The use of oil for transport fuels will decline after 2026, and growth in oil demand will “slow to near a standstill in the coming years”, the International Energy Agency has said (IEA).
The IEA’s “Oil 2023” report released Wednesday projects global oil demand will grow six percent between 2022 and 2028 to reach 105.7 million barrels per day (million bpd), a 5.9 million bpd increase compared to 2022 levels, supported by strong demand from the petrochemical and aviation sectors. However, annual demand growth will slow from 2.4 million bpd in 2023 to 0.4 million bpd in 2028, the report said.
Oil demand from combustible fossil fuels, which excludes biofuels, petrochemical feedstocks and other non-energy uses, is expected to peak at 81.6 million bpd in 2028, the report said, adding that “ this milestone marks a historic turn towards fewer emissions. sources”.
“The shift to a clean energy economy is accelerating, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance ” said IEA Executive Director Fatih Birol. “Oil producers must pay close attention to the pace of change and calibrate their investment decisions to ensure an orderly transition.”
Demand projections
The expansion in global oil demand will be driven by the fastest growing economies in the developing world, especially Asia, the report said. Around three-quarters of the increase in the six-year period to 2028 will come from Asia, with India overtaking China as the main source of growth in 2027. Meanwhile, oil demand in North America and Europe, where energy transition policies and efficiency gains will be more pronounced, will be in “contractive mode” for most of the period, according to the report.
China, which is experiencing a post-pandemic oil demand pick-up in the first half of 2023, will see demand growth slow from 2024. However, the global petrochemical sector will remain the key driver of growth in global oil demand, with liquefied petroleum gas (LPG), ethane and naphtha accounting for more than half of the increase between 2022 and 2028 and almost 90 percent of the increase in compared to pre-pandemic levels. The aviation sector will also expand strongly as airline travel returns to normal following the reopening of borders, the report said.
Global upstream investments in oil and gas exploration, extraction and production are forecast to reach their highest levels since 2015, growing 11 percent year-on-year to $528 billion in 2023, up from $474 billion in 2022. The expected level of investment would be sufficient to meet demand in the six-year period to 2028, but would exceed the amount needed in the energy transition goals for net zero emissions, the IEA said.
The report suggested that “refiners may need to shift their product yields toward middle distillates and petrochemical feedstocks to reflect changing demand patterns.” Demand for premium petroleum-based transportation fuels is forecast to be 1 million bpd below 2019 levels by the end of 2028. At the same time, robust petrochemical activity and slower growth in liquids supply of natural gas will increase demand for LPG supplied to refineries and naphtha, the IEA predicts.
Oil-producing countries outside the US-led OPEC+ alliance, Brazil and Guyana ‘dominate plans to increase global supply capacity in the medium term’ with an expected increase of 5.1 million bpd by 2028, according to the report.
For OPEC+ member countries, the projected net capacity increase is 0.8 million bpd in the six-year period to 2028, led by the United Arab Emirates, Saudi Arabia and Iraq. According to the report, African and Asian members will continue to experience steady declines.
Projections in the report assume that major oil producers maintain their plans to add capacity even as demand growth slows, resulting in an excess capacity cushion of at least 3.8 million bpd , concentrated in the Middle East. However, several factors may still affect market balances in the medium term, including uncertain global economic trends, the direction of OPEC+ decisions and China’s refining industry policy, the report said.
In a previous study, Bloomberg NEF predicted that global global oil demand for road transport will peak in 2027, as the use of electric vehicles increases in the coming years. Electric vehicle use is already displacing demand for 1.5 million bpd of oil, and that displacement “will increase dramatically in the coming years,” the research firm said in its annual “Electric Vehicle Outlook “.
To contact the author, send an email to rteodoro.editor@outlook.com
