Oil and Gas: The Long View

From Merrill Lynch, published in September (2011) issue of the CFA Institute:

The overall pattern in global oil consumption growth shown in Figure 5 is formidable. The forecast is for an average increase of 1.4 million barrels per day through 2015, compared with the average increase of 1.1 million barrels per day over the past 25 years. Even considering some of the efficiency gains, a deceleration in the rate of growth in consumption does not seem likely.

Of the various emerging market countries, th dominant player is China. Over the forecast period, China will account for 32 percent of the overall growth in consumption or 2.6 million barrels of oil per day. In fact, the growing demand in China is averaging close to 500,000 barrels per day, which is a growth rate of about 5 percent a year. Other Asian countries account for 23 percent of the overall growth in consumption, and the Middle East accounts for 19 percent.

Much of the growth in oil demand in China is a result of strong demand for cars and light commercial vehicles. Figure 6 shows the sales of cars and light commercial vehicles in Western Europe, North America, and China from 1998 and estimated through 2015. The Western European automobile market was fairly flat, declined during the financial crisis, and is enjoying some recovery now. The North American market suffered an even bigger decline during the crisis but has had an impressive recovery.

The most interesting fact, however, is that China’s car market now exceeds 20 million vehicles per year. It is expected to continue to grow through 2015. To sustain this level of growth, oil demand will need to be 350,000 barrels per day per year. Oil demand in the Middle East is also rapidly expanding. In fact, the expectation is that annual demand in the Middle East will expand by about 300,000 barrels per day per year.

The reference to the Bakken:

I say that because both the oil sands of Canada and the Bakken and Eagle Ford shales in the United States have tremendous potential. With the oil shales, the development will take 10 to 15 years, and although it is not prolific in terms of individual well production, it is highly economic production that is economically better than $50 a barrel. The estimate
is that 2 million barrels per day could be developed from those two oil shale sources, in addition to an incremental 1.5 million barrels from the Canadian sands.

The article is eleven pages long with some very interesting statistics. Perhaps more later.