This analysis is by Bloomberg Intelligence Analyst Senior Industry Analyst Salih Yilmaz and Bloomberg Intelligence Senior Industry Analyst Will Hares. It appeared first on the Bloomberg Terminal.

OPEC’s World Oil Outlook sees demand close to 110 million barrels a day in 2045, which looks over-optimistic to us, but calling for higher investment appears prudent. This echoes Abu Dhabi International Petroleum Exhibition & Conference themes: chronic underinvestment and spending needs across all energy sources, including fossil fuels.

Chronic oil underinvestment is major theme at adipec

The overarching theme from the Adipec (Oct. 31-Nov. 5) conference in Abu Dhabi is chronic underinvestment in the global oil industry over recent years, partly due to industry downturns and the pandemic. Policies around ending financing for hydrocarbon projects were also highlighted as a lack-of-spending driver. The conclusions of many speakers at the event were that greater investment in the energy transition shouldn’t come at the expense of oil and gas, with all segments — upstream, downstream and midstream — in need of funding.

Global oil-related-investment requirements over 2022-45 amount to $12.1 trillion — according to OPEC — of which $9.5 trillion is for upstream, $1.6 trillion downstream and $1 trillion midstream. North America comprises the bulk of upstream funding needs in this period.

OPEC’s demand outlook appears extremely optimistic

OPEC’s new World Oil Outlook predicts oil demand will increase by 13 million barrels a day to 110 million in 2045, which we deem very bullish. Nonetheless, even more modest demand growth points to sustained tightness in the market, given the constrained supply outlook. While aviation and petrochemicals sectors may contribute to incremental demand, accelerated EV adoption and fuel efficiencies are likely to trim road-transportation demand.

OPEC expects developing economies — especially Africa — to drive higher economic growth and oil demand, and sees global energy demand increasing 23% to reach 351 million barrels of oil equivalent a day in 2045 — with oil continuing to have the largest share of the primary-energy mix. Almost all of the growth in global energy demand is expected to come from non-OECD countries.

Supply-outlook uncertainty brings risks to oil market

There’s still significant uncertainty around the oil-supply outlook, which points to a prolonged period of potential undersupply and elevated prices. High inflation, a shortfall in upstream investment — combined with heightened geopolitical risks — signal a constrained supply picture against a relatively robust near-term demand-growth outlook. That suggests supply growth will have to come not only from OPEC, but also non-OPEC members — especially the US, Brazil, Guyana, Canada and Norway. OPEC liquids output is seen at 42.4 million barrels a day more in 2045 — with the group’s market share rising to 39% in 2045 from 33% in 2030.

Non-OPEC supply is expected to peak at more than 72 million barrels a day around 2030 — based on OPEC’s World Oil Outlook 2022 — before falling to 67.5 million barrels a day in 2045.

Downstream may remain tight despite refinery capacity additions

The downstream sector may remain tight in the short to midterms — according to OPEC — with the deficit of expected refining capacity vs. required refining capacity peaking at about 2.7 million barrels a day in 2023 and 2024. With a subsequent easing in demand growth and eventual capacity additions, this deficit may drop to less than 1.5 million barrels a day in 2027.

Refinery capacity additions in 2022-27 are estimated at 7.3 million barrels a day, according to OPEC, followed by 8.3 million barrels per day beyond 2027. About 90% of additions will be in Asia-Pacific, the Middle East and Africa — where demand growth is expected to mostly come from.

Bloomberg

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