BOFIT Viikkokatsaus / BOFIT Weekly 2019/48

The base scenario used in this year’s World Energy Outlook from the International Energy Agency (IEA) foresees slow growth in global demand for oil & gas in the years ahead, with the oil price climbing gradually to around 80 dollars a barrel by 2025. The emphasis in demand growth should shift increasingly to Asia.

In the IEA’s base scenario, global oil demand grows at 1 % a year until 2025, with most demand growth coming from Asia, particularly China and India. EU oil consumption is expected to fall by just over 1 % a year. Growth in oil production should come mainly from the US. Russian oil production will remain close to current levels as it is restrained by a voluntary production ceiling agreement with OPEC and the depletion of current fields under production. High costs and Western sanctions complicate Russian efforts to bring new oil fields on stream.

The IEA expects growth in global demand for natural gas to average slightly less than 2 % a year until 2025. Again, most growth in demand will come from Asia, mainly China. No growth is expected in EU gas demand. The IEA estimates that Russian natural gas output will rise at just under 2 % a year on average until 2025.

While the IEA’s base scenario “Stated Policies” takes into account the energy policies announced by various countries, the report also offers two alternative scenarios. In the first alternative scenario, current policies continue and oil & gas demand rise slightly faster than in the base scenario. The Sustainable Development scenario is aligned with the Paris climate accord. Global oil demand begins to decline in the near future, while gas demand up to 2025 grows at only about half the rate of the base scenario.

Crude oil, oil products and natural gas remain major export products for Russia. Their aggregate export value last year amounted to 260 billion dollars (16 % of GDP), accounting for 45 % of Russia’s total exports of goods and services. While the EU is Russia’s largest export market for oil & gas, its share of exports will likely decline in coming years as the focus of demand growth continues to shift to Asia. China accounted for over 25 % of Russian oil exports last year, while its share in gas exports was small. China is set to become a more important export market for Russia also in gas, however, with the launch of LNG production on the Yamal peninsula and the commissioning of the Power of Siberia pipeline.