s e i r e OIL 2O17 S Analysis and Forecasts to 2O22 t r o p e R t e k r a 7 M 01 2 A, E D/I C E O © s e i r e OIL 2O17 S Analysis and Forecasts to 2O22 t r o p e R t e Check out the new and improved Oil Market Report website! k The IEA has redesigned and improved its online Oil Market Report (OMR), making it easier for subscribers and non-subscribers to get important information from the site. r The OMR site — https://www.iea.org/oilmarketreport/ — now offers more powerful search options and a fully indexed archive of reports going back to 1990. The improved OMR also a features interactive graphics as part of each monthly issue. First published in 1983, the OMR provides the IEA view of the state of the international oil 7 M market, with projections for oil supply and demand 6 to 18 months ahead. For more informatio201n A, on subscribing to the OMR, please visit https://www.iea.org/oilmarketreport/subscription/.E D/I C E O © INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 29 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. n Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. n Improve transparency of international markets through collection and analysis of energy data. n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. n Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders. IEA member countries: Australia Austria Belgium Canada Czech Republic Denmark Estonia Finland France Germany Secure Greece Sustainable Hungary Together Ireland Italy Japan Korea Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic © OECD/IEA, 2017 Spain International Energy Agency Sweden Website: www.iea.org Switzerland Turkey United Kingdom United States Please note that this publication is subject to specific restrictions The European Commission that limit its use and distribution. The terms and conditions are also participates in available online at www.iea.org/t&c/ the work of the IEA. FOREWORD FOREWORD We present the findings of this year’s report, which we have renamed the Market Report Series: Oil 2017 (formerly the Medium-Term Oil Market Report), in a very different market context than we saw a year ago, when surging OPEC production levels and stocks climbing ever upward contributed to prices falling to around USD 30 per barrel. Indeed today, the oil market is dramatically different as we return to formal market management by OPEC and leading non-OPEC producers and prices appear to have stabilised close to USD 55/bbl. This change is a reminder not only of the continued central importance of oil in global energy markets, but also why the IEA’s continued emphasis on secure energy supplies remains so essential. While the output reduction agreement takes shape, there is a broad debate on how quickly stocks will draw and when the market will rebalance. Another uncertainty is to what degree US light tight oil (LTO) and production from other non-OPEC countries will come bounding back, driven by higher oil prices and reduced production costs. Output levels are already edging up and look poised to rise over the course of this year. And the potential for new policies in the US that support further development have already boosted optimism in the oil patch there, though it will take some time for this to translate into new barrels. While the US oil industry is seeing a revival, the dramatic declines in global oil industry investment over the last two years, and only modest signs of recovery in 2017, mean that it is far from clear that enough projects will enter the pipeline in the next few years to avoid a potentially tight market by 2020 and with it, the possibility of a price spike. On the demand side, we see less uncertainty: growth will continue, driven mainly by Asia. India overtakes China as the main driver of demand growth, as was foreseen by the IEA some time ago. And while there has been much discussion and debate about a peak in oil demand, we see no such peak in sight. Thus, we will need to see more upstream oil investment and we will need to see it soon. Given the many uncertainties on the production side and the expectation of sustained demand growth, many are predicting greater volatility in the oil market which generally has negative consequences for both consumers and producers. It is my hope that this report will provide clear insights on the next five years in the international oil market and that it will provide a constructive contribution to the debate. And in the meantime, the IEA will continue to watch the market, monitor developments and call for adequate investment to ensure secure energy supplies. Dr. Fatih Birol Executive Director International Energy Agency 7 1 0 2 A, E D/I C E O OIL MARKET REPORT 2017 3 © ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS This publication was prepared by the Oil Industry and Markets Division (OIMD) of the International Energy Agency (IEA). Its main authors are, Toril Bosoni, Olivier Lejeune, Peg Mackey, Matthew Parry, Alfredo Peral, Kristine Petrosyan and Xiwei Emma Zhou. Nestor Abraham provided essential research and statistical support. Deven Mooneesawmy provided editorial assistance. Neil Atkinson, head of OIMD, edited the Report. Keisuke Sadamori, director of the IEA’s Directorate of Energy Markets and Security, provided guidance. Other IEA colleagues provided important contributions including Ali al-Saffar, Alessandro Blasi, Tyler Bryant, Emmanouil Christinakis, Davide D’Ambrosio, Kate Dourian, Marc Antoine Eyl-Mazzega, Nathan Frisbee, Marine Gorner, Tim Gould, Joerg Husar, Costanza Jacazio, Pharoah Le Feuvre, Cuauhtemoc Lopez-Bassols, Christophe McGlade, Pawel Olejarnik, Erica Robin, Sacha Scheffer, Renske Schuitmaker, Samuel Thomas, and Laszlo Varro. The IEA Communications and Information Office provided production assistance and launch support. Particular thanks to Rebecca Gaghen and her team; Muriel Custodio, Adrien Chorlet, Astrid Dumond, Christopher Gully, Jad Mouawad, Bertrand Sadin, Rob Stone and Therese Walsh. For questions and comments, please contact the Oil Industry and Markets Division. For contact information, please see https://www.iea.org/oilmarketreport/contacts/ 7 1 0 2 A, E D/I C E O 4 OIL MARKET REPORT 2017 © TABLE OF CONTENTS TABLE OF CONTENTS Foreword ................................................................................................................................................. 3 Acknowledgements ................................................................................................................................ 4 Table of Contents .................................................................................................................................... 5 Executive Summary .............................................................................................................................. 11 1. Demand ............................................................................................................................................. 15 Highlights ................................................................................................................................... 15 Summary ............................................................................................................................................... 16 OECD Demand ....................................................................................................................................... 23 Americas ............................................................................................................................................ 24 Europe ............................................................................................................................................... 26 Asia Oceania ...................................................................................................................................... 27 Non-OECD Demand ............................................................................................................................... 28 Africa ................................................................................................................................................. 28 Asia (non-OECD) ................................................................................................................................ 30 Europe (non-OECD) ........................................................................................................................... 32 Former Soviet Union (FSU) ................................................................................................................ 33 Latin America ..................................................................................................................................... 34 Middle East ........................................................................................................................................ 36 2. Supply .................................................................................................................................... 39 Highlights ................................................................................................................................... 39 Trends in global oil supply ..................................................................................................................... 40 Non-OPEC supply overview ................................................................................................................... 43 United States ..................................................................................................................................... 45 Canada ............................................................................................................................................... 49 Mexico ............................................................................................................................................... 53 Brazil .................................................................................................................................................. 54 Other Latin America .......................................................................................................................... 56 North Sea ........................................................................................................................................... 57 Australia ............................................................................................................................................ 58 People’s Republic of China ................................................................................................................ 59 Other Asia .......................................................................................................................................... 60 Russia ................................................................................................................................................. 61 Kazakhstan ......................................................................................................................................... 62 Azerbaijan .......................................................................................................................................... 62 Africa ................................................................................................................................................. 63 OPEC .................................................................................................................................................. 64 OPEC gas liquids supply ......................................................................................................................... 78 Biofuel supply ........................................................................................................................................ 79 Ethanol markets regional outlook ..................................................................................................... 80 17 0 2 A, E D/I C E O OIL MARKET REPORT 2017 5 © TABLE OF CONTENTS Biodiesel markets regional outlook ................................................................................................... 82 3. Refining and trade ............................................................................................................................ 85 Highlights .............................................................................................................................................. 85 Overview ............................................................................................................................................... 86 Refining sector outlook ......................................................................................................................... 87 Regional developments in refining ........................................................................................................ 90 North America ................................................................................................................................... 90 Europe ............................................................................................................................................... 91 Former Soviet Union ......................................................................................................................... 91 Middle East ........................................................................................................................................ 92 Africa ................................................................................................................................................. 93 People’s Republic of China ................................................................................................................ 93 India ................................................................................................................................................... 95 Other Asia .......................................................................................................................................... 95 Latin America ..................................................................................................................................... 96 Crude oil trade ....................................................................................................................................... 96 Product trade ...................................................................................................................................... 100 LPG/ethane ...................................................................................................................................... 100 Gasoline/naphtha ............................................................................................................................ 101 Diesel/kerosene ............................................................................................................................... 102 Fuel oil ............................................................................................................................................. 103 Physical flows: implications for shipping ......................................................................................... 103 Developments in marine bunkers ....................................................................................................... 104 Switch to low sulphur fuel oil .......................................................................................................... 105 Switch to diesel ............................................................................................................................... 106 On-board scrubbers......................................................................................................................... 108 Switch to alternative fuels ............................................................................................................... 109 Conclusion ........................................................................................................................................... 109 4. Trends in global oil storage ............................................................................................................ 111 Highlights ............................................................................................................................................ 111 Global overview ................................................................................................................................... 112 OECD Americas ................................................................................................................................ 115 OECD Europe ................................................................................................................................... 120 OECD Asia Oceania .......................................................................................................................... 122 Non-OECD Asia ................................................................................................................................ 124 Middle East ...................................................................................................................................... 127 Africa ............................................................................................................................................... 128 Former Soviet Union ....................................................................................................................... 129 Latin America ................................................................................................................................... 129 5. TABLES ............................................................................................................................................. 133 7 1 0 2 A, E D/I C E O 6 OIL MARKET REPORT 2017 © TABLE OF CONTENTS LIST OF FIGURES Figure ES.1 Global oil market balance .................................................................................................. 12 Figure 1.1 Global composition of total oil demand, 2014-22 .............................................................. 17 Figure 1.2 Adjusted corporate average fuel efficiency for light-duty vehicles in the US ..................... 18 Figure 1.3 Global oil demand and savings from vehicle fuel economy standards (left) and ............... 19 Figure 1.4 Average annual fleet-wide efficiency improvement of new passenger .............................. 20 Figure 1.5 Share of global energy consumption in LDVs and medium- and heavy- ............................. 21 Figure 1.6 Product specific breakdown of global oil demand, 2014-22 ............................................... 21 Figure 1.7 Global electric vehicle fleet ................................................................................................. 22 Figure 1.8 Relative evolutions of OECD and non-OECD oil demand, 2002-22 ..................................... 23 Figure 1.9 OECD Americas: oil demand, 2014-22 ................................................................................. 24 Figure 1.10 United States oil demand, 2014-22 ................................................................................... 25 Figure 1.11 Slowing pace of dieselisation ............................................................................................ 26 Figure 1.12 OECD Europe oil demand, 2010-22 ................................................................................... 27 Figure 1.13 Per capita European oil demand, 2016 and 2022 ............................................................. 27 Figure 1.14 Japanese oil demand, 2010-22 .......................................................................................... 28 Figure 1.15 Per capita oil demand, Africa, Europe and the US, 2016 and 2022 .................................. 29 Figure 1.16 African oil demand, 2002-22 ............................................................................................. 29 Figure 1.17 Chinese oil demand, 2010-22 ............................................................................................ 30 Figure 1.18 Indian oil demand, 2010-22............................................................................................... 31 Figure 1.19 Non-OECD Asia (excluding China) oil demand, 2002-22 ................................................... 32 Figure 1 20 Russian oil demand, 2010-22 ............................................................................................ 34 Figure 1.21 Brazilian oil demand, 2010-22 ........................................................................................... 35 Figure 1.22 Saudi Arabian oil demand, 2010-22 .................................................................................. 36 Figure 1.23 UAE oil demand, 2010-22 .................................................................................................. 37 Figure 1.24 IRAN oil demand, 2010-22 ................................................................................................. 37 Figure 2.1 Global liquids capacity growth ............................................................................................ 40 Figure 2.2 Global capacity growth 2016-22.......................................................................................... 40 Figure 2.3 Upstream investment and IEA global cost index ................................................................. 42 Figure 2.4 Selected sources of non-OPEC supply changes, 2016-22 .................................................... 43 Figure 2.5 Supply from non-OPEC top five sources of growth vs others ............................................. 44 Figure 2.6 Annual increase from non-OPEC top five sources of growth vs. others ............................. 44 Figure 2.7 US total oil production ........................................................................................................ 45 Figure 2.8 US oil output growth by type .............................................................................................. 45 Figure 2.9 Average oil well performance by US Shale play .................................................................. 46 Figure 2.10 Oil production per rig ........................................................................................................ 46 Figure 2.11 US rig count vs oil price ..................................................................................................... 46 Figure 2.12 US light tight oil production .............................................................................................. 46 Figure 2.13 US light tight oil production sensitivities ........................................................................... 47 Figure 2.14 Estimated US ethane rejection .......................................................................................... 49 Figure 2.15 US LPG exports .................................................................................................................. 49 Figure 2.16 Canada total oil production ............................................................................................... 50 Figure 2.17 Canada annual supply growth ........................................................................................... 50 Figure 2.18 US crude receipts from Canada ......................................................................................... 52 Figure 2.19 Crude oil prices .................................................................................................................. 52 7 1 0 2 A, E D/I C E O OIL MARKET REPORT 2017 7 © TABLE OF CONTENTS Figure 2.20 Mexico total oil production ............................................................................................... 53 Figure 2.21 Brazil total oil production .................................................................................................. 54 Figure 2.22 Colombia total oil production ........................................................................................... 56 Figure 2.23 Norway oil production ....................................................................................................... 58 Figure 2.24 UK oil production ............................................................................................................... 58 Figure 2.25 China oil production .......................................................................................................... 59 Figure 2.26 China 2016 annual output change .................................................................................... 59 Figure 2.27 Chinese oversea investment ............................................................................................. 60 Figure 2.28 Russia total oil production.................................................................................................. 61 Figure 2.29 Russia y-o-y supply growth 2015-22 ................................................................................. 61 Figure 2.30 Average production costs (incl. taxes) of key producers in 2015...................................... 62 Figure 2.31 Evolution of production drilling rates in Russia, 2013-2016E ........................................... 62 Figure 2.32 Low-cost Middle East drives growth ................................................................................. 64 Figure 2.33 OPEC’s cash crunch ............................................................................................................ 65 Figure 2.34 Iraq leads growth ............................................................................................................... 67 Figure 2.35 Iran rebuilds ....................................................................................................................... 68 Figure 2.36 UAE posts solid growth ...................................................................................................... 70 Figure 2.37 Saudi sustains capacity ...................................................................................................... 73 Figure 2.38 Angola, Nigeria struggle .................................................................................................... 75 Figure 2.39 Global biofuels production and growth 2016-22 .............................................................. 80 Figure 3.1 Crude prices supported refinery margins in 2015 and constrained them in 2016 ............. 86 Figure 3.2 Refined product oversupply in 2014-15 resulted in refining slowdown in 2016 ................ 86 Figure 3.3 Annual refinery throughput changes .................................................................................. 87 Figure 3.4 Global liquid fuels supply structure in 2016 ........................................................................ 88 Figure 3.5 Global refinery capacity net additions by region ................................................................ 89 Figure 3.6 Unused distillation capacity by region ................................................................................ 89 Figure 3.7 Russian refinery intake annual growth ................................................................................ 92 Figure 3.8 Middle East refining capacity changes ................................................................................ 92 Figure 3.9 African developments by subcontinent .............................................................................. 93 Figure 3.10 Developments in Chinese refining..................................................................................... 94 Figure 3.11 Top five net importers of crude oil .................................................................................... 96 Figure 3.12 Changes in net crude oil exports ....................................................................................... 98 Figure 3.13 Geographical structure of US imports ............................................................................... 99 Figure 3.14 East of Suez crude oil balances .......................................................................................... 99 Figure 3.15 Tonnage requirements for oil products, 2016 vs 2022 ................................................... 104 Figure 3.16 Sulphur content in straight-run products ........................................................................ 105 Figure 3.17 How refiners meet final oil product demand .................................................................. 106 Figure 3.18 Crude oil and diesel market drivers ................................................................................. 107 Figure 3.19 Scrubber payback periods ............................................................................................... 109 Figure 3.20 Oil bunker fuel structure .................................................................................................. 110 Figure 4.1 Planned storage capacity growth by region and country.................................................. 111 Figure 4.2 OECD oil stock falls since July 2016 ................................................................................... 112 Figure 4.3 OECD oil stocks vs North Sea Dated price ......................................................................... 113 Figure 4.4 Mexico’s industry product stocks ...................................................................................... 115 Figure 4.5 US tank storage capacity growth by PADD ........................................................................ 116 Figure 4.6 Storage capacity under construction, expansion and planned in Canada, US .................. 117 7 1 0 2 A, E D/I C E O 8 OIL MARKET REPORT 2017 © TABLE OF CONTENTS Figure 4.7 Mexico’s net oil exports .................................................................................................... 118 Figure 4.8 Storage capacity under construction, expansion and planned in OECD Europe............... 122 Figure 4.9 Storage capacity under construction, expansion and planned in OECD Asia Oceania ..... 123 Figure 4.10 China’s implied crude stock change vs Dubai oil price .................................................... 124 Figure 4.11 Storage capacity under construction, expansion and planned in non OECD Asia .......... 127 Figure 4.12 Storage capacity under construction, expansion and planned in the Middle East ......... 128 Figure 4.13 Crude, product exports from five Middle East countries ................................................ 130 Figure 4.14 Differentials to Dated Brent ............................................................................................ 132 Figure 4.15 BFOE, Troll crude loadings (left), Crude imports into Rotterdam (right) ........................ 132 LIST OF MAPS Map 1.1 Global oil demand growth, by region, 2004-22 ..................................................................... 16 Map 2.1 Canada oil infrastructure........................................................................................................ 51 Map 2.2 Iran’s oil and gas fields ........................................................................................................... 69 Map 2.3 Libya’s oil infrastructure ......................................................................................................... 71 Map 2.4 Nigeria’s oil infrastructure ..................................................................................................... 76 Map 3.1 Regional crude oil balances in 2016 and 2022 (mb/d) ........................................................... 97 Map 3.2 Regional LPG/ethane balances in 2016 and 2022 (kb/d) ..................................................... 101 Map 3.3 Regional gasoline/naphtha balances in 2016 and 2022 (kb/d) ............................................ 102 Map 3.4 Regional gasoil/kerosene balances in 2016 and 2022 (kb/d) .............................................. 102 Map 3.5 Regional fuel oil balances in 2016 and 2022 (kb/d) ............................................................. 103 Map 4.1: Mexico’s oil infrastructure .................................................................................................. 119 LIST OF TABLES Table 1.1 Global oil product demand (mb/d) ....................................................................................... 15 Table 1.2 Global GDP growth forecast ................................................................................................. 16 Table 1.3 Asian oil demand; total (kb/d), per capita (b/d) ................................................................... 31 Table 1.4 Non-OECD European oil demand, kb/d ................................................................................ 32 Table 1.5 Oil demand growth (kb/d) in the major economies of the former Soviet Union ................. 34 Table 1.6 Latin American oil demand (kb/d) ........................................................................................ 35 Table 1.7 Middle Eastern oil demand (kb/d) ........................................................................................ 36 Table 2.1 Selected company spending and production plans .............................................................. 41 Table 2.2 Non-OPEC supply (mb/d) ...................................................................................................... 44 Table 2.3 Estimated sustainable OPEC crude production capacity (mb/d) .......................................... 65 Table 2.4 Estimated OPEC condensate and NGL production (kb/d) .................................................... 79 Table 3.1 Total oil demand and call on refineries ................................................................................ 88 Table 3.2 Regional developments in refining capacity and throughput .............................................. 90 Table 3.3 To scrub or to refine – comparative economics ................................................................. 108 Table 4.1 Storage capacity under construction, expansion and planned globally (mb) .................... 113 Table 4.2 The 10 largest tank farms under construction/expansion globally .................................... 114 Table 4.3 The 10 largest planned storage additions in the US and Canada (mb) .............................. 117 Table 4.4 The 10 largest planned storage additions in OECD Europe (mb) ....................................... 120 7 1 0 2 A, E D/I C E O OIL MARKET REPORT 2017 9 ©