Oil production to plateau ‘by end of decade’

The global appetite for energy is likely to swell far more rapidly than available supply in coming decades as oil production hits a plateau and emerging markets see rampant economic growth, Royal Dutch Shell has said. In a report published today, the oil giant predicts that by 2050 world energy demand may have tripled compared with 2000 levels, based on historical patterns of development. However, energy supplies may grow by only 50 per cent in the same period.

Improvements in energy efficiency could curb demand by 20 per cent. But the world still needs to figure out how to bridge a looming gap between supply and demand that is equivalent to the global energy industry’s entire output in the year 2000, Shell calculated.

By the end of this decade the world will run into a plateau in oil production, a development that will put “upward pressure” on oil prices.
Jeremy Bentham, the vice-president for Business Environment at Shell, said: “The coming surge in energy demand reflects the surge in developing nations. China will be continuing through its industrialisation period over the next ten years, and India is probably ten years behind that.
“This will be followed by the likes of Indonesia, Vietnam, and so on. These successive waves of development will create a surge in underlying demand for energy. This is leading us to a vast zone of uncertainty.”

The projections came in a report updating energy scenarios that Shell published in 2008. Since then the recession set global energy demand back by about two to three years, meaning that 2008 demand levels will be reached again only this year.
However the broader trend in energy markets is clear, the report said: the world faces rapid demand growth as emerging markets industrialise, coupled with increasing strains on traditional sources of energy. Oil production is likely to rise 16 per cent between 2010 and 2020, Shell’s projections show. Growth over the subsequent ten years will be virtually non-existent, however, leaving oil production at roughly 96 million barrels of oil a day, Shell said.
Mr Bentham said that while oil production is set to plateau at the end of the current decade, “the stresses in the oil markets may come much earlier”.
He said: “You saw the foreshocks of those developments in 2007-08, interrupted by the recession. Now you are seeing in the market a building up of tension again. In the short term you are in a manageable situation given Opec’s spare capacity but you get to a more stressed situation later in the decade.”

Brent crude prices currently hover above $100 a barrel amid tensions in the Middle East and growth of around 10 per cent a year in China. The countries that control easily accessible oil are likely to develop their resources “at a pace that meets their own underlying aspirations, and not at the pace at which others would like it to be developed,” Mr Bentham warned.
One positive recent improvement in the energy supply outlook stems from huge “shale” gas discoveries. Explorers have more than doubled the discovered resource base in North America in the past three years, prompting Shell to increase its estimates for gas output.
Its previous energy scenarios forecast gas production to reach 65-70 million barrels of oil equivalent by 2030. It now sees close to 83 million barrels of oil equivalent being produced by that time.

That should help to ease demand for polluting coal, but the oil giant is still expecting a doubling in the use of coal between 2000 and 2030. By contrast, oil production is expected to rise by only 27 per cent over the same period.
Renewables will help to bolster resources but they are expected to meet only 16 per cent of energy demand by 2030 compared with 11 per cent in 2000, including so-called biomass fuels such as wood burning.

Sunday Times
Sam Fleming Economics Editor
February 13 2011

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