ExxonMobil forecast for 2040

[dan_s]

On Monday, January 19th I attended a presentation by ExxonMobil of their energy supply/demand forecast for the next 25 years. The report was actually put together starting back in June, 2014 (which explains quite a bit).
Find it here: http://corporate.exxonmobil.com/en/ener ... gy-outlook

They refused to say anything about oil & gas prices that were used in the forecast, but IMO it is impossible to make any forecast of future supply/demand without commodity price forecasts. For example, you cannot assume that U.S. oil production will continue to rise if the price of oil is sub-economic for shale oil development (which is the case today). In fact, all of their global supply forecasts must assume much higher oil prices than we have today. Basically, the report assumes there will always be enough capital available to produce the energy supply this world needs.

ExxonMobil thinks the U.S. will be a net exporter of oil by 2020. Here is the problem with that:
1. You must define "oil". If they mean crude oil ("black oil"), my response is NO WAY IN HELL THAT WILL HAPPEN. The U.S. still imports over 7 million bbls of oil each day. If they define "oil" as all liquids, then my response is "maybe", but NO WAY IN HELL IF OIL PRICES REMAIN ANYWHERE CLOSE TO WHERE THEY ARE TODAY. North America could become a net exporter, but not the U.S. itself.
2. Even if oil prices rebound, the assumption that U.S. liquids production will continue to increase at the pace they have for the last couple of years is difficult for me to believe. The more horizontal shale wells we drill, the more depletion we will need to replace. At some point there are not enough rigs to keep up with the tens of thousands of rapidly depleting shale wells.

Low fuel prices will increase demand.

If fuel prices remain low, Americans will become less concerned with fuel economy in their vehicle purchase decision. Therefore, ExxonMobil's assumption that the U.S. will continue to move to more fuel efficient vehicles is flawed. Low gasoline prices will also slow the move to more vehicles running on natural gas (CNG or LNG).

Demand growth is "relentless". More people wanting higher standards of living keeps increasing demand.

I do agree with their long-term view that the global middle class is rapidly expanding, which will continue to put upward pressure on demand. Did you know that the Chinese purchased 20 million cars and light trucks last year? By 2040, the global population will exceed 9 Billion and the middle class (people with surplus income who want a higher standard of living) will grow by 2 Billion. China + India will be the primary source of more energy demand for the next 25 years.

If you download the slides used their presentations, you will clearly see the dip in oil supply that occurred from mid-2008 to mid-2009. That happened in response to a sharp drop in oil prices. You will also clearly see that supply rebounded when oil prices rebounded.

For discussion, lets say oil price stay down until the next OPEC meeting in June. If so, U.S. oil production will stay down until there is a big and sustained increase in price. It will take quite awhile before capital providers feel secure enough to move back into the sector. Now take a look at the chart on the IEA website at https://www.iea.org/oilmarketreport/omrpublic/ Notice the big increase in demand that is coming in Q3.

One reason demand for crude oil goes up in Q3 is because refiners cannot use as much NGL to produce gasoline during the summer months. Blending in a lot of butane during the summer is forbidden because it causes too much evaporation and pollution during hot months. Just remember that "winter blends" include less black oil than "summer blends" of gasoline, increasing the refiners' demand for crude oil in Q3.

There is a lot of good stuff in the ExxonMobil long range report and you should all take the time to look it over carefully. I just don't think it provides much information to help with near-term oil & gas price forecasting.