more oil and we expect demand to grow at an average annual rate of 1.2 mb/d. By 2023, oil demand will reach 104.7 mb/d, up 6.9 mb/d from 2017. As has been the case for some years, China and India together will contribute nearly 50% of global oil demand. As China’s economy becomes more consumer-oriented, the rate of growth in oil demand slows down to 2023, compared with the 2010-17 period. In contrast, the pace of oil demand growth will pick up slightly in India.
While there is no peak oil demand in sight, the pace of growth will slow down to 1 mb/d by
2023 after expanding by 1.4 mb/d in 2018. There are signs of substitution of oil by other energy
sources in various countries. A prime example is China, which has some of the world’s moststringent
fuel efficiency and emissions regulations. As the country recognises the urgent need to
tackle poor air quality in cities, efforts are intensifying. Sales of electric vehicles are rising and
there is strong growth in the deployment of natural gas vehicles, particularly into fleets of trucks
and buses. Our analysis shows that a rising number of electric buses and LNG-fueled trucks in
China will significantly slow gasoil demand growth.
Petrochemicals are a key driver of oil demand growth
The fastest-growing source of global oil demand growth are petrochemicals, particularly in the
United States and China. The shale revolution in the United States has opened up a major source
of cheap domestic feedstock. About 1.7 mb/d, or 25%, of our total demand growth to 2023 is
taken up by ethane and naphtha. Global economic growth is lifting more people into the middle
class in developing countries and higher incomes mean sharply rising demand for consumer
goods and services. A large group of chemicals derived from oil and natural gas are crucial to the
manufacture of many products that satisfy this rising demand. Examples include personal care
items, food preservatives, fertilisers, furnishings, paints and lubricants for automotive and
industrial purposes.
One of the biggest and most pressing issues is the implementation of major changes to marine
fuel specifications mandated by the International Maritime Organisation (IMO). The new rules
loom ever closer and the maritime and refining industries face a huge challenge to implement
them. From the vantage point of early 2018, it is not clear how successful they will be, especially
as demand for non-marine gasoil grades is growing steadily. The new regulations will cause a  massive switch out of high sulphur fuel oil demand and into marine gasoil or a new very low
sulphur fuel oil. The total demand for oil products will not be dramatically altered, but the
impact of the changes on the product mix is a major uncertainty in our forecast.
Investment in the upstream sector shows only modest signs of recovery
With global demand rising steadily, the response from the supply side is crucial. The recovery
from the historic drop-off in investments by 25% in both 2015 and 2016 has barely started.
Investment was flat in 2017, and early data suggests only a modest rise in 2018. This is
potentially storing up trouble for the future. An added concern is that investment is
overwhelmingly focused on the light tight oil (LTO) sector in the United States. As a result,
upstream investment may be inadequate to avoid a significant squeezing of the global spare
capacity cushion by 2023, even as costs have fallen and project efficiency has improved.
Natural production declines are slowing, but more investment will be needed. Each year the
world needs to replace 3 mb/d of supply lost from mature fields while also meeting robust
demand growth. That is the equivalent of replacing one North Sea each year. Investment in
maintaining current production is one challenge, investing in future demand growth is another.
Our analysis shows that discoveries of new oil resources fell to another record low in 2017, with
less than 4 billion barrels of crude, condensate and NGLs found.
In the past three years we have seen oil production from China, Mexico and Venezuela fall by a
combined 1.7 mb/d as a consequence of lower investment. China’s decline has slowed; in
Mexico, impressive reform proposals are being developed and production could return to growth
by 2023. Meanwhile, Venezuela remains a wild card. In the twenty years since former President
Chavez first came to power, oil production has more than halved to below 1.6 mb/d, and
capacity will plunge by nearly 700 kb/d more by 2023, a major acceleration of the decline we
expected a year ago.
With Venezuela in crisis, the net growth in total OPEC production capacity will be only 750 kb/d,
and this number includes an assumption that shut-in production of around 500 kb/d from the
Neutral Zone is finally re-started. It also depends on some degree of stability in Iraq, Libya, and
Nigeria.