IEA: Oil Outlook

IEA recently came out with their oil outlook. They provide two scenarios. One is the New Policies Scenario and the other is the Sustainable Development Scenario. The New Policies Scenario "reflects all government policies that are already in place as well as those that have been announced." The Sustainable Development Scenario "is fully aligned with the Paris Agreement's goal."

It should be noted that IEA states that these scenarios are not forecasts. They also appear to differ from what they just wrote in early October (IEA and Reuters) where they seem to imply that demand growth will continue until 2050. Calling them scenarios makes sense as they're based on governments enforcing current policies as well as implementing new policies. Considering the current protests in France around rising fuel prices, the IEA is probably correct in going with the word scenarios.



Under the New Policies Scenario, IEA has peak oil hitting in 2040. They have oil hitting 106 mb/d. (As a comparison, IHS Markit has peak oil at 113 mb/d coming sometime in the mid-2030s.)

Here's some interesting data points.

There is a major shift in the geography of oil demand in the NPS. Demand in developing economies grows by 18 mb/d to 2040 while demand in advanced economies drops by nearly 10 mb/d. There is also 3 mb/d growth in oil use in international aviation and shipping.

Oil use in cars peaks in the mid-2020s. Some 300 million electric cars on the road avoid 3.3 mb/d oil demand in 2040. Improvements in the efficiency of the non-electric car fleet are even more important to stemming demand growth: these avoid over 9 mb/d of oil demand in 2040.

I take this to mean that the Middle East becomes less and less important to the United States as our demand for oil starts to decline.

Under the Sustainable Development Scenario they have peak demand just around the corner in 2020-ish at 97 mb/d. 

And as I have quoted from multiple experts, we have an investment problem. 

The level of conventional crude oil resources approved for development in recent years is in line with the needs of the SDS but is only half of the level needed to meet demand growth in the NPS. If these approvals do not pick up sharply from today’s levels, US tight oil production would need to triple from today’s level to over 15 mb/d by 2025 to satisfy demand in the NPS. With a sufficiently large resource base, this could be possible. But it would require levels of capital investment that would far surpass the previous peaks in 2014.

They argue that tight oil will peak at 9.2 mb/d by the mid-2020s. So in order to prevent a supply crunch, shale needs to increase by another 5.8 mb/d (to get to 15 mb/d). So 63% higher than their current forecast. Considering they actually believe that tight oil in the US will PEAK in the mid-2020s, it doesn't seem likely that it could peak at a level 63% higher than what they're currently forecasting. 

Also, let's remember these are scenarios. In prior releases, as mentioned above, IEA appears to forecast peak demand hitting in 2050. So tight oil likely needs to peak at way above 15 mb/d or conventional crude oil resources approved for development needs to more than double from current levels. 

OilPrice.Com also has an article on this topic for those interested in a more expert analysis of the report.