Speakers Interview
Interview with Fatih Birol, Chief Economist, INTERNATIONAL ENERGY AGENCY (IEA)
22 February 2010
WRA: With demand increasing and global oil supply peaking, how do you see the European refining industry developing?
FB: The World Energy Outlook underlines that the world’s total endowment of oil is large enough to support the rise in global demand but several barriers need to be overcome – adequate and timely investment being a key one. We do expect non-OPEC crude oil output to peak very soon and decline gradually through to 2030. OPEC – which have large, relatively low-cost resources of crude oil and NGLs – and unconventional oil (mainly oil sands in Canada, gas-to-liquids and coal-to-liquids) are expected to fill the gap depending on investment trajectories. Under our Reference Scenario (which assumes no change in government policies), oil production in OECD Europe is set to decline 4.2% per annum from 3.9 mb/d in 2008 to 1.5 mb/d in 2030. Demand is also projected to decline over the same period but only modestly at 0.4% per annum from 13 mb/d to 12 mb/d. In the 450 Scenario (which assumes a path to limit the increase in global temperature to 2 degrees Celsius), demand is projected to decline 1.2% per annum to 10 mb/d by 2030. Although there is considerable trade within European countries, net imports of refined products is expected to remain low and it is likely that the refining industry will closely follow demand. Currently, with weaker refining margins stemming from surplus refining capacity and lower than average utilisation rates, we may see more capacity closures in the near term (such as the Total Dunkirk refinery under consideration at the moment). Potential exports of oil products to non-OECD countries will be limited given the growth of new refineries in these countries which are naturally better placed to service their own markets.
WRA: What are your personal views on how the alternative fuels industry will evolve? Will it be fast enough to counteract the supply shortage?
FB: We expect alternative fuels will have an important role to play as we look to diversify supply, improve energy security and reduce emissions. Looking at the alternative fuels produced today, biofuels account for an overwhelming majority. Although production has surged in recent years, biofuels meet only about 2% of total road-transport demand (0.8 mb/d in 2008). We expect this production growth to be limited in the near term due to concerns over the effect on food prices, uncertainties regarding the greenhouse gas savings associated with their use, and doubts about their environmental sustainability. Additionally, the global economic downturn and readjustment of liquid fuels demand have lowered oil prices and reduced the profitability of biofuels and placed financial strain on many bio-refineries. However, despite present circumstances, we project world use of biofuels to recover in the longer term, reaching 1.6 mb/d in 2015 and 2.7 mb/d in 2030 in our Reference Scenario and 5.6 mb/d in 2030 in our 450 Scenario. Also, as technologies mature over this time period, we expect second generation biofuels (and eventually other alternative fuels) to play an increasing role in meeting incremental liquid fuels demand growth.
WRA: You mentioned that one of the key points was to invest a lot more in order to slowdown the decline in production from existing oilfields? Have you seen a positive development within OPEC countries?
FB: Indeed, our analysis has shown that the faster the decline-rate (i.e. the rate at which production from oilfields declines once it has reached peak production), the greater the investments that will need to be made in existing and new fields, and vice versa. For the industry as a whole, decline rates could rise significantly as a result of capital spending cuts stemming from the severe financial and economic crisis. In the World Energy Outlook 2009, we estimate that as a result of reductions in investment for 2009, decline rates could increase by roughly 0.6 percentage points in non-OPEC countries and 0.3 in OPEC countries in the next couple of years unless there is a significant rebound in investment in 2010. OPEC announced in October 2009 that members were reviving 7 out of 35 major oil projects that had been put on hold due to the oil price drop in the second half of 2008, but no details were given on which projects are involved. The latest update of the IEA’s Medium-Term Oil Market Report (MTOMR) released in December 2009 sees OPEC crude capacity growing by 2.8 mb/d over 2008-2014, to 36.9 mb/d compared with the 1.7 mb/d expansion envisaged in the June report on the assumption that adequate investment is forthcoming.
