OIL Medium-Term Market Report 2013 Market Trends and Projections to 2018 Please note that this PDF is subject to specific restrictions that limit its use and 2013 distribution. The terms and conditions are available online at http://www.iea.org/ termsandconditionsuseandcopyright/ OECD/IEA, © OIL Medium-Term Market Report 2013 The global oil market will undergo sweeping changes over the next five years. The 2013 Medium-Term Oil Market Report evaluates the impact of these changes on the global oil system by 2018 based on all that we know today – current expectations of economic growth, existing or announced policies and regulations, commercially proven technologies, field decline rates, investment programmes (upstream, midstream and downstream), etc. The five-year forecast period corresponds to the length of the typical investment cycle and as such is critical to policymakers and market participants. This Report shows, in detailed but concise terms, why the ongoing North American hydrocarbon revolution is a “game changer”. The region’s expected contribution to supply growth, however impressive, is only part of the story: Crude quality, infrastructure requirements, current regulations, and the potential for replication elsewhere are bound to spark a chain reaction that will leave few links in the global oil supply chain unaffected. While North America is expected to lead medium-term supply growth, the East-of- Suez region is in the lead on the demand side. Non-OECD oil demand, led by Asia and the Middle East, looks set to overtake the OECD for the first time as early as 2Q13 and will widen its lead afterwards. Non-OECD economies are already home to over half global refining capacity. With that share only expected to grow by 2018, the non-OECD region will be firmly entrenched as the world’s largest crude importer. These and other changes are carefully laid out in this Report, which also examines recent and future changes in global oil storage, shifts in OPEC production capacity and crude and product trade, and the consequences of the ongoing refinery construction boom in emerging markets and developing economies. It is required reading for anyone engaged in policy or investment decision-making in the energy sphere, and those more broadly interested in the oil market and the global economy. Market Trends and Projections to 2018 2013 €300 (61 2013 14 1E1) ISBN: 978 92 64 19170 9 OECD/IEA, © OIL Medium-Term Market Report 2013 Market Trends and Projections to 2018 2013 OECD/IEA, © INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 28 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. n Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. n Improve transparency of international markets through collection and analysis of energy data. n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. n Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders. IEA member countries: Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea (Republic of) Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic © OECD/IEA, 2013 Spain International Energy Agency Sweden 9 rue de la Fédération Switzerland 75739 Paris Cedex 15, France Turkey www.iea.org United Kingdom Please note that this publication United States 2013 is subject to specific restrictions that limit its use and distribution. The European Commission The terms and conditions are available online at also participates in http://www.iea.org/termsandconditionsuseandcopyright/ the work of the IEA. OECD/IEA, © FOREWORD FOREWORD When describing the energy world of tomorrow, it is often said that while the fuel mix is getting greener and more diversified, oil is set to “remain” a main source of energy for the foreseeable future. While accurate, that expression is also misleading. For it conveys a false idea of a static, residual commodity, in sharp contrast with the highly dynamic, changing nature of the oil market, and of the oil commodity itself. In the last few years, rising supplies of US light, tight oil (LTO) have turned upside down, or at least called into question, the conventional wisdom about what oil is, how it is extracted, how much of it is left in the ground, and how it can be processed and used. A mature economy which some 150 years ago had been the cradle of the oil industry, but had since faced what seemed like an irreversible production decline, all of a sudden found itself at the centre of a new oil boom. The rock formations being tapped with such success in the United States don’t look anything like the oilfields of the Rockefeller era, though, and for decades had seemed beyond economic exploitation. Much remains to be learned about the extent of this resource not just in the United States but around the world. But the unlocking of US LTO has opened up a world of possibilities. Expectations of future supply have begun to shift. Subject to trends in prices and technology, there is a possibility that tight oil plays might be tapped elsewhere. The broader application of some of the techniques used to tap LTO already appears to boost production in various conventional plays in mature areas of Russia and China, among others. Big as it may be, the US LTO boom is just one part of the oil story. While supply growth has North America in the lead, incremental production capacity continues to flow from the Middle East, notably Iraq and Saudi Arabia. On the demand front, East-of-Suez markets are in the driver’s seat. Non-OECD consumption looks set to overtake the OECD in 2Q13 and to keep widening its lead from that point on. The non-OECD, already host to most of the world’s refineries, is also where most increases in crude distillation and upgrading capacity are expected in the next five years. By that time, most of the world’s internationally traded crude will sail to non-OECD refiners. This Medium-Term Oil Market Report aims to draw the implications of these and other developments for the next five years, a period that broadly corresponds to the average investment cycle and is thus of critical importance to investors and policymakers. It is part of a series of outlook reports devoted to each of the four main fuels – oil, natural gas, coal, renewable energy – and, starting this year, energy efficiency. Also starting this year, these reports are being released in close succession, sharing GDP and other assumptions to make them as comparable as possible. The period covered by this outlook marks a watershed in oil market history, a time when non-OECD economies are rapidly expanding their oil footprint. This year is also a milestone for the IEA, a period of increasingly close cooperation with key non-OECD countries towards greater energy security, more informed energy policies and a better understanding of energy markets. This Report is being published under my authority as Executive Director of the IEA. Maria van der Hoeven MEDIUM-TERM OIL MARKET REPORT 2013 3 2013 OECD/IEA, © ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS This publication was prepared by the Oil Industry and Markets Division (OIM) of the International Energy Agency (IEA). Its main authors are Michael Cohen, Diane Munro, Matt Parry, Jérome Sabathier and Andrew Wilson. Lenka Laukova and Valerio Pilia provided essential research and statistical support, as did Bong Hee Jang, Monika Knight and Seok Key Lee. Annette Hardcastle provided critical editorial assistance. Antoine Halff, head of OIM, edited the report. Special thanks to Keisuke Sadamori, director of the IEA’s Directorate of Energy Markets and Security, for his guidance and input. Other IEA colleagues provided important contributions including Christian Besson, Fatih Birol, Anne- Sophie Corbeau, Anselm Eisentraut, Tim Hess, Joerg Husar, Stephen Gallogly, Jean-Yves Garnier, Dagmar Graczyk, Tim Gould, Timur Gül, Christopher Segar, Jonathan Sinton, Tali Trigg, Robert Tromop, and Laszlo Varro. The IEA Communications and Information Office provided production assistance and support. Particular thanks to Rebecca Gaghen and her team: Muriel Custodio, Astrid Dumond, Greg Frost, Angela Gosmann, Jean-Luc Lacaille and Bertrand Sadin. Questions and comments should be addressed to [email protected]. 4 MEDIUM-TERM OIL MARKET REPORT 2013 2013 OECD/IEA, © TABLE OF CONTENTS TABLE OF CONTENTS FOREWORD .................................................................................................................................