Chapter 3 - Petroleum and Other Liquids Fuels 

In the IEO2007 reference case, world consumption of petroleum and other liquid fuels⁴ grows from 83 million barrels oil equivalent per day in 2004 to 97 million in 2015 and 118 million in 2030. The demand for liquids increases strongly in the projections, despite world oil prices that remain above $49 per barrel⁵ throughout the period. Much of the overall increase in liquids consumption is projected for the nations of non-OECD Asia, where strong economic growth is expected.

To meet the increase in liquids consumption in the IEO2007 reference case, liquids production is projected to increase by 14 million barrels per day from 2004 to 2015 and by an additional 20 million barrels per day from 2015 to 2030. OPEC producers⁶ are expected to provide more than one-half of the additional production in 2015 (8 million barrels per day) and more than two thirds in 2030 (23 million barrels per day).

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In the reference case projections, sustained high world oil prices support a substantial increase in non-OPEC liquids production. Non-OPEC production in 2030 is projected to be 12 million barrels per day higher than in 2004, representing 35 percent of the increase in total world production over the 2004 total. The estimates of production increases are based on current proved reserves and a country-by-country assessment of ultimately recoverable petroleum, as well as the potential for unconventional liquids production.

The world oil prices in the IEO2007 reference case—and in the high world oil price case—also are projected to make previously uneconomical, unconventional resources available. In 2004, world production of unconventional liquids totaled only 2.6 million barrels per day; in 2030, in the reference case, unconventional liquids production totals 10.5 million barrels per day (Figure 32) and accounts for nearly 9 percent of total world liquids production.

World Liquids Consumption

World liquids consumption in the IEO2007 reference case increases to 118 million barrels per day (239 quadrillion Btu) in 2030, as the world continues to experience strong economic growth. Two-thirds of the increment in world liquids consumption in the reference case is projected for use in the transportation sector, where there are few competitive alternatives to petroleum (Figure 33). The industrial sector accounts for a 27-percent share of the projected increase, mostly for use in chemical and petrochemical processes.

Strong expansion of liquids use is projected for the non OECD countries, fueled by robust economic growth, burgeoning industrial activity, and rapidly expanding transportation use. The fastest growth in oil consumption is projected for the economies of non-OECD Asia, averaging 2.7 percent per year from 2004 to 2030. For the other non-OECD regions, annual consumption growth averages 1.0 percent in non-OECD Europe and Eurasia, 2.1 percent in the Middle East, 2.3 percent in Central and South America, and 2.2 percent in Africa.

Non-OECD Asia accounts for 43 percent of the overall increase in world liquids consumption, with projected increases of 6.5 million barrels per day from 2004 to 2015 and another 8.5 million barrels per day from 2015 to 2030. China, India, and the other nations of non-OECD Asia are expected to experience combined economic growth of 5.8 percent per year from 2004 to 2030, the highest rate among all the world regions. The robust expansion of GDP projected for non-OECD Asia contributes to a 2.7-percent average annual increase in the region’s liquids use.

World Oil Prices

The world oil price cases in this report are the same as those in EIA’s Annual Energy Outlook 2007. In the reference case, world oil prices decline from $68 per barrel in 2006 to $49 per barrel in 2014, then rise to $59 per barrel in 2030 ($95 per barrel on a nominal basis). Total world liquids consumption rises to 118 million barrels per day in 2030 in the reference case. The low and high price cases are included to illustrate uncertainties in the reference case projections (Figure 35). In the low price case, world oil prices are projected to be $36 per barrel in 2030 ($58per barrel on a nominal basis). In the high price case, oil prices are projected to be $100 per barrel in 2030 ($157 per barrel on a nominal basis). The projections for total liquids consumption in 2030 range from 103 million barrels per day in the high price case to 134 million barrels per day in the low price case, indicating the substantial range of uncertainty in the world’s future oil markets.

World Liquids Production

In the IEO2007 reference case, world liquids production in 2030 exceeds the 2004 level by 35 million barrels per day (Figure 36). Increases in production are expected for both OPEC and non-OPEC producers; however, 65 percent of the total increase is expected to come from OPEC areas. In 2030, OPEC is expected to produce 57 million barrels per day and non-OPEC producers 61 million barrels per day in the reference case. Over the past two decades, the growth in non-OPEC liquids production has resulted in an OPEC market share substantially below its high of 52 percent in 1973. In 2004, OPEC produced 41 percent of the world’s liquids supply. High oil prices, new exploration and production technologies, aggressive cost-reduction programs by industry, and the emergence of unconventional resources contribute to the outlook for continued growth in non-OPEC liquids production.

The reference case outlook for liquids production was formulated in a two-stage approach. The mid-term projections (through 2015) are based primarily on the current activities of the oil industry and national governments, including: current production volumes; recent rates of decline in output from producing fields; planned exploration, development, and enhanced oil recovery activities; country-specific policies and fiscal regimes; and current conflicts and social unrest that could interrupt production and make incremental investments more risky. After 2015, the reference case assumes that production decisions are made primarily on economic grounds, based on assessments of the resource base, with less weight placed on current political conditions.

The IEO2007 reference case projects greater reliance on OPEC oil supplies than was anticipated in last year’s outlook. In IEO2006, OPEC’s total liquids production (excluding Angola) was projected to increase by nearly 15 million barrels per day from 2003 to 2030; in IEO2007, the projected increase in OPEC production (excluding Angola) is about 22 million barrels per day over the same period. An extensive review of anticipated investment in exploration and production through 2015 was conducted for IEO2007. As a result, the projections of non-OPEC supply from several key producers were lowered. However, the investment that several OPEC members (notably, Saudi Arabia and Angola) currently are making to expand their oil production capacity is expected to more than offset the slower expansion of non-OPEC supply projected in this year’s outlook.

There are several regions where production is restrained through 2015 in the reference case. For instance, in the key resource-rich countries of Mexico and Venezuela, expected investment levels are lower than those assumed in the IEO2006 reference case. In both countries, liquids production is projected not to expand (and, in Mexico, to decline) until after 2015, when economic decisions on investment allow production to improve. Also, North Sea production is projected to decline more rapidly than in last year’s outlook. The rate of decline in North Sea production over recent years has been higher than observed in earlier years, and economics do not support a reversal of the declining trend in the IEO2007 reference case. In Iran and Iraq, political developments are assumed to keep production levels fairly flat until after 2015, when investment and production are projected to grow strongly through 2030.

IEO2007 includes supply estimates for the low and high world oil price cases, based on the availability of world crude oil resources. In the high price case, worldwide crude oil resources are assumed to be 15 percent smaller and therefore more expensive to produce than in the reference case, and the preferred production levels of OPEC producers are reduced. In the low price case, worldwide crude oil resources are assumed to be 15 percent larger and therefore less expensive therefore to produce than in the reference case, and the preferred production levels of OPEC producers are increased. In each of three oil price cases, a business-as-usual oil market environment is assumed. The IEO2007 cases do not consider disruptions in oil production for any reason (war, terrorist activity, weather, geopolitics).

Non-OPEC Production

The world oil prices projected in the IEO2007 reference case allow non-OPEC suppliers to expand their production through 2030. Non-OPEC production increases steadily in the projections, from 49 million barrels per day in 2004 to 61 million barrels per day in 2030, as high prices attract investment in areas previously considered uneconomical. The non-OPEC market share in 2030, however, at 52 percent of the world’s liquids production, is lower than its 2004 share of 59 percent.

Non-OPEC conventional liquids production in the reference case increases from 47 million barrels per day in 2004 to 51 million barrels per day in 2015 and 53 million barrels per day in 2030, and unconventional liquids production from non-OPEC suppliers rises to 4 million barrels per day in 2015 and 8 million barrels per day in 2030. In the high world oil price case, non-OPEC unconventional liquids production rises to 11 million barrels per day in 2030, as compared with 4 million barrels per day in 2030 in the low price case, where most unconventional liquids are not economically competitive.

North Sea production is projected to decline more rapidly in the IEO2007 reference case than was projected in IEO2006. Production from Norway, OECD Europe’s largest producer, appears to have peaked at about 3.4 million barrels per day in 2001, and it is projected to continue declining to about 1.4 million barrels per day in 2030 as the larger and older fields mature. Production from the United Kingdom, which peaked in 1999 at 3.0 million barrels per day, is projected to fall to 0.5 million barrels per day in 2030.

Oil production in the non-OECD Europe and Eurasia region is projected to reach nearly 15.0 million barrels per day in 2015, based in large part on the potential investment outlook for the Caspian Basin region, where long-term production potential still is regarded with considerable optimism. Caspian output more than doubles from the 2004 level to 4.3 million barrels per day in 2015 in the reference case and increases steadily thereafter. Current uncertainty about export routes from the Caspian Basin region is assumed to be resolved.

North African producers Egypt and Tunisia produce mainly from mature fields, and the IEO2007 reference case assumes few additions to resources in the future. As a result, their production volumes decline gradually in the projections. In East Africa, Sudan is expected to produce significant volumes by the end of this decade, with the potential to exceed 700,000 barrels per day in 2010. Eritrea, Somalia, and South Africa also have some resource potential, but they are not expected to produce significant volumes until late in the projections.

Several West African producers—Cameroon, Chad, Congo (Brazzaville), Equatorial Guinea, Gabon, Mauritania, Niger, Sao Tome and Principe, and Ivory Coast—are expected to reap the benefits of substantial exploration activity, especially if current high oil prices persist. West African producers with offshore tracts are expected to increase output by up to 1.1 million barrels per day by the end of the projection period.

Oil producers in the Pacific Rim are expected to increase their production volumes as a result of enhanced exploration and extraction technologies. India’s deepwater prospects are expected to show some encouraging production increases in this decade, with the potential for significant increases near the end of the projection period. China’s conventional oil production is projected to decline slightly, to about 3.3 million barrels per day in 2030.Vietnam’s long-term production potential is viewed with considerable optimism, although exploration activity has been slower than originally anticipated. Output from Vietnamese fields is projected to reach 504,000 barrels per day in 2015.

Malaysia is not expected to find significant new reserves; its output has already peaked and is expected to decline gradually through the end of the projection period, to less than 500,000 barrels per day in 2030. Papua New Guinea continues to add to its proved reserves and is expected to achieve production volumes approaching 110,000 barrels per day in 2015, followed by only a modest decline over the remainder of the projection period. Exploration and test-well activity have pointed to some production potential for Bangladesh and Myanmar (formerly Burma), but significant output is not expected until after 2010.

In North America, U.S. output that rises to 10.1 million barrels per day in 2020 and remains fairly flat through the end of the projection period is expected to be supplemented by significant production increases in Canada. Canada’s conventional oil output contracts steadily in the reference case, by about 0.5 million barrels per day over the next 25 years, but an additional 2.5 million barrels per day of unconventional output from oil sands projects more than offsets the decline in conventional supplies. Since the publication of IEO2006, Mexico’s state oil company, Petróleos Mexicanos (Pemex), has announced annual production decline rates of 14 percent in its largest oil field at Cantarell [1]. The IEO2007 reference case does not anticipate adequate investments through 2015, and as a result, production in Mexico is projected to fall to 3.0 million barrels per day in 2015 (see discussion on Reassessing the Potential for Oil Production in Mexico). IEO2007 assumes that declining revenue from oil production in Mexico ultimately will encourage government action to increase investment and technology access in the petroleum sector after 2015. Given the country’s available resource base, such action eventually should reverse the decline in production.

Liquids producers in South America have potential for increasing output over the next decade. Brazil became a million barrel per day producer of crude oil in 1999, with considerable production potential waiting to be tapped. Brazil’s production rises throughout the projection period, to 3.9 million barrels per day of conventional production and 0.5 million barrels per day of unconventional production in 2030. Colombia’s current economic downturn and civil unrest have delayed development of its oil production infrastructure, but its output is expected to reach 700,000 barrels per day in 2015, with continued modest increases over the remainder of the projection period. Although the current political situation in Ecuador is in transition, there is still optimism that Ecuador will increase production volumes over the projection period.

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OPEC Production

It is generally acknowledged that OPEC members with large reserves and relatively low costs for expanding production capacity can accommodate sizable increases in the world’s petroleum consumption. In the IEO2007 reference case, the production call on OPEC suppliers grows at an annual rate of 2.0 percent through 2030 (Figure 37).

Amidst enormous uncertainty, Iraq’s role in OPEC in the next several years will be of particular interest. In 1999, Iraq expanded its production capacity to 2.8 million barrels per day in order to reach the maximum export revenue (slightly more than $5.2 billion) allowed under United Nations Security Council resolutions. Iraq’s oil production capacity in 2007 is assumed to be 2.0 million barrels per day [2]. Iraq has indicated a desire to expand production aggressively, to more than 6 million barrels per day, once the security and political situation in the country has stabilized. Preliminary discussions of exploration projects have already been held with a number of potential outside investors. In the IEO2007 reference case, Iraq’s oil production is projected to reach 3.3 million barrels per day in 2015 and 5.3 million barrels per day in 2030.

Oil production in Iran is projected to increase only slightly in the early years of the reference case, from 4.1 million barrels per day in 2004 to 4.3 million barrels per day in 2015, despite the country’s sizable resource base. In the long run, Iran’s oil production is projected to reach 5.0 million barrels per day in 2030. Kuwait and the United Arab Emirates (UAE) are expected to follow similar growth paths in their oil production sectors. In 2004, levels of production from the two countries were 2.5 and 2.8 million barrels per day, respectively; in 2015, they are projected to be 3.2 and 3.8 million barrels per day, respectively; and in 2030 they are projected to be 4.1 and 4.9 million barrels per day, respectively. Qatar’s production is projected to grow from 1.0 million barrels per day in 2004 to 2.9 million barrels per day in 2030, with liquids other than crude oil expected to provide more than half the increase.

In the past, Saudi Arabia—with its very low development and production costs per barrel of output—has maintained 1 to 5 million barrels per day of spare production capacity, which has given it considerable market power. It is expected to maintain average spare capacity of 1 to 2 million barrels per day in the future. In the reference case, Saudi Arabia’s production is projected to be 9.4 million barrels per day in 2015 and 16.4 million barrels per day in 2030.

Angola became a 1.1 million barrel per day producer in 2004,and the results of deepwater exploration indicate that its production could increase to as much as 4.0 million barrels per day by 2030. The rapid increase in Angola’s production demonstrates the importance of political stability, international investment, and technology advances. Angola’s oil production languished for the most part during a 20-year civil war, which ended in 2003. It was not until the late 1990s, when prospects for a peaceful resolution were taking shape, that the foreign investment needed to support offshore production began to materialize. Angola’s decision to join OPEC in January 2007 is not expected to slow the increase in its oil production, given that other OPEC members were granted some flexibility while they were rapidly expanding their production.

In the IEO2007 reference case, OPEC members outside the Persian Gulf (excluding Angola) are projected to increase their production capacity only moderately, in part because of the relatively high cost of capacity expansion in most of the member countries. There is some optimism surrounding Nigeria’s potential for offshore production. For Algeria and Libya, the reference case projects an increase of 1.2 million barrels per day in their combined liquids production from 2004 to 2015, but after 2015 it is projected to remain fairly flat. Indonesia’s production is expected to decline over the projection period, and Venezuela is expected to see some increase in production after 2015.Tables G1-G9 in Appendix G show the ranges of production potential for both OPEC and non-OPEC producers.

Geopolitical issues in a number of the OPEC countries, including Iraq, Iran, Venezuela, and Nigeria, make it difficult to estimate future production levels. As a result, there is a high level of uncertainty associated with the reference case assumptions and projections for OPEC production through 2030.

The IEO2007 high price case provides one scenario in which OPEC limits production. Assuming lower availability of non-OPEC conventional resources, OPEC would be able to exercise greater influence on oil prices. Production of both OPEC and non-OPEC conventional liquids is projected to increase in the high price case, but at a slower rate than projected in the reference case. Because higher prices would make more unconventional liquids production economically competitive, non-OPEC liquids production is projected to be nearly the same in the reference and high price cases, with unconventional liquids replacing most of the reduction in conventional production that is projected in the high world oil price case.

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The IEO2007 low price case assumes greater availability of non-OPEC conventional resources than in the reference case. Oil prices fall as non-OPEC production expands, and OPEC producers must increase production to meet their revenue requirements. As a result, OPEC’s options for influencing the market are limited. In the low price case, OPEC production is projected to be about the same as in the reference case, but with lower total revenues.

Oil Reserves and Resources

Historically, estimates of world oil reserves have generally trended upward (Figure 38) [3]. As of January 1, 2007,proved world oil reserves, as reported by Oil & Gas Journal,⁷ were estimated at 1,317 billion barrels—24 billion barrels (about 2 percent) higher than the estimate for 2006 [4] (Table 3). In addition to growth in remaining oil reserves, production from conventional crude oil and condensate reserves, natural gas plant liquids, Canadian oil sands, and Venezuelan ultra-heavy oil during 2006 were estimated to be 30 billion barrels. Taken together, the reserve increases and production imply that 54 billion barrels of reserve discoveries and growth occurred during 2006, or an increase of about 4 percent.

Reserve estimates for oil, natural gas, and coal are difficult to develop. EIA develops estimates of reserves for the United States but not for foreign countries. As a convenience to the public, EIA makes available global reserve estimates from the Oil & Gas Journal, World Oil, and BP’s Statistical Review of World Energy, and uses the data in its analyses.

Proved reserves of crude oil are the estimated quantities that geological and engineering data demonstrate with reasonable certainty can be recovered in future years from known reservoirs, assuming existing economic and operating conditions. Companies whose stocks are publicly traded on U.S. stock markets are required by the Securities and Exchange Commission (SEC) to report their holdings of domestic and international proved reserves, following specific guidelines. Country-level estimates of proved reserves are developed from the data reported to the SEC, from foreign government reports, and from international geologic assessments. Estimates are not always updated annually, and some countries invest in exploration only to maintain a target level of proved reserves. Thus, historical data series may be relatively flat over some periods, with sudden jumps in others.

Since 2000, the largest net increase in estimated proved oil reserves has been made in Canada, with the addition of 174 billion barrels of Canadian oil sands as a conventional reserve.⁸ Iranian oil reserves have increased by 46.6 billion barrels, or 52 percent, since 2000. Kazakhstan has had the third-largest increase, 24.6 billion barrels, since 2000. The 10 countries with the largest net increases in reserves between 2000 and 2007 are listed in Table 4. According to Oil & Gas Journal, 56 percent of the world’s total proved oil reserves are located in the Middle East (Figure 39). Among the top 20 reserve holders in 2007,11 are OPEC member countries that, together, account for 65 percent of the world’s total reserves (Table 3). The largest declines in oil reserves between 2000 and 2007 were reported in Mexico (16.0 billion barrels), China (8.0 billion barrels), Norway (2.9 billion barrels), Australia (1.3 billion barrels), and the United Kingdom (1.3 billion barrels).

The most common measure of the adequacy of proved reserves relative to annual production is the reserve-to production (r/p) ratio, which describes the number of years of remaining production from current proved reserves at current production rates. For the past 25 years, the U.S. r/p ratio has been between 9 and 12 years, and the top 40 countries in conventional crude oil production rarely have reported r/p ratios below 8 years. The major oil-producing countries of OPEC have maintained r/p ratios of 20 to 100 years (Table 5).

Notes and Sources
References
Chapter 3 Tables