OPEC sees no peak oil demand on horizon, more crude needed to fuel global economy

The world will need much more oil for far longer than previously expected, OPEC said in its updated market forecast, pushing back its estimate of peak demand to at least 2045 and firmly rejecting the notion that the transition to renewable energies would pose any near-term threat to its existence.

Global oil demand will expand annually by about 3 million b/d of oil equivalent until it reaches 116 million b/d by 2045, driven by population growth, particularly in the Middle East, Africa and Asia, OPEC said in its World Oil Outlook released Oct. 9.

That is a 6 million b/d upward adjustment from the 2022 version of its report, which predicted that demand would begin plateauing by 2040 -- an aggressive assessment that puts it at odds with many Western countries that seek to phase out fossil fuel consumption. The International Energy Agency, for instance, is due to release its long-term forecast in the coming weeks, having already said it sees oil demand peaking by the end of this decade, in advocating for ambitious net-zero policies.

"What is clear is that the world will continue to need more energy in the decades to come as populations expand, economies grow, and given the pressing need to bring modern energy services to those who continue to go without," OPEC Secretary General Haitham al-Ghais said in the outlook, adding that oil and gas divestment campaigns and anti-drilling policies "are misguided and could lead to energy and economic chaos."

The World Oil Outlook provides the data behind the producer group's energy market platform as world leaders prepare to gather at core OPEC member, the UAE, in November for the next UN climate change conference, or COP28.

The issue is an existential one for OPEC's 13 members that rely on revenue from crude sales for the vast majority of their budgets, a reality that puts them firmly in the crosshairs of climate activists and some policymakers alarmed at rising global temperatures, extreme weather events and growing pollution.

OPEC has sought to shift the dialogue at UN climate change conferences away from limiting or banning oil drilling to a focus on reducing and controlling emissions in the name of energy access and affordability.

It is banking on the resilience of the global economy as its existential buffer against the energy transition, while the fiscal and industrial shocks of the coronavirus pandemic are still being felt, along with a reordering of oil and gas flows from the Russia-Ukraine war.

Road transportation (4.6 million b/d of growth), petrochemical production (4.3 million b/d) and aviation (4.1 million b/d) will drive the largest increases in incremental oil demand through 2045, the outlook stated, as oil retains the highest share in the global energy mix at 29.5% of all consumption, a slight dip from 31.2% in 2022.

As such, the industry will require $14 trillion in investments to meet that demand, or about $610 billion annually, OPEC said.

"If these investments do not materialize, it represents a considerable challenge and risk to market stability and energy security," the report stated.

OPEC capacity

Much of that onus figures to be on OPEC itself.

The outlook forecasts that oil supply from outside the bloc will fall from 72.7 million b/d in 2028 to 69.9 million b/d by 2045, as US shale production begins to dry up.

That will require OPEC, as the swing producer in the market, to boost its liquids output capacity by almost 35%, or 11.9 million b/d, in that span, if it is to prevent a supply deficit.

To date, only Saudi Arabia and the UAE are among the OPEC members that have outlined detailed plans to raise crude production capacity.

Saudi Arabia is investing to bring its crude output potential from 12 million b/d to 13 million b/d by 2027, while the main UAE producer Abu Dhabi National Oil Co. aims to pump 5 million b/d by 2027 from its current 4.65 million b/d.

Many African members in recent years struggled to raise production, let alone maintain it, having failed to keep up with needed infrastructure upgrades, while Iran and Venezuela are under stringent US sanctions that have also crimped their industries.

Other OPEC countries, such as Iraq and Libya, have had significant internal disruptions to their crude production due to civil unrest or political turmoil.

At the moment, OPEC, which has allied with Russia and several other producers, has implemented deep output cuts aimed at stabilizing a volatile oil market buffeted by erratic economic indicators and creating the conditions for more industry investment.

The alliance is next due to meet Nov. 26 in Vienna to decide whether to keep those cuts into 2024 as currently scheduled, lift them in response to emerging demand data, or even deepen them if needed.

"The continued proactive, preemptive and multilateral approach to balanced and stable markets and the voluntary production adjustments have proven beneficial over the past year," Ghais said in the World Oil Outlook. "It will continue to be a guiding principle in the years to come."

Long-term oil demand forecast

Unit: million b/d

Source: OPEC World Oil Outlook