Oil supply will not run out in the long run, but low prices are a thing of the past

Global oil reserves have increased over the years even though oil production has expanded significantly over the last four decades
Technological improvements allow for greater unconventional oil production
Unconventional reserves are now estimated to be 3.3 trillion barrels, compared to 2.6 trillion barrels of conventional oil
Oil demand is expected to continue rising over the medium term, driven by growth in developing economies
Saudi Arabia, China and India, three of the top 5 oil consuming nations, increased their oil consumption by 35% between 2006 and 2011
A rise in marginal costs will ensure price levels remain above USD 70 a barrel over the next few years

Dubai, November 26, 2013

In its new study "Are we running out of oil?", Roland Berger Strategy Consultants has examined the current status of the global oil market, providing insights into both the demand and supply drivers that will impact the oil price over the medium to long term.

From a supply perspective, key aspects such as technological advancements in oil recovery techniques, the boom in US shale oil production, political stability in oil-producing nations and the implications of sustained high oil prices were assessed to determine marginal costs and future production limitations. Regarding demand, the study looked at economic growth, the rise of electric vehicles (and other oil-demand inhibitors) as well as the price elasticity of oil in order to forecast long-term demand. The analysis also incorporated the expected long-term trend in oil prices, given the dynamics in both supply and demand.

Why the world will not run out of oil

One of the most hotly debated questions in the energy sector is whether the world will run short of oil. This issue, often referred to in connection with "peak oil", drives key decisions made not only in the oil industry, but throughout the energy sector and the economy in general. "Given our research, this is highly unlikely to occur in the medium term, and improbable in the long term," said Jaap Kalkman, Senior Partner at Roland Berger Strategy Consultants in the Middle East. "Total accessible reserves are growing every year, thanks to increased exploration for both conventional and unconventional oil and improved technology such as horizontal wells. Political instability, while still a factor, is not expected to have a huge impact on the future oil supply. Furthermore, rising oil prices are making production from unconventional sources viable, leading to an even more diversified source of supply. Non-OPEC countries and unconventional sources of oil are expected to continue driving growth of the overall oil supply in the future," he added.

Demand is expected to continue growing

Given this promising outlook for oil supply, Roland Berger experts estimate that oil demand will not decrease over the next 10-15 years. Demand has been growing at an annual rate of 1.3% over the last decade. Rapid GDP growth after the financial crisis, low regulation in emerging economies and challenges faced by alternative energy sources mean that demand is predicted to continue growing. Non-OECD countries are expected to account for a larger share or even all of demand growth in the future, given the lower economic growth and higher oil efficiency in OECD countries.

Oil price will not drop below USD 70 per barrel

Expensive tertiary extraction processes mean marginal production costs will go up. This rise, coupled with increasing demand and supply, means that oil prices are expected to rise further in the future. Price per barrel is unlikely to drop below USD 70 for the next few years. Of course, no forecast can completely account for "black swan" events, which change the dynamics of an industry.

Therefore, the Roland Berger experts also analyzed potential game changers on the oil market. For example, technological innovations such as algae-based feedstock, cheaper and accessible renewable energy and a more consumer-friendly electric car industry are real threats to oil consumption. In the long run, this could lower demand and therefore prices. "We hope that an understanding of the trends and risks associated with the oil industry will enable producers, businesses and governments alike to develop effective and sustainable strategies that can withstand these 'black swan' events while delivering maximum results," says Kalkman.