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Forecasting the future of oil demand: five key questions answered

Wednesday, 10 July 2024 | 00:00

While the journey to net zero continues, the global demand for oil remains high. Wood Mackenzie has reported that demand is due to rise by 1.5 million barrels a day (b/d) this year, with a significant portion of this growth anticipated in the latter half of the year.

This complex scenario leaves many looking for answers about the future of oil. Fill out the form at the top of the page to download a complimentary extract from our recent oil demand report, or read on, as we answer key questions about its path in today’s world.

What is oil demand?

We forecast total liquids demand, including refined products and separately ethane and liquified petroleum gases (LPG). These come from natural gas liquids and do not pass through the refining system. The refined products demand includes gasoline (excluding biofuels), diesel/gasoil (excluding biofuels), naphtha, jet kerosene and fuel oil. We include biofuels as a separate category for our forecast of demand.

For our long-term forecast, we assess demand by sector and then break it down by refined product or liquid. The sectors include light vehicles, road freight, aviation, shipping, petrochemical feedstock, residential, commercial and agriculture and industry/power generation. There is an ‘others’ category that includes non-energy use, such as bitumen for road construction, and refinery own-use fuel.

GDP is a crucial factor in forecasting demand, and we have an in-house economics team that provides short- and long-term GDP forecasts to Wood Mackenzie’s commodity groups. As an example of other factors beyond GDP that we use in our liquids demand forecasts, for the light vehicles sector, our outlooks include an assessment of car sales by country, different vehicle power trains, and vehicle miles or kilometres travelled.

What are the key underlying macro-economic fundamentals?

Two key drivers of long-term global oil demand are economic growth and population trends. Wood Mackenzie forecasts GDP growth to average 2.2% annually between 2024 and 2050. That means the global economy will nearly double in size to US$170 trillion by 2050 (annual GDP in constant US$2015 terms). China and India account for 43% of all global GDP growth from 2024 to 2050. Europe and North America will contribute 30% of global growth in this period.

For the demographic outlook, we use the UN Population Prospects 2022 report. According to the UN, the world’s population is projected to reach 9.7 billion in 2050, up from 8 billion in 2022. Africa is the main driver of the population growth to 2050 while China and Europe slip into a declining trend for their populations. In our long-term forecast, oil demand in Africa will show growth by 2050.

These economic and demographic trends should exert significant upward pressure on liquid demand. However, intensifying efforts toward decarbonisation, away from oil, counterbalance this upward force, ultimately leading to a plateau and then a decline in oil demand.

How important is the electrification of transport?

The timing and scale of the global peak in oil demand and the ensuing demand reduction are intrinsically linked to the trajectory of EV sales. For light passenger vehicles, the total share of EVs (BEVs and PHEVs) in new car sales globally is projected to climb from 18% in 2023 to 45% by 2033, with China, Europe, and the US at the vanguard. By 2050, EVs are projected to constitute over two-thirds of global car sales and more than half of the car stock. For the US, although the EV sales share is revised down from 21% to 14% for 2025, EVs are expected to account for over 50% of new light passenger vehicles by 2033, then surpassing 80% by 2050. With global gasoline demand culminating by 2028, overall road sector demand is expected to reach a peak by 2029, followed by a long-term decline.

Does demand continue to grow in hard to abate sectors?

While oil use in aviation continues to grow until the end of the 2030s, it is expected to peak by the mid-2020s for marine. Liquified Natural Gas (LNG) is expected to have a much greater role in shipping compared to other transport sectors, while mandated fuel efficiency standards by the International Maritime Organisation (IMO) also start to erode fuel demand.

In these hard-to-abate sectors, electrification is considerably more challenging compared to the road sector. Electric vehicles are expected to have a much smaller role, due to the much higher power-to-weight ratio typical for planes and ships. Nevertheless, electrification is expected to develop to some extent in the short-haul aviation and short-sea shipping markets, where distances are much lower.

Key routes for decarbonisation in hard-to-abate sectors focus on liquid renewable fuels. Sustainable aviation fuel (SAF) will play a key role in lowering the carbon footprint of aviation. As demand for biofuels declines in the road sector due to increasing electrification, we expect aviation to exert the greatest pull on biofuel volumes, paying a higher premium compared to other transport sectors. As for shipping, we expect the pull for biofuels to be weaker compared to aviation, and renewable fuels of a non-biological origin (RFNBOs) to be an important means of decarbonising shipping. These fuels include the likes of e-ammonia, and e-methanol, which are expected to appear as alternative shipping fuels within the next decade.

Why do petrochemical feedstocks continue to grow?

Petrochemicals are the building blocks of modern society. Clothing, tyres, digital devices, packaging, detergents, healthcare, and countless other everyday items that enable modern life are made from petrochemicals. With growing global populations and rising income levels, demand for petrochemicals is projected to increase. Petrochemical demand per capita tends to have an S-curve linkage with GDP per capita. Europe and North America are at the top of the S-curve with demand growth intricately linked to GDP growth.

For emerging economies, rising incomes deliver rapid petrochemical demand growth once the income thresholds on household appliance and vehicle ownership are breached. This convergence of petrochemical usage delivers demand growth at rates higher than global GDP growth for the medium term. However, as usage converges, demand growth slows to GDP levels and the impact of policies/regulations and recycling reduces growth further over the long term. By 2050, petrochemical feedstock demand is projected to be almost 50% larger than 2023 levels.
Source: Wood Mackenzie

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