OPEC expects for crude oil to continue to be the primary source of energy in the future, for two main reasons: The large growth of the world population; and the sustained growth seen in the economies of emerging countries (e.g. China, India, Brazil and South Korea), where the use of transport fuels is set to increase. As OPEC predicts, and despite claims about so-called peak oil, the reserves being discovered will be sufficient to meet the growing global demand for oil. However, OPEC is warning that refineries worldwide need to be upgraded and developed so that their petroleum products can comply with modern environmental laws. These predictions and observations were made in the course of OPEC's World Energy Outlook for 2012, in which the organization explained in detail its views in relation to the most important developments taking place in the global oil industry. The study assumes that the average OPEC basket price of crude oil will continue to remain in the medium term in the range of $100 per barrel, rising to about $120 by 2025, while the organization predicts that the price will increase to about $155 per barrel by the year 2035. These predictions were based on several assumptions, including the marginal oil production cost per barrel, which is the cost of crude oil extracted from tough regions or the deep sea; the effect of the depletion of reserves on having to produce oil from new tougher regions; and the increasing cost of having to adhere to modern environmental laws. But at the same time, OPEC observed that technological advancement and the heavy use of technology in the oil industry both contribute to pushing prices up ever higher. The report also underscored the importance of demographic changes for the growth of the global economy in general, and the effect this has on the growth of demand for energy in general and oil in particular. The report predicted that the world population will increase from about 6.9 billion in 2010, to about 8.6 billion in 2035. About 92 percent of this increase will come from developing and emerging nations. Regarding oil economics in the short and medium terms, the forecasts indicate that the GDP of European countries will continue to see low growth in 2013, at about 1.9 percent. This contraction in the economies of European Union countries will have global implications. Indeed, their combined GDP accounts for nearly one-fifth of the global GDP, in addition to the fact that the EU is one of the biggest import markets for emerging countries, such as China. Over the long run, OPEC predicts that global economic growth will average about 3.4 percent annually between 2012 and 2035. OPEC relied on two assumptions to reach this conclusion: One related to global population growth; and another related to the limited increase in improved productivity. It is worth noting here that by 2035, the economy of India will grow at a faster pace, and would overtake China within 10 years. In the moderate scenario it developed in the report, relying on policies that are already being implemented, OPEC predicted that demand for primary energy would rise in the period between 2010 and 2035 by about 54 percent. Furthermore, fossil fuel will account for about 87 percent of the total energy consumed worldwide, compared to about 82 percent in 2035. Oil will continue to be the primary source of energy throughout this period, with the exception of the last years, where the consumption levels of coal and crude oil will converge. But the consumption in both volume and percentage of natural gas will increase, and will overtake coal and oil, with the percentage of gas consumption rising from 23 to 26 percent. OPEC believes that demand for oil will rise in the long term (2035), by about 20 million barrels per day, to nearly 107.3 million barrels per day, compared to 87 million barrels per day in 2010. Yet there are important factors that could reduce the use of oil between now and then. These factors include the adverse effects of a global economic recession, high oil prices, and the development of new technologies, especially in the transportation sector. OPEC also addressed in its report the topic of the hour, so to speak, that is shale oil and gas. The report thus said that there is great potential for shale gas, but only in the United States at present. The report added that shale's fundamental role in the foreseeable future will be to replace coal to generate electricity. But OPEC stressed that the shale gas industry is still in its early stages, as there are still several questions over the size of global reserves available, and the economics of developing this energy source. OPEC's report also noted that current production of shale gas is mainly taking place in the United States, with shale gas output growing from 15 billion cubic feet per day in 2010 to about 25 billion this year. But OPEC warned that the success of this industry requires dealing with several challenges, including the scarcity of water in several parts of the world, and the lack of infrastructure to transport gas from production areas to the markets, as well as the dwindling number of skilled labor. The report pointed out that shale oil has started to play a big role in the supply side. But despite the increase in its production recently, OPEC expects that this sector will face many challenges in the future, most notably environmental hazards, the availability of adequately trained workers, and rising production costs, especially with the rapid depletion of producing fields. But, despite these difficulties, the production of shale hydrocarbons continues to grow, and is expected to rise rapidly in the coming years. At present, the production of mega fields in the U.S. at present (e.g. Bakken, Eagle Ford, and Niobrara shale fields) is about one million barrels per day, and is expected to rise in the U.S. alone to two million barrels per day by 2020, and then three million per day in 2035. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
