World Oil 2018-2050: World Energy Annual Report (Part 2)

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Includes: BNO, DBO, DBRT, DNO, DRIP, DTO, DWT, GUSH, IEO, NDP, OIL, OILD, OILK, OILU, OILX, OLEM, OLO, PXE, SCO, SZO, UBRT, UCO, USAI, USL, USO, USOD, USOI, USOU, UWT, WTID, WTIU, XOP
by: Ron Patterson

By Dr. Minqi Li, Professor

Department of Economics, University of Utah

This is Part 2 of the World Energy Annual Report in 2018. This part of the Annual Report provides updated analysis of world oil production and consumption, evaluates the future prospect of world oil supply and considers the implications of peak oil production for global economic growth.

(See Figure 18 near end of paper)

American geologist M. King Hubbert proposed Hubbert linearization as a statistical method to estimate the ultimately recoverable oil resources (Hubbert 1982). Hubbert linearization plots the annual production to cumulative production ratios against the historical cumulative production. It uses the downward linear trend of the annual production to cumulative production ratios to determine the ultimately recoverable resources. The parameters from the linear trend are then used to estimate peak production time and level.

This report uses Hubbert linearization to evaluate a region's ultimately recoverable oil resources where a Hubbert linear trend can be meaningfully established, .that is, where a clear downward trend of the annual production to cumulative production ratios can be identified and has been established for at least several years. Otherwise, this report uses alternative sources to establish a region's ultimately recoverable oil resources, such as official reserves, official projections, or ultimately recoverable resources estimated by energy research institutions.

Figures are placed at the end of each section.

Oil Consumption by Major Economies, 1990-2017

According to the BP Statistical Review of World Energy, world oil consumption (including crude oil, natural gas liquids, biofuels, and other liquid fuels made from coal and natural gas) reached 4,622 million tons of oil equivalent (4,470 million metric tons or 98.2 million barrels per day) in 2017. Between 2007 and 2017, world oil consumption grew at an average annual rate of 1.0 percent.

Figure 1 compares the historical world economic growth rates and the oil consumption growth rates from 1991 to 2017. The oil consumption growth rate has an intercept of -0.008 at zero economic growth rate and a slope of 0.612. That is, oil consumption has an "autonomous" tendency to fall by about 0.8 percent a year when economic growth rate is zero. When economic growth rate rises above zero, an increase in economic growth rate by one percentage point is associated with an increase in oil consumption by 0.61 percent. R-square for the linear trend is 0.51. In 2017, world oil consumption grew by 1.4 percent, a rate that is 0.2 percentage points below what is implied by the historical trend.

Figure 2 compares the per capita oil consumption in relation to per capita GDP for the world's six largest national oil consumers and the European Union.

The United States is the world's largest oil consumer. In 2017, the US oil consumption was 913 million tons of oil equivalent (19.9 million barrels per day), accounting for 20 percent of the world oil consumption. The US per capita oil consumption peaked at 3.32 tons of oil equivalent in 2004 and declined to 2.73 tons of oil equivalent by 2012. Since then, the US per capita oil consumption has slowly recovered, reaching 2.81 tons of oil equivalent by 2017.

The European Union is the world's second largest oil consumer. In 2017, the EU oil consumption was 645 million tons of oil equivalent (13.2 million barrels per day), accounting for 14 percent of the world oil consumption. The EU per capita oil consumption peaked at 1.51 tons of oil equivalent in 1998. The EU per capita oil consumption stabilized around 1.5 tons of oil equivalent from 1999 to 2016 before falling sharply to 1.21 tons of oil equivalent by 2012. In 2017, the EU per capita oil consumption recovered to 1.26 tons of oil equivalent.

China is the world's third largest oil consumer. In 2017, China's oil consumption reached 608 million tons of oil equivalent (12.8 million barrels per day), accounting for 13 percent of the world oil consumption. From 1990 to 2017, China's per capita oil consumption surged from 101 kilograms of oil equivalent to 439 kilograms of oil equivalent, which is still substantially below the per capita oil consumption levels of advanced capitalist economies.

If China's per capita oil consumption continues to follow its historical trend in relation to per capita GDP, China's per capita oil consumption will rise to 972 kilograms of oil equivalent by 2050 (when China's per capita GDP is projected to rise to about 50,000 dollars). China's population is expected to peak before 2030 and decline to 1.36 billion by 2050. Given these projections, China's oil demand will exceed 1,300 million tons of oil equivalent by 2050.

India is the world's fourth largest oil consumer. In 2017, India's oil consumption reached 222 million tons of oil equivalent (4.7 million barrels per day), accounting for 4.8 percent of the world oil consumption. From 1990 to 2017, India's per capita oil consumption increased from 69 kilograms of oil equivalent to 166 kilograms of oil equivalent. If India's per capita oil consumption continues to follow its historical trend in relation to per capita GDP, India's per capita oil consumption will rise to 335 kilograms of oil equivalent by 2050 (when India's per capita GDP is projected to rise to about 19,000 dollars). India's population is expected to grow to 1.72 billion by 2050. Given these projections, India's oil demand will rise to about 580 million tons of oil equivalent by 2050.

Japan is the world's fifth largest oil consumer. In 2017, Japan's oil consumption was 188 million tons of oil equivalent (4.0 million barrels per day), accounting for 4.1 percent of the world oil consumption. Japan's per capita oil consumption peaked at 2.22 tons of oil equivalent in 1996. Since then, Japan's per capita oil consumption has tended to decline. By 2017, Japan's per capita oil consumption fell to 1.48 tons of oil equivalent.

Saudi Arabia is the world's sixth largest oil consumer. In 2017, Saudi Arabia's oil consumption was 172 million tons of oil equivalent (3.9 million barrels per day), accounting for 3.7 percent of the world oil consumption. The Saudi per capita oil consumption increased from 3.21 tons of oil equivalent in 1990 to 5.49 tons of oil equivalent in 2015. As the Saudi economy declined in 2016 and 2017, the per capita oil consumption fell to 5.22 tons of oil equivalent by 2017.

The Russian Federation is the world's seventh largest oil consumer. In 2017, the Russian Federation's oil consumption was 153 million tons of oil equivalent (3.2 million barrels per day), accounting for 3.2 percent of the world oil consumption. Russia' per capita oil consumption was 1.73 tons of oil equivalent in 1990, when Russia was a part of the Soviet Union. By 1998, Russia's per capita oil consumption collapsed to 852 kilograms of oil equivalent. Since then, Russia's oil consumption has slowly recovered. In 2017, Russia's per capita oil consumption was 1.06 tons of oil equivalent.

Figure 1 World Oil Consumption and Economic Growth, 1991-2017

Linear Trend: Oil Consumption Growth Rate = -0.008 + 0.612 * Economic Growth Rate (R-square = 0.506)

Sources: World oil consumption from 1990 to 2017 is from BP (2018). Gross world product in constant 2011 international dollars from 1990 to 2016 is from World Bank (2018), extended to 2017 using growth rate reported by IMF (2018, Statistical Appendix, Table A1).

Figure 2 Per Capita GDP and Oil Consumption, Major Economies, 1990-2017

Sources: Per capita oil consumption and per capita GDP are calculated using data for oil consumption, GDP, and population. National and regional oil consumption from 1990 to 2017 is from BP (2018). National and regional GDP from 1990 to 2016 is from World Bank (2018), extended to 2017 using growth rates reported by IMF (2018, Statistical Appendix, Table A1, A2, and A4). National and regional population from 1990 to 2016 is from World Bank (2018), extended to 2017 by assuming that the 2017 population growth rates are the same as the 2016 growth rates. To project China's and India's per capita oil consumption, a log-linear relationship is estimated between the per capita oil consumption and per capita GDP for the period 1990-2017. China's and India's GDP and population projections from 2018 to 2050 are from EIA (2017, Reference Case, Table A3 and Table J4), adjusted to make the projected GDP and population levels in 2017 matching the levels reported by World Bank (2018).

The United States

The United States is currently the world's largest oil producer. In 2017, the US produced 571 million metric tons of oil (13.1 million barrels per day), accounting for 13 percent of the world oil production (according to the BP definition, oil production includes crude oil and natural gas liquids only, excluding biofuels and liquid fuels made from coal and natural gas).

The US conventional oil production peaked in 1970 (when the US oil production reached 534 million tons). By 2008, the US oil production declined to 302 million tons. Since then, the US oil production has experienced a spectacular expansion because of the shale oil boom. The US Energy Information Administration projects that the US oil production will keep growing rapidly until 2022, when the US oil production is expected to approach 700 million tons. The US oil production is projected to peak in 2042 at 751 million tons (EIA 2018, Reference Case, Table A1).

The US cumulative oil production up to 2017 was 33.5 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Applying Hubbert linearization to the annual production to cumulative production ratios implied by the projected US oil production from 2041 to 2050, the US ultimately recoverable oil resources are estimated to be 93.4 billion metric tons and the remaining recoverable oil resources are estimated to be 59.9 billion metric tons. By comparison, the US "proved" oil reserves at the end of 2017 were reported to be 6 billion metric tons (BP 2018).

Figure 3 shows the historical US oil production and the future oil production projected by EIA.

Figure 3 US Oil Production, 1950-2050

Sources: The US historical oil production from 1965 to 2017 is from BP (2018); historical oil production from 1950 to 1964 is from Rutledge (2007). Projected US oil production from 2018 to 2050 is from EIA (2018, Reference Case, Table A1), adjusted to make the projected oil production level in 2017 matching the production level reported by BP (2018).

Saudi Arabia

Saudi Arabia is the world's second largest oil producer. In 2017, Saudi Arabia produced 562 million metric tons of oil (12.0 million barrels per day), accounting for about 13 percent of the world oil production.

Saudi Arabia maintained a significant amount of "spare capacity" and the Saudi oil production is often influenced by market or geopolitical factors. In 2014, Saudi Arabia decided to increase oil production in order to compete with the US shale oil for market share, leading to the collapse of world oil prices. By 2016, Saudi Arabia's oil production reached 587 million metric tons, the highest production level in history. Since then, Saudi Arabia has cooperated with Russia to limit oil production and has succeeded in raising the world oil prices.

Citing information from Saudi Aramco, Aleklett (2012: 173-175) argued that Saudi Arabia had about 700 billion barrels of original crude oil in place and the ultimately recoverable amount was estimated to be about 390 billion barrels. Aleklett (2012: 182-184) believed that Saudi Arabia could maintain a crude oil production level at about 12 million barrels per day up to 2030.

This report assumes that Saudi Arabia's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. Saudi Arabia's cumulative oil production up to 2017 was 21.5 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Saudi Arabia's official oil reserves at the end of 2017 were reported to be 36.6 billion metric tons (BP 2018). The ultimately recoverable oil resources are estimated to be 58.1 billion metric tons, or about 424 billion barrels (1 metric ton of oil = 7.3 barrels).

Based on the above assumptions, the Saudi oil production is projected to peak in 2030 at 606 million metric tons. Figure 4 shows the historical and projected Saudi Arabia's oil production.

Figure 4 Saudi Arabia's Oil Production, 1980-2050

Sources: Saudi Arabia's historical oil production from 1980 to 2017 is from BP (2018).

Russian Federation

The Russian Federation is the world's third largest oil producer. In 2017, Russia produced 554 million metric tons of oil (11.3 million barrels per day), accounting for about 13 percent of the world oil production.

Figure 5 projects Russia's annual production to cumulative production ratios against the historical cumulative oil production from 1980 to 2017. Hubbert linearization is applied to the annual production to cumulative production ratios from 2004 to 2017. Regression R-square is 0.979. Where the downward linear trend meets the horizontal axis indicates Russia's ultimately recoverable oil resources to be 66.5 billion metric tons. Russia's cumulative oil production up to 2017 was 24.5 billion metric tons. Thus, Russia's remaining recoverable oil resources are estimated to be 42 billion metric tons. By comparison, Russia's official oil reserves at the end of 2017 were 14.5 billion metric tons (BP 2018).

The parameters from the Hubbert linear trend are used to project Russia's future oil production. Figure 6 shows Russia's historical and projected oil production. Russia's oil production is projected to peak at 598 million metric tons in 2033.

Figure 5 Russian Federation's Cumulative Oil Production, 1980-2017

Sources: Russia's cumulative oil production up to 2007 is from BGR (2009, Table A 3-2). This is used as the reference point. Cumulative production ending in other years is then calculated using annual production data reported by BP (2018).

Figure 6 Russian Federation's Oil Production, 1980-2050

Sources: Russia's historical oil production from 1985 to 2017 is from BP (2018). For 1980-1984, Russia's oil production is assumed to be 91 percent of the Soviet Union's total oil production.

Canada

In 2017, Canada produced 236 million metric tons of oil (4.8 million barrels per day) and became the world's fourth largest oil producer in term of tons. Canada accounted for 5.4 percent of the world oil production.

This report assumes that Canada's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. Canada's cumulative oil production up to 2017 was 6.3 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Canada's official oil reserves at the end of 2017 were reported to be 27.2 billion metric tons (BP 2018, including 26.6 billion tons of oil sands reserves). The ultimately recoverable oil resources are estimated to be 33.5 billion metric tons.

Based on the above assumptions, Canada's oil production is projected to peak in 2049 at 391 million metric tons. Figure 7 shows the historical and projected Canada's oil production.

Figure 7 Canada's Oil Production, 1980-2050

Sources: Canada's historical oil production from 1980 to 2017 is from BP (2018).

Iran

In 2017, Iran produced 234 million metric tons of oil (5.0 million barrels per day) and was the world's fourth largest oil producer in term of barrels. Iran accounted for 5.3 percent of the world oil production.

Since 1979, Iran's oil production has often fallen substantially below its potential due to geopolitical instabilities. This report assumes that Iran's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. Iran's cumulative oil production up to 2017 was 10.4 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Iran's official oil reserves at the end of 2017 were reported to be 21.6 billion metric tons (BP 2018). The ultimately recoverable oil resources are estimated to be 32 billion metric tons.

Based on the above assumptions, Iran's oil production is projected to peak in 2039 at 267 million metric tons. Figure 8 shows the historical and projected Iran's oil production.

Figure 8 Iran's Oil Production, 1980-2050

Sources: Iran's historical oil production from 1980 to 2017 is from BP (2018).

Iraq

Iraq is the world's sixth largest oil producer. In 2017, Iraq produced 222 million metric tons of oil (4.5 million barrels per day), accounting for 5 percent of the world oil production.

Iraq's oil production collapsed during the Iran-Iraq war in the 1980s, the first Gulf War in the 1990s, and the American Invasion with intense military actions from 2003 to 2007. The Iraqi oil production has grown rapidly since then. This report assumes that Iraq's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. Iraq's cumulative oil production up to 2017 was 5.8 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Iraq's official oil reserves at the end of 2017 were reported to be 20.1 billion metric tons (BP 2018). The ultimately recoverable oil resources are estimated to be 25.9 billion metric tons.

Based on the above assumptions, Iraq's oil production is projected to peak in 2042 at 324 million metric tons. Figure 9 shows the historical and projected Iraq's oil production.

Figure 9 Iraq's Oil Production, 1980-2050

Sources: Iraq's historical oil production from 1980 to 2017 is from BP (2018).

China

China is the world's seventh largest oil producer in term of tons. In 2017, China produced 192 million metric tons of oil (3.8 million barrels per day), accounting for 4.4 percent of the world oil production. China's oil production peaked at 215 million metric tons in 2015.
Figure 10 projects China's annual production to cumulative production ratios against the historical cumulative oil production from 1980 to 2017. Hubbert linearization is applied to the annual production to cumulative production ratios from 1999 to 2017. Regression R-square is 0.958. Where the downward linear trend meets the horizontal axis indicates China's ultimately recoverable oil resources to be 13.8 billion metric tons. China's cumulative oil production up to 2017 was 6.9 billion metric tons. Thus, China's remaining recoverable oil resources are estimated to be 6.9 billion metric tons. By comparison, China's official oil reserves at the end of 2017 were 3.5 billion metric tons (BP 2018).

The parameters from the Hubbert linear trend are used to project China's future oil production. Figure 11 compares China's historical and projected oil production and consumption. China's oil consumption is projected to rise from 595 million metric tons in 2017, to 699 million tons in 2020, 934 million tons in 2030, 1,149 million tons in 2040, and 1,320 million tons in 2050.

China is already the world's largest oil importer. Under the projections, China's net oil imports (consumption less production) will rise from 389 million metric tons in 2017, to 494 million tons in 2020, 754 million tons in 2030, 1,014 million tons in 2040, and 1,230 million tons in 2050. This will be equivalent to 28 percent of the world oil production in 2017 or more than twice the oil production of Saudi Arabia.

If China's oil consumption does follow the projections shown in Figure 11, it can be expected that China's oil demand will impose an overwhelming burden on the global oil market over the coming decades, contributing to major global economic and geopolitical instabilities. Alternatively, the inability of the world oil market to meet China's oil demand may impose an insurmountable limit to China's future economic growth.

Figure 10 China's Cumulative Oil Production, 1980-2017

Sources: China's cumulative oil production up to 2007 is from BGR (2009, Table A 3-2). This is used as the reference point. Cumulative production ending in other years is then calculated using annual production data reported by BP (2018).

Figure 11 China's Oil Production and Consumption, 1980-2050

Sources: China's historical oil production and consumption from 1980 to 2017 is from BP (2018). China's future per capita oil consumption is projected by assuming that per capita oil consumption will grow in accordance with the historical relationship between per capita oil consumption and per capita GDP (see Figure 2). Future oil consumption is then calculated as the product between per capita oil consumption and projected population. China's population projection from 2018 to 2050 is from EIA (2017, Reference Case, Table J4), adjusted to make the projected population level in 2017 matching the population level used by this report.

United Arab Emirates

United Arab Emirates (UAE) is the world's seventh largest oil producer in term of barrels. In 2017, UAE produced 176 million metric tons of oil (3.9 million barrels per day), accounting for 4 percent of the world oil production.

This report assumes that UAE's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. UAE's cumulative oil production up to 2017 was 5.2 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). UAE's official oil reserves at the end of 2017 were reported to be 13 billion metric tons (BP 2018). The ultimately recoverable oil resources are estimated to be 18.2 billion metric tons.

Based on the above assumptions, UAE's oil production is projected to peak in 2037 at 218 million metric tons. Figure 12 shows the historical and projected UAE oil production.

Figure 12 UAE Oil Production, 1980-2050

Sources: UAE's historical oil production from 1980 to 2017 is from BP (2018).

Kuwait

Kuwait is the world's ninth largest oil producer. In 2017, Kuwait produced 146 million metric tons of oil (3.0 million barrels per day), accounting for 3.3 percent of the world oil production.

This report assumes that Kuwait's ultimately recoverable oil resources are the sum of historical cumulative production and the official reserves. Kuwait's cumulative oil production up to 2017 was 6.7 billion metric tons (cumulative production up to 2007 is from BGR 2009, Table A 3-2, extended to 2017 using annual production data from BP 2018). Kuwait's official oil reserves at the end of 2017 were reported to be 14 billion metric tons (BP 2018). The ultimately recoverable oil resources are estimated to be 20.7 billion metric tons.

Based on the above assumptions, Kuwait's oil production is projected to peak in 2040 at 167 million metric tons. Figure 13 shows the historical and projected Kuwait's oil production.

Figure 13 Kuwait's Oil Production, 1980-2050

Sources: Kuwait's historical oil production from 1980 to 2017 is from BP (2018).

Brazil

Brazil is the world's tenth largest oil producer. In 2017, Brazil produced 143 million metric tons of oil (2.7 million barrels per day), accounting for 3.3 percent of the world oil production.

Figure 14 projects Brazil's annual production to cumulative production ratios against the historical cumulative oil production from 1980 to 2017. Hubbert linearization is applied to the annual production to cumulative production ratios from 1991 to 2017. Regression R-square is 0.756. Where the downward linear trend meets the horizontal axis indicates Brazil's ultimately recoverable oil resources to be 7.2 billion metric tons. Brazil's cumulative oil production up to 2017 was 2.6 billion metric tons. Thus, Brazil's remaining recoverable oil resources are estimated to be 4.6 billion metric tons. By comparison, Brazil's official oil reserves at the end of 2017 were 1.9 billion metric tons (BP 2018).

The parameters from the Hubbert linear trend are used to project Brazil's future oil production. Brazil's oil production is projected to peak in 2024 at 151 million metric tons. Figure 15 shows Brazil's historical and projected oil production.

Figure 14 Brazil's Cumulative Oil Production, 1980-2017

Sources: Brazil's cumulative oil production up to 2007 is from BGR (2009, Table A 3-2). This is used as the reference point. Cumulative production ending in other years is then calculated using annual production data reported by BP (2018).

Figure 15 Brazil's Oil Production, 1980-2050

Sources: Brazil's historical oil production from 1980 to 2017 is from BP (2018).

Rest of the World

Rest of the world is defined as the world total excluding the ten largest oil producers. In 2017, rest of the world produced 1,351 million metric tons of oil, accounting for 31 percent of the world oil production. Rest of the world's oil production peaked in 2005 at 1,654 million metric tons.

Figure 16 projects rest of the world's annual production to cumulative production ratios against the historical cumulative oil production from 1980 to 2017. Hubbert linearization is applied to the annual production to cumulative production ratios from 1991 to 2017. Regression R-square is 0.989. Where the downward linear trend meets the horizontal axis indicates rest of the world's ultimately recoverable oil resources to be 99 billion metric tons. Rest of the world's cumulative oil production up to 2017 was 68.9 billion metric tons. Thus, the rest of the world's remaining recoverable oil resources are estimated to be 30.1 billion metric tons.

The parameters from the Hubbert linear trend are used to project rest of the world's future oil production. Figure 17 shows rest of the world's historical and projected oil production.

Figure 18 shows the historical and projected world oil production. World cumulative oil production up to 2017 was 192 billion metric tons. World ultimately recoverable oil resources are estimated to be 468 billion metric tons. World remaining recoverable oil resources are estimated to be 276 billion metric tons. By comparison, world oil reserves at the end of 2017 were reported to be 239 billion metric tons by BP (2018).

World oil production is projected to peak in 2,021 at 4,529 million metric tons and decline to 3,552 million metric tons by 2050. According to the historical linear relationship between world economic growth and oil consumption growth estimated in Figure 1, zero oil consumption growth is associated with a world economic growth rate of 1.2 percent. Other things being equal, absolute declines in world oil consumption will be associated with global economic growth rates less than 1.2 percent.

Figure 16 Rest of the World's Cumulative Oil Production, 1980-2017

Sources: Rest of the world's cumulative oil production up to 2007 is from BGR (2009, Table A 3-2). This is used as the reference point. Cumulative production ending in other years is then calculated using annual production data reported by BP (2018).

Figure 17 Rest of the World's Oil Production, 1980-2050

Sources: Rest of the world's historical oil production from 1980 to 2017 is from BP (2018).

Figure 18 World Historical and Projected Oil Production, 1980-2050

Sources: Historical oil production from 1980 to 2017 is from BP (2018).

References