OPEC's 'World Oil Outlook': Vehicles Hooked On Oil For Next 25 Years

Dec. 28, 2015 3:17 AM ETUSO, OIL-OLD, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO-OLD, SZOXF, OLEM49 Comments

Summary

  • OPEC is projecting growth in oil use to 2040.
  • The key is transportation in China and other developing economies.
  • CO2 emissions are an urgent problem now.
  • Huge investments are being made in non-oil technologies.
  • OPEC is betting against technological progress.

OPEC released its 400+ page World Oil Outlook ("WOO") just before Christmas. Its WOO foresees a net 18 million barrel per day (mmbd) growth in world oil demand over the next 25 years. It says oil consumption will grow by over 25 mmbd in the developing economies.

Around eighty percent of oil consumed in the world is for transportation use. In terms of individual regions, a significant reduction in the use of oil in the road transportation sector is expected in each OECD region, and OECD America is expected to use 3.6 mmbd less oil in 2040 compared to 2014. On the other extreme, developing Asia accounts for most of the growth in the sector's demand, with increased road transportation being the highest in China.

The auto industry in China has become the world's largest since 2008, measured in terms of unit production. In 2014, total vehicle production in China reached 23.7 million, 26 percent of global production. McKinsey & Company has projected that China's car market will grow tenfold between 2005 and 2030.

OPEC is pinning its hopes that there will be no major advances in auto technology to replace oil. The WOO projects that by 2040, only 6% of the passenger car stock and 5.3% of commercial vehicles will be running on non-oil fuels. It argues that due to:

(t)he high purchase price, serious challenges in terms of convenience, such as range limitations and poor battery performance during very hot or cold weather conditions. Similarly, anticipated high purchase costs, the lack of refueling infrastructure, and relatively expensive hydrogen fuel will make fuel cell electric vehicles less likely to become a global breakthrough technology over the forecast period. Natural gas vehicles will be the most attractive option. However, high price premiums and a scarce network of refueling points in most countries will limit the large-scale adoption of this

This article was written by

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Harvard College, Economics (Honors), BA

Undergraduate thesis: "OPEC Pricing Strategy."

Harvard Business School Case Study: "Industrialized World and Oil."

Stanford University Graduate School of Business, MBA


I founded Boslego Risk Services and became a recognized expert in the area of energy price risk management (hedging) and trading, providing oil and natural gas hedging strategies to major oil companies such as Exxon, Shell, Mobil, Chevron, Texaco and Phillips; to the national oil companies of Norway, Venezuela, Mexico, Canada, France and Italy; to major users of energy products, such as Delta Airlines, United Airlines, Burlington-Northern Railroad, and Canadian Pacific Railway.


I also provided frequent market assessments and recommended trading positions to major trading firms, such as Enron, Phibro, Sempra and Vitol, and to large hedge funds.


As the recognized expert in energy hedging, I was selected by the former president, John Treat, of the New York Mercantile Exchange (NYMEX) to write the chapter on hedging in his book, Energy Futures (1990, 2000).



Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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