A Gloomy Future?

Will the crude oil price break through in 20 years’ time? Or will tight oil and renewable energy work in parallel to keep the price low?
This article appeared in Vol. 12, No. 3 - 2015


At the time of writing, the price of a barrel of oil is around US$ 60. One year ago the price was more than US$ 100 per barrel, which it had been for roughly three years. The all-time high of US$ 145.31 per barrel was reached in July 2008, almost seven years ago.

A glance at the graph below makes you wonder what the future will look like.

Crude oil price (Brent) since 2000. Do we see US$ 155/barrel in 2035? (Source: EIA) Pessimists should take into consideration a steady increase in the production of unconventional oil, and that the US average production for 2015 is estimated at 9.65 MMbopd, which could be an all-time high after its yearly average peak in 1970 of 9.64 MMbopd. This year’s production will therefore be almost 6 MMbopd higher than the all-time low in 2008. It is interesting to learn that in 2014, tight oil production drove US oil output higher by 1.5 MMbopd – the largest single year rise in US history.

The shale oil revolution has certainly made an impact. The thought-provoking question is whether production from oily source rocks could also happen on a large scale in other countries. The first test on the Norwegian continental shelf will occur this year in the Upper Jurassic shale.

Optimists must take a close look at the global energy demand. “Despite the dramatic recent weakening in global energy markets, ongoing economic expansion in Asia – particularly in China and India – will drive continued growth in the world’s demand for energy over the next 20 years,” says BP in its Energy Outlook to 2035. “Global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year”, the report adds. Demand for oil will rise 0.8% each year, equivalent to 110 MMbopd in 2035, with China, India and “other Asia” making up for the majority of the increase. This BP prediction also includes a significant decrease in demand in the OPEC countries.

In the 30-year period from 2005 to 2035, tight oil supply growth will contribute roughly 8 MMbopd, the majority coming from the US. Renewables, if you are wondering about them, will constitute far less than 10% of the energy demand in 2035. However, the development in such energy is galloping forward, and I am curious to know if the BP forecast is too pessimistic.

My conclusion (without having in-depth knowledge, which actually few people have when it comes to the future) is simple: in the near future (whenever that is) the price will stay low, while in the distant future, the price of oil will increase as demand will outpace supply. My prediction for 2035: US$ 155 per barrel. What is yours?


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