2011 World Energy Outlook on Oil

According to the International Energy Agency’s (IEA) 2011 World Energy Outlook report, world demand for energy is set to increase 40% by 2035. China alone will account for 30% of demand growth consolidating its position as the world’s largest energy consumer. In 2035, the share of fossil fuels is expected to drop slightly from 81% down to 75%.


50% of Growth from China & India – WEO2011

Demand for oil will rise to 99 million barrels a day in 2035 up from 87 million for 2010. Growth in demand will come mostly from Asia with prices forecasted to climb to $120 a barrel in 2035 (in 2010 dollars) or a nominal $212 a barrel (nice hedge to inflation if you ask me). The transportation sector in the emerging economies will be the main driver behind oil demand growth despite alternative car technologies like EVs and hybrids. An impressive $100 billion in investments every year is required to grow oil production in the next 2 decades with more than 90% of growth coming from the MENA countries. China is expect to become the largest imported of oil in 2020. For the US, rising domestic output and improved fuel efficiencies will trigger a drop in imports.


China largest importer around 2020 – WEO2011

While these are only predictions, I like to stay current with the IEA’s reports as I enjoy confirming my investment thesis in oil. In the short term, at least until 2020, I do not believe our hydrocarbon based economy will change much based on the fast growth of emerging countries, particularly China. I also do not believe new technology such as electric vehicles is at a point where it will kill demand from the transportation sector which accounts for 70% of oil consumption.


Passenger Car Fleet at 1.7 billion in 2035 – WEO2011

Prices on the other hand are a different matter; I expect oil prices to remain robust going forward based on higher costs on finding and development but with volatility ever present. One never knows what black swan event awaits us in the future and we’ve seen a good chunk of them in 2011. Furthermore, in the short term, how will the European debt drama end? Will Oil prices fall back to the $30 range again a la 2008 because of dumb politics triggering a world economic meltdown? I dont have a high regard for politicians based on past performance not so long ago.

Finally, it feels like we are constantly standing??on the??edge??of a new financial meltdown thanks to all of this uncertainty in Europe. How will the drama end? Time will tell. But whatever happens, the world economy will recover and thrive as I dont believe in Armageddon. With 7 billion humans and growing, I still see a profitable future for investors in oil, at least until 2020. At that point, it will be time to reevaluate the world energy outlook.

What do you think of the projections? Are they realistic?