IEA Scenarios highlight challenges for oil producers

Latest IEA models show oil use demand will force an integrated balancing act by refiners and producers.

The International Energy Agency updated its oil production and usage projections at the end of 2018 with two World Energy Outlook Scenarios.  The first is the New Policies Scenario, which incorporates existing energy policies as well as taking into account proposed future energy legislation. The second, Sustainable Development Scenario, focuses on an integrated approach required to meet the Paris Accord of 2015.

The overall picture is largely unsurprising.  Current global oil demand is almost 100m b/d, with 21.4m b/d being used by cars. This is set to rise to 23m b/d by the late 2020s before gradually decreasing by 2040, with overall consumption growth rate by the transport sector to 2040 set to halve from the previous two decades. According to the IEA's projections, total global oil demand is likely to increase by just 12% over the next 20 years to 106m b/d.

However, the detailed landscape is considerably more nuanced, particularly when looking at the Sustainable Development Scenario.  According to the IEA's World Energy Outlook analyst, Kim Tae-Yoon, the SDS model is going to need a far more integrated approach between refiners and end-product producers to balance demand changes from heavy oils, to "top of the barrel" products such as ethane, LPG and naphtha.

According to Kim, "The mismatch between refinery configurations and product demand in the Sustainable Development Scenario would increase the incentives for refiners to deepen integration with petrochemical operations, and thereby boost the direct production of chemical products relative to transportation fuels."

His analysis states that refiners will need to up their R&D game, almost certainly working closely with fuel and lubes producers, to increase their chemical yields which are currently less 10% for a typical refinery. However, new aromatics and cracking units are being developed, particularly in China, which aim to increase yields to 40% and, in the Middle East, companies are exploring producing chemicals directly from crude oil according to Kim.