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International Energy Outlook 2013

Release Date: July 25, 2013   |  Next Release Date: July 2014   |  correction |  Report Number: DOE/EIA-0484(2013)

World petroleum and other liquid fuels

Overview

In the IEO2013 Reference case, worldwide consumption of petroleum and other liquid fuels increases from 87 million barrels per day in 2010 to 97 million barrels per day in 2020 and 115 million barrels per day in 2040, notwithstanding steadily rising oil prices after 2020. Led by the emerging economies of the non-OECD regions, rapid economic development drives the increase in world consumption, as demand among the more mature economies of the OECD regions remains flat or declines. Almost 80 percent of the increase in total liquids consumption is in the nations of non-OECD Asia and the Middle East, where strong income growth and, in the case of the Middle East, access to ample and relatively inexpensive domestic resources, support the increase in demand (Figure 29).

Figure 29. Change in world liquids consumption by region, 2010-2040
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Systemic changes in both production and consumption patterns transform global markets for petroleum and other liquids markets over the projection period. To satisfy rising demand, liquids production increases by 28.3 million barrels per day from 2010 to 2040 in the Reference case, including production of both petroleum (crude oil and lease condensate, natural gas plant liquids [NGPL], bitumen, extra-heavy oil, and refinery gains) and other liquid fuels (coal-to-liquids [CTL], gas-to-liquids [GTL], biofuels, and kerogen) (Figure 30 and Table 3). In the Reference case, a sustained rise in world oil prices after 2020 incentivizes the development of additional petroleum resources through technically difficult and expensive projects, the more widespread use of enhanced oil recovery (EOR) technologies, and the economical development of bitumen, extra-heavy oil, and nonpetroleum alternative resources.

Figure 30. World liquid fuels production by region and type, 1990-2040
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In the IEO2013 Reference case, OPEC member nations provide just under one-half of the growth in world liquids supply from 2010 to 2040. Middle East OPEC liquids production rises by 12.0 million barrels per day over the projection, or 85 percent of OPEC's additional output of 14.1 million barrels per day. Non-OPEC production is 14.3 million barrels per day higher in 2040 than in 2010. The most significant non-OPEC contributors to production growth are Brazil, Canada, the United States, and Kazakhstan (Figure 31), which together account for 87 percent of the total increase in non-OPEC liquids supply.

Prospects for growth in petroleum and other liquid fuels production in the Americas are particularly strong, reflecting contributions from deepwater pre-salt resources in Brazil, bitumen in Canada, and tight oil in the United States. The result is a net gain in non-OPEC production from the Americas of 7.2 million barrels per day by 2025—an increase that balances liquids production with consumption in the hemisphere as demand growth is tempered by efficiency gains, especially in the U.S. transportation sector. In the IEO2013 Reference case, the Americas become a net exporter of liquids by the end of the projection period. There is potential for even more production growth in the Americas from both the United States, as discussed in the Annual Energy Outlook 2013 (AEO2013) High Oil and Gas Resource case,15 and from OPEC's Venezuela, which has large reserves of extra-heavy oil but does not aggressively develop new fields under the current policies assumption of the IEO2013 Reference case. U.S. production of liquid fuels surpasses that of Russia by 2015. There are a number of factors (including accounting conventions for how liquid fuels are measured) that determine the timing, extent, and significance of such a development.16

Figure 31. Non-OPEC liquids production by region and country, 2010 and 2040
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Nonpetroleum liquid resources remain a small but increasing source of liquids supply in the IEO2013 Reference case. Production of nonpetroleum liquids, such as biofuels, CTL, and GTL, is spurred by sustained high prices in the Reference case (Figure 32). However, biofuels development also relies heavily on country-specific programs or mandates [23]. World production of nonpetroleum liquids, which in 2010 totaled only 1.6 million barrels per day (less than 2 percent of total world liquids production), increases to 4.6 million barrels per day in 2040, when it accounts for about 4 percent of total world liquids production.

Figure 32. World nonpetroleum liquids production by type, 2010 and 2040
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In addition to summarizing the Reference case projection for liquid fuels, this chapter discusses alternative low and high oil price cases. It also provides a discussion of several special topics, including interdependence of production levels for major Persian Gulf suppliers, markets for NGPL, and the possible impact of tight oil on the global supply balance.

Crude oil prices

The world oil price paths used in the IEO2013 analyses represent a long-term balance between supply and demand. They do not reflect the price volatility that occurs over days, months, or years. As a frame of reference, over the past two decades, volatility within a single year has averaged about 30 percent.

After experiencing exceptional volatility during the 2008 financial crisis, when prices ranged from a high of $144 per barrel in July (daily spot price of Brent crude17 in nominal dollars) to a low of $34 per barrel in December, oil prices have moved in a range between $90 and $130 per barrel over the past 30 months. Unrest in North Africa and the Middle East, along with prospects for improved economic growth in the years that followed the global recession of 2008-2009, have helped keep prices relatively high. The Brent crude oil spot price averaged $112 per barrel in 2012, and the July 2013 Short-Term Energy Outlook forecasts that it will average $105 per barrel in 2013 and $100 per barrel in 2014 [24].

In the IEO2013 Reference case, world oil prices reach $106 per barrel (real 2011 dollars) in 2020 and $163 per barrel in 2040 (Table 4 and Figure 33). The Reference case represents current judgment regarding exploration and development costs and accessibility of oil resources. It also assumes that OPEC producers maintain their share of the market and will schedule investments in incremental production capacity so that OPEC's oil production will represent between 39 and 43 percent of the world's total petroleum and other liquids production over the projection period. In this case, OECD consumption of petroleum and other liquids is virtually flat between 2010 and 2040, while non-OECD consumption increases by 28 million barrels per day over the same period.

Figure 33. World oil prices in three cases, 1990-2040
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IEO2013 also presents High and Low Oil Price cases as alternatives to the Reference case. The price cases were developed by adjusting four key factors: (1) the economics of non-OPEC petroleum liquids supply; (2) OPEC investment and production decisions; (3) the economics of other liquids supply; and (4) economic growth in non-OECD countries, a key driver of petroleum and other liquids demand. The three price paths are consistent with those presented in EIA's AEO2013 [25].

In the Low Oil Price case, crude oil prices are $75 per barrel (2011 dollars) in 2040. GDP growth in the non-OECD countries averages 4.3 percent per year from 2010 to 2040, compared with Reference case growth of 4.7 percent per year. A combination of lower economic activity and lower prices results in non-OECD liquid fuel consumption in 2040 that is close to that in the Reference case (Figure 34). In contrast, economic growth in the OECD regions is the same in the Low Oil Price case and the Reference case, and lower prices encourage consumers to use more liquid fuels.

On the supply side, OPEC countries increase their output above the Reference case level in the Low Oil Price case, obtaining a 51-percent share of total world petroleum and other liquids production by 2040. However, oil production in the non-OPEC countries is lower than in the Reference case, because their more expensive resources cannot be brought to market economically.

Figure 34. World liquids consumption in three oil price cases, 2010 and 2040
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In the High Oil Price case, oil prices are about $237 per barrel (2011 dollars) in 2040. GDP growth in the non-OECD region averages 5.1 percent per year from 2010 to 2040, compared with Reference case growth of 4.7 percent per year. Higher economic activity means that non-OECD liquids consumption reaches 74.9 million barrels per day in 2040, 6.3 million barrels per day higher than in the Reference case (Figure 34), with the increase only partially oset by a decline in OECD liquids demand as consumers improve eciency or switch to less expensive fuels where possible.

On the supply side, liquids production in the OPEC countries is lower in the High Price case, allowing their market share to decline to between 37 and 39 percent. However, higher world oil prices allow non-OPEC countries to increase production from more costly resources. Their petroleum production is 65.7 million barrels per day in 2040, 4.0 million barrels per day higher than in the Reference case. The economics of nonpetroleum liquids also benefit from the higher prices, with production increasing to 8.0 million barrels per day in 2040, 3.5 million barrels per day higher than in the Reference case. Across the three price cases, OPEC generally decreases production as oil prices rise, while non-OPEC production of both petroleum and other liquids increases as oil prices increase (Figure 35).

Figure 35. World liquid fuels production by region and type in three oil price cases, 2010 and 2040
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World liquids consumption

In the IEO2013 Reference case, world liquids consumption increases by about one-third (28 million barrels per day), from almost 87 million barrels per day in 2010 to 115 million barrels per day in 2040. Petroleum and other liquids remain the world's dominant fuel source through the projection period, although their share of global primary energy consumption falls. Virtually all global liquids demand growth comes from non-OECD countries (Figure 36), as strong economic growth increases consumption in the transportation and industrial sectors. The non-OECD share of world liquid fuels use rises from 47 percent in 2010 to 52 percent in 2020 and nearly 60 percent in 2040. The growth in non-OECD liquids demand is led by the countries of non-OECD Asia (particularly, China and India). Non-OECD Asia accounts for almost 70 percent of the increase in global liquids demand, rising by more than 19 million barrels per day from 2010 to 2040. Demand growth in China and India surpasses the combined liquids demand growth of the rest of the world.

Figure 36. OECD and non-OECD liquids consumption by region, 1990-2040
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Rising prices for liquids increase the cost-competitiveness of other fuels, leading many users of liquids outside the transportation and industrial sectors to switch to other sources of energy when possible. The transportation and industrial sectors account for 92 percent of global liquid fuels demand in 2040, whereas in every other end-use sector the consumption of liquid fuels decreases on a worldwide basis over the projection period.

OECD

In the IEO2013 Reference case, OECD petroleum and other liquid fuels consumption is relatively flat throughout the projection, reaching 46.4 million barrels per day in 2040. In much of the OECD, relatively slow economic growth and static or declining population levels contribute to declines in liquids consumption. In addition, many OECD governments have adopted policies that mandate improvements in the eciency of motor vehicles.

The United States is the largest liquid fuels consuming nation in the OECD, and it remains so through 2040. Over the course of the projection, increases in vehicle fuel economy offset growth in transportation activity in the United States, resulting in a decline in the use of petroleum and other liquids even as consumption of liquid biofuels increases. Biofuels, including biodiesel blended into diesel, E10, E15, and higher ethanol blends used in flex-fueled vehicles, account for 6 percent of all U.S. petroleum and other liquids consumption by energy content in 2040. Total liquid fuels consumption in the United States rises from 18.9 million barrels per day in 2010 to 19.5 million barrels per day in 2020, after which it falls to 18.7 million barrels per day in 2030 and 18.6 million barrels per day in 2040.

New motor vehicles in Canada and Mexico are likely to experience efficiency trends similar to those in the United States. In Canada, the result is relatively flat consumption of petroleum and other liquid fuels, at around 2.2 million barrels per day throughout the projection. In Mexico and Chile combined, liquids consumption rises by 1.3 percent per year, the highest growth among the OECD regions. Despite improvements in vehicle efficiency, the use of liquid fuels increases in Mexico as a result of strong growth in transportation activity and industrial demand.

Energy efficiency improvements and reductions in refining activity drive declining liquids use in OECD Europe. In addition to improvements in motor vehicle efficiency, most nations in OECD Europe have high taxes on motor fuels, well-established public transportation systems, and declining or slowly growing populations, all of which dampen growth in transportation energy use. In 2040, liquids consumption in OECD Europe totals 14.1 million barrels per day, 0.7 million barrels per day lower than its 2010 level of 14.8 million barrels per day.

In OECD Asia, liquid fuels consumption remains essentially flat throughout the projection period. Japan's liquids consumption increased after the shutdown of nuclear power plants that followed the March 2011 earthquake and tsunami—which damaged reactors at Fukushima Daiichi and led to the shutdown of all Japan's nuclear reactors by May 2012—but that increase in fuel use had already started to fall in mid-2013. Rising liquids use in South Korea largely offsets the decline in Japan's consumption in the later years of the Reference case projection.

Non-OECD

The non-OECD share of world liquids consumption grows substantially over time, from 47 percent in 2010 to nearly 60 percent in 2040. Non-OECD Asia is the largest source of growth in worldwide liquids consumption in the IEO2013 Reference case, increasing by 19.3 million barrels per day from 2010 to 2040 (Figure 37). Within non-OECD Asia, China has the largest absolute growth in demand from 2010 to 2040 (10.5 million barrels per day), and India has the second largest (5.0 million barrels per day). India has the fastest regional GDP growth in the IEO2013 Reference case, which translates into the fastest regional growth in liquids demand (3.1 percent per year), although the absolute growth in India's liquids consumption is smaller than China's. In 2010, India's liquids fuel use was 35 percent of China's 9.3 million barrels per day; in 2040 India's liquids consumption is 42 percent of China's 19.8 million barrels per day.

Figure 37. Change in world liquids production and consumption by region, 2010-2040
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As China's economy moves from dependence on energy-intensive industrial manufacturing to a more service-oriented economy, the transportation sector becomes the most important source of growth in liquid fuels use. China more than doubles its liquids consumption compared with the 2010 level, and it supplants the United States as the world's largest consumer of liquid fuels in the Reference case after 2035.

In India, petroleum consumption is heavily oriented toward diesel fuel, which represented about 42 percent of product volume in 2012. Diesel, which is used in transportation, irrigation, manufacturing, and electricity generation, has historically received significant government subsidies. In an effort to reduce budget and trade deficits, the Indian government raised diesel prices by 14 percent in late 2012, its largest price hike ever [26].

With liquids consumption growth rapidly outpacing production, non-OECD Asia has increasingly relied on imports from the Persian Gulf. In 1990, 33 percent of non-OECD Asia's oil imports came from the Middle East; in 2010, 48 percent came from the Middle East [27]. This trend will likely continue in the future, with producers in Russia and Central Asia also
increasing production in the eastern regions of the two countries to meet new Asian demand.

Liquids demand in the Middle East also grows substantially in the IEO2013 Reference case, increasing by 3.2 million barrels per day from 2010 to 2040 as a result of strong population growth rates, which are second only to Africa, and rising incomes. Liquids-intensive industrial demand also plays a major role in the region, with consumption in the chemical sector leading
industrial demand growth. Delays in petroleum subsidy reforms outside Iran also support higher regional consumption, coupled with per capita income growth that supports a significant
expansion within the transportation sector. In the later years of the projection, it is likely that some subsidy reform will occur and begin to slow the growth in demand for liquids.

In the Middle East, demand for liquids in the electric power sector declines from 2010 to 2040 in the Reference case. Many of the countries that produce liquids in the region increasingly turn to lower-cost natural gas and, to a lesser extent, nuclear, renewable, and coal-fired generation, in an effort to increase the volumes of petroleum available for export. Reliance on liquids for electric power generation in the Middle East declines from more than 40 percent in 2010 to 20 percent in 2040, as total electricity use increases rapidly across the region.

The countries of non-OECD Europe and Eurasia experience moderate growth in liquid fuels demand before reaching a plateau in 2020. Russia—the largest economy in the region—currently accounts for the largest share of the region's liquids use, but its consumption increases more slowly than in other parts of non-OECD Europe and Eurasia as a result of major efficiency improvements in the country's energy-intensive industrial sector. In addition, liquids demand slows over the course of the projection in Russia's residential and commercial sectors, as fuel subsidies for people living in areas with high heating requirements are reduced [28].

World liquids production

The key drivers of long-run oil supply include oil prices, exploration and development of new and existing reserves, behavior of key OPEC member countries, technological innovation in the petroleum supply chain, and geopolitical events. In the IEO2013 Reference case, the sources of production growth to meet increased global demand for liquid fuels change over time. World liquids production totals 115.0 million barrels per day in 2040, 28.3 million barrels per day above the 2010 level. The growth in liquids production in the Reference case comes from a wide range of supply around the world and an increasing supply of more costly resources, including bitumen, extra-heavy oils, tight oil, and shale oil.

Technological innovation in the petroleum and other liquids supply chain is the key component of the shift to diversified supply sources. Increases in supply come from new ways of appraising wells, such as 3-D seismic imaging, from new drilling and completion techniques, such as horizontal drilling and multi-stage hydraulic fracturing, and from better production and transportation process control for deepwater projects, such as floating vessels for production, storage, and offloading (FPSO).

Advances in technology make production in previously inaccessible regions more feasible, while higher oil prices make production in those regions economically viable. In the IEO2013 Reference case, global production rises strongly in the Americas, driven by tight oil plays in United States, oil sands in Canada, and pre-salt deepwater fields in Brazil. At the same time, the rising complexity of the energy sector increases the costs of oil extraction. Annual capital spending for the industry has more than tripled in the past 10 years, to $550 billion in 2011, while the amount of oil produced per dollar of investment has declined [29].

Regardless of other supply developments that have recently garnered considerable market attention, including tight oil in the United States and bitumen from oil sands and tar sands in Canada, OPEC petroleum liquids production continues to be critical for world oil markets. OPEC members contribute 13.8 million barrels per day to the growth of petroleum supplies from 2010 to 2040 in the IEO2013 Reference case. Non-OPEC members contribute 11.5 million barrels per day of the growth in petroleum production over the same period, and nonpetroleum resources account for another 3.0 million barrels per day of the growth. North America's shale gas production and the anticipated growth of associated natural gas production from the Middle East and Asia lead to a strong increase in the production of natural gas liquid fuels18 (NGL) in the outlook (see discussion on "Markets for natural gas liquids").

Most of the growth in nonpetroleum resources—such as biofuels, CTL, and GTL—occurs in the non-OPEC countries in the IEO2013 Reference case. High oil prices, improvements in exploration and extraction technologies, emphasis on recovery efficiency, and the emergence and continued growth of other liquids production are the primary factors supporting the growth in non-OPEC liquids production in the IEO2013 Reference case. OPEC production of nonpetroleum liquids grows by 0.3 million barrels per day from 2010 to 2040—mainly as a result of increased GTL production from Qatar—while non-OPEC production of nonpetroleum liquids grows by 2.8 million barrels per day over the same period.

Figure 38. OECD and non-OECD Americas netimports and exports of liquid fuels, 2010-2040
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Increasing liquids production in the Americas is expected to have a significant impact on global liquids trade (Figure 38). Most new developments in Brazil and Canada produce heavy oil, which is attractive to complex refineries along the U.S. Gulf Coast and to some of the newer refineries designed to process heavy oil, which will also receive heavy oil from existing sources that is displaced from its traditional markets. In addition, tight oil developments in the United States will tend to displace light sweet crude imports from Africa, freeing Middle Eastern and African supplies of light crude oil to meet growing demand in Asian markets [30].

Markets for natural gas liquids

While the dynamics of natural gas and oil supply are shifting across the world and especially in North America with the growth in tight oil and shale gas production, major changes are also occurring in the global market for NGL. Growing supplies of NGL are anticipated from North American shale gas production, as well as from Middle East and Asian oil and gas producers and refiners. The major markets for NGL are residential and commercial heating and cooking, petrochemical feedstocks, gasoline blending, and, to a smaller extent, transportation fuel, ethanol denaturant, and crude diluent [31].

Growth in shale gas production allowed the United States to become a net exporter of liquefied petroleum gases (LPG), a subset of NGL19 in 2012 [32]. American exports of LPG, most of which go to Latin America, are expected to continue. Increased LPG production is also anticipated in other regions, most notably in the Middle East (which is the largest exporter of LPG) and Asia. In the Middle East, LPG supplies are expected to increase as natural gas exploration and production ramp up in the coming years [33], but growth in LPG exports will be moderated by their increased use as petrochemical feedstocks within the region. Extraction of NGL from gas processing (i.e., NGPL) is expected to increase if oil prices maintain their current level or increase, because the prices for LPG components that can be blended into gasoline, such as butane and pentanes plus (also known as natural gasoline), are closely linked with the price of crude oil. In Asia, LPG supply growth is driven mostly by increasing refinery throughput, although increasing natural gas processing in China also is expected to contribute to NGL supply growth in the future [34].

There is a concern that persistently high LPG prices, which traditionally are linked to crude oil prices, could suppress demand growth, especially in the residential sector [35]. However, recent experience in the United States suggests that growing NGL supply weaken linkages between NGL and oil prices, particularly for ethane and propane, the lightest NGL components. Propane prices may separate from the price of heavier NGL components, which could encourage increased residential and commercial use in place of more expensive distillate fuel oil and also provide some impetus for greater use of LPG in transportation applications. Petrochemical demand for LPG is already rising as a result of the use of existing plants with access to low-cost LPG feedstocks in preference to naphtha-based facilities. In addition, the ability of some flexible crackers to switch to LPG feedstock—especially in the United States and also to a lesser extent in Europe, Asia, and the Middle East—also supports rising LPG demand. In general, imbalances between NGL supply and demand should ultimately be resolved by increased use of NGL in petrochemical plants (crackers), given prices that make ethane and possibly other NGL more economically attractive feedstocks than naphtha for the production of ethylene and other basic chemical compounds. Much of the proposed basic petrochemical cracker capacity in the United States is being built to absorb excess ethane, rather than propane and butane, which are traditionally the traded LPG components [36].

OPEC supply

Middle East OPEC

The IEO2013 Reference case assumes that OPEC producers invest in incremental production capacity that enables them to provide between 39 percent and 43 percent of total global liquids production throughout the projection period. Production from Middle East OPEC countries, which accounted for 68 percent of total OPEC production in 2010, rises by 12.0 million barrels per day in the Reference case, or 85 percent of OPEC's output growth of 14.1 million barrels per day from 2010 to 2040.

Saudi Arabia, Iran, and Iraq combined have a large share of the world's oil reserves and resources that are relatively easy to produce. Saudi Arabia, for many decades the only holder of substantial spare oil production capacity, has played a critical role as the major swing supplier in response to disruptions in other supply sources and to economic fluctuations affecting oil demand. Both Iraq and Iran have the reserves and other resources needed to raise their capacity and production well above current levels if they can successfully address some of the internal and external "above-ground" challenges that have kept their respective oil sectors from realizing their potential for more than 30 years.20 The difficulty in determining the extent to which each of the countries will be able to overcome the particular hurdles that impede supply growth adds to the challenge of projecting country-specific production levels in the OPEC Middle East region.

In addition to the usual uncertainties surrounding oil supply projections, producers in the OPEC Middle East region are likely to continue playing a key role in the balancing of global demand and supply. For this reason, their output levels may be negatively correlated, as higher realizations of capacity and production in one country will lower the amounts of capacity and production in other countries that are needed to balance global markets. Future developments, including the development of tight oil resources, which is a widely discussed topic in the international oil community, have significant potential to affect the reliance on OPEC liquids supplies and the behavior of key Middle East OPEC producers over the next several decades.

Saudi Arabia

Saudi Arabia's oil revenues traditionally have exceeded the amounts required to fund its government expenditures, enabling it to vary production levels in response to global supply or demand developments over the past 25 years without significant concern about the revenue implications of such actions. More recently, social and economic programs funded by the Saudi government have expanded substantially. While Saudi Arabia maintains large financial reserves, revenue needs may become a more important consideration as the government considers its future responses to a situation of persistent, high growth in supply from other key OPEC or non-OPEC producers, or a sustained downturn in demand.

Iraq

Iraq has established an official oil production target of 12.0 million barrels per day in 2017 [37], a huge increase compared with its 2012 production level of 3.0 million barrels per day. It is unlikely to come close to reaching that target, which would exceed the amount of global incremental liquids production needed to meet projected global demand growth to 2017 in the IEO2013 Reference case. Political disputes and infrastructure limitations are likely to continue hampering output growth in the short run. In addition, terrorism, the poor investment climate, and other problems could limit Iraq's production over the projection period. However, if those problems can be overcome, major improvements in production and export infrastructure could enable Iraq to sustain high production growth rates through 2040.

Iran

Iran's liquids production, which reached a peak of 6.1 million barrels per day in 1974, has been well below that level since 1979 [38]. After averaging an estimated 4.0 million barrels per day from 2001 to 2010, Iran's production has declined further. A series of international sanctions targeting Iran's oil sector have led foreign companies to cancel a number of new projects and upgrades at existing projects. Iran faces continued depletion of its production capacity, as its fields have relatively high natural decline rates (between 8 and 13 percent per year). Additional factors hampering investment include unfavorable foreign investment requirements, underinvestment, and gaps in professional expertise and technology for certain projects. U.S. sanctions on financial institutions that handle payments made for oil exports from Iran, coupled with actions by the European Union to cease imports from Iran and prevent it from accessing insurance from European Union companies for its oil shipments, caused a further reduction in Iran's oil exports in 2012. Without some agreement between Iran and the international community to end the sanctions, it will be increasingly difficult for Iran to maintain its production, let alone increase it, notwithstanding its endowment of readily accessible resources.

Other Middle East OPEC

Other Middle East OPEC producers make smaller, but important, contributions to supply. For example, nearly all of Kuwait's current reserves and production are in mature fields, but prospects could improve with the success of Project Kuwait, a plan proposed in 1998 to attract foreign participation and increase oil production capacity from four northern oil fields: Raudhatain, Sabriya, al-Ratqa, and Abdali. The four fields contain a mix of heavy and light oil resources. Additionally, it may be possible to boost oil production in Kuwait from the partitioned neutral zone (PNZ) that the country shares with Saudi Arabia, which could hold as much as 5 billion barrels of oil [39]. Qatar's liquids production is poised to increase over the projection period through the application of GTL technology, which produces liquid fuels such as low-sulfur diesel and naphtha from natural gas.

In summary, even if the world and regional liquids balances outlined in the IEO2013 Reference case prove to be prescient—itself a highly uncertain prospect—above-ground factors are likely to play a major role in determining the specific sources of supply from the OPEC Middle East region over the next 30 years. The "Estimates of OPEC Middle East liquids production in alternative scenarios for the major producig countries" discusses some of the alternative scenarios for Middle East liquids production consistent with regional projections in the Reference case.

African OPEC

West African OPEC production increases to 5.9 million barrels per day in 2040 in the Reference case, from 4.4 million barrels per day in 2010. Nigeria has increased its output from deepwater fields in recent years, but onshore production has declined as infrastructure constraints and incidents of oil theft and attacks on pipelines have curbed production growth and are expected to continue in the near- to mid-term. Angola is expanding its offshore deepwater production and, as relative stability improves, is likely to develop onshore exploration and production areas as well [40]. Reports indicate that as much as 15,500 square miles (about 25 percent) of the sub-salt layer of the Kwanza Basin extends onshore [41]. North African OPEC producers Libya and Algeria experience slower growth than their western counterparts, adding only a combined 0.2 million barrels per day of liquids production from 2010 to 2040.

South American OPEC

Venezuela is the dominant producer in the South American OPEC, which also includes Ecuador. There are abundant proved reserves of extra-heavy oil in the Orinoco belt, but bringing those resources to market will require substantial investment, which may be difficult for Venezuela to attract without some policy changes. In the IEO2013 Reference case, South American OPEC production increases by only 0.4 percent per year, to 3.3 million barrels per day in 2040.

Estimates of OPEC Middle East liquids production in alternative scenarios for the major producing countries

There is a great deal of uncertainty attached to long-term projections of global petroleum and other liquids supply. It is clear, however, that the countries with most of the world's largest and most flexible liquids resources are located within Middle East OPEC. In particular, Saudi Arabia, Iran, and Iraq have large domestic petroleum resources that can be produced at relatively low cost. Assuming that key OPEC producers persist in efforts to manage world oil prices through supply adjustments, one or more of the three major producers will function as OPEC's swing supply. There is considerably more uncertainty in projecting countryspecific levels of production, as there are many possible scenarios for future liquids production in Saudi Arabia, Iran, and Iraq. In this discussion, four alternative scenarios for their liquid fuels production, consistent with their combined production in the Reference case, are considered.

Figure 39. OPEC Middle East liquids production bycountry grouping in the IEO2013 Reference case,2010-2040
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In the IEO2013 Reference case, total OPEC Middle East liquids production increases from 25.4 million barrels per day in 2011 to 35.8 million barrels per day in 2040. Using the Reference case assumptions, the implied combined production of Saudi Arabia, Iran, and Iraq rises from 17.9 million barrels per day in 2011 to 25.1 million barrels per day in 2040 (Figure 39). The following scenarios are used to demonstrate how widely Saudi Arabia, Iran, and Iraq liquids production could vary, underscoring the uncertainty associated with the outlook for long-term liquids production in any single country.

Scenario 1: Past as prologue
In this scenario, Saudi Arabia, Iran, and Iraq are assumed to continue to provide the share of their combined petroleum production that they held in 2011 throughout the projection period. That is, Saudi Arabia supplied 62 percent of the petroleum produced from the three countries in 2011 and it is assumed to provide 62 percent of the supply from these three countries through 2040. The result is that Saudi Arabia production rises from 11.1 million barrels per day in 2011 to 15.5 million barrels per day in 2040. Iran's share of production from the three countries was 24 percent in 2011 and, in this scenario, its liquids production in 2040 would reach 5.9 million barrels per day. The remaining 15 percent is ascribed to Iraq, and results in 3.7 million barrels per day of liquids production in 2040. In this business-as-usual scenario Saudi Arabia continues to dominate OPEC Middle East production, and Iraq makes only minimal advances.

Scenario 2: Iraq success
In scenario 2, Iraq is assumed to be able to restore its petroleum production infrastructure and resolve the many above-ground issues that have negatively impacted the industry for more than two decades. In this case, Iraq's production rises to 8.0 million barrels per day by 2030 and then to 11.0 million barrels per day in 2040, from 2011 production of 2.6 million barrels per day. The remainder is prorated to Iran and Saudi Arabia based upon each country's share of combined 2011 production. That is, Iran accounted for 28 percent of combined Iran and Saudi Arabian liquids production in 2011; Saudi Arabia 72 percent. In this case, production in Saudi Arabia is lower than that of Iraq in 2040 at 10.2 million barrels per day.

Scenario 3: Iran success
This scenario is similar to scenario 2, but substituting Iran as the growth story. In this case, Iran is assumed to have resolved its above-ground issues, including resolution of international sanctions and it attracts the investment necessary to restore and expand the oil production industry. Here, Iran is able to restore production to its 1974 annual peak of 6.1 million barrels per day in 2030 and then production increases to 8.1 million barrels per day by 2040. The remaining production is allotted according to the Iraq and Saudi Arabia shares of their combined 2011 production. In this case, Saudi Arabia's share of the 2011 Iraq- Saudi Arabian combined production is 81 percent; Iraq's share 19 percent. As a result, Saudi production would increase to 13.8 million barrels per day. Iraq's 2040 production rises to only 3.3 million barrels per day, only slightly higher than its 2011 production and far from its stated ambitions.

Scenario 4: Iraq success, Iran success, and Saudi Arabia takes the rest This final scenario envisions production increasing strongly in both Iraq and Iran, with Saudi Arabia willing to reduce its own liquids output to hold the level of OPEC production at the level projected in the IEO2013 Reference case. Here, Iraq's production profile is the same as in scenario 2, increasing to 8.0 million barrels per day in 2030 and then to 11.0 million barrels per day in 2040. Iran's production profile is the same 0 as in scenario 3, increasing production to 6.1 million barrels per day in 2030 and then further to 8.1 million barrels per day by 2040. Saudi Arabia produces the remaining part of the Reference case production for the three countries. In this case, Saudi Arabian liquids production in 2040 is 6.0 million barrels per day, slightly more than half its 2011 liquids output.

A summary of the results of the four scenarios for 2040 appears in Table 5. These scenarios illustrate the considerable variation in future production that is possible within the three most petroleum-rich countries in the Middle East consistent with the combined total of production from these counties indicated for the IEO2013 Reference case. Moreover, it demonstrates how difficult it is to estimate production for these large resource holders, given the variety of above-ground issues that can affect the ability or desire to increase a nation's output. In 2040, Saudi Arabia alone has production that ranges between 6.0 million barrels per day (in scenario 4) and 15.5 million barrels per day (in scenario 1), a range of 9.5 million barrels per day. Although the range of supply outlooks for Iraq and Iran is smaller than that of Saudi Arabia, there is still a fairly wide range of possible production for the two countries.

How tight oil and other developments may affect the call on OPEC supply

The IEO2013 price cases reflect a wide range of future oil prices that are influenced by both demand and supply conditions. Oil demand is sensitive to the rate at which economic activity grows, particularly in developing countries, and also responds to a sustained change in oil prices that encourages those replacing or adding oil-using equipment to choose options that either use oil more efficiently or run on other fuels. In the short run, the stock of oil-using equipment is largely fixed, and oil demand is affected by price changes only to the extent that utilization rates of oil-using equipment are reduced due to substitution and income effects.

Oil supply depends on resources, technology, prices, and producer behavior. Decisions about the use of existing production capacity and investments in additional capacity are made by national governments, acting through national oil companies or various policy mechanisms, as well as by investor-owned companies. Suppliers who act as so-called price takers, including but not limited to investor-owned oil companies, typically seek to use their available production capacity fully unless prices fall below their operating cost, which occurs rarely if ever for most of them. Price-taking suppliers also tend to increase their capacity investments in response to the expectation of sustained higher prices, which allow more candidate projects to meet or exceed their investment criteria. Suppliers that do not act as price takers, including key OPEC member countries, base their capacity utilization and investment decisions on a variety of factors related to oil market conditions, geopolitical considerations, and national revenue needs.

The market framework summarized above provides a starting point for considering how tight oil and other developments that change supply conditions might affect the outlook for global oil markets. Positive supply developments, such as the 846,000-barrelper-day increase in U.S. crude oil production in 2012 over 2011, can have a major short-term impact. Even with this increase, global spare production capacity was low in 2012 relative to recent historical standards—without it, global spare capacity would have been considerably lower, raising the likelihood of significantly higher oil prices.

In a longer-run setting, however, the situation is likely to be quite different, with both global demand and supply forces likely to substantially reduce the sensitivity of world oil market prices to a rise in U.S. production. On the supply side, OPEC members may respond to higher U.S. production by reducing either their output or their investment in additional production capacity to offset the effects of higher U.S. production. On the demand side, growth in global consumption is likely to be more responsive to any change in prices that persists for an extended period, which would tend to counter the price-lowering effect of increased U.S. production U.S. crude oil production, which continues to grow through the end of the current decade and then slowly declines in the IEO2013 Reference case, is based on EIA's AEO2013 Reference case projections released in December 2012. However, the level of U.S. crude production is considerably higher in the AEO2013 High Oil and Gas Resource case, rising from its 2012 level of 6.5 million barrels per day to 10.0 million barrels per day in 2026 and remaining at or near that level through 2040. As discussed in AEO2013,21 projected U.S. dependence on net imports of liquid fuels is substantially lower in the High Oil and Gas Resource case than in the Reference case. In a scenario with assumptions that reduce U.S. demand for petroleum-based fuels added to the assumptions of the High Oil and Gas Resource case supply assumptions, the United States actually becomes a small net exporter of liquids in the mid-2030s. While increasing oil production and reducing and possibly eliminating net import dependence has important economic benefits for the United States, it would not insulate the nation from developments in the Middle East and elsewhere that affect world oil prices.

Although the difference between the AEO2013 Reference and High Oil and Gas Resource cases focuses on the uncertain prospects for tight oil development in the United States, the availability of tight oil and other tight liquids production from other non-OPEC producers is another important wild card in the global oil balance. Rapid growth in tight oil production in other areas, which is not reflected in the IEO2013 Reference case, could make a substantial difference in the world liquid fuels outlook. EIA recently commissioned an assessment of tight oil resources, covering 137 shale formations in 41 countries (see "A new EIA-sponsored assessment of shale resources in 41 countries").

To frame the forward-looking question of how supply developments could affect the evolution of markets between now and 2025, projections for the period can be considered in the context of two recent historical periods of similar length that produced dramatically different outcomes for world oil markets. The first period is 1973 to 1985, which culminated in a sharp fall of oil prices as Saudi Arabia gave up its role as swing producer in response to continued declines in its production as the call on OPEC liquids steadily declined. In round numbers, global demand grew by nearly 4 million barrels per day over the 1973-1985 period, while non-OPEC production grew by roughly 13 million barrels per day, reducing the call on OPEC by roughly 14 million barrels per day [42].

The second period for comparison is 2000 to 2012, which led to the current situation of historically high world oil prices. In round numbers, global demand grew by roughly 12 million barrels per day over the 2000-2012 period, driven by non-OECD demand growth that swamped the decline in OECD demand. OPEC and non-OPEC liquids supply each grew by roughly 6 million barrels per day over the period.

In the IEO2013 Reference case, global liquids demand grows by about 10 million barrels per day over the next 12 years, with the OECD accounting for only about one-tenth of that growth. With Reference case prices, non-OPEC production growth from 2013 to 2025 totals about 6 million barrels per day, including growth in U.S. tight oil production. This projection reflects technologies, prices, and other above-ground factors, as well as resources. OPEC producers supply the difference of 4 million barrels per day between the projected growth in global demand and non-OPEC supply. Thus, while OPEC countries do not face the steep decline in the call on their supply that ultimately led Saudi Arabia to abandon the role of swing producer in 1986, the projected rise in the call on OPEC supply from 2013 to 2025 in the IEO2013 Reference case is not as great as during the period from 2000 to 2012.

As noted above, EIA recognizes the uncertainty surrounding the supply assumptions in the IEO2013 Reference case, and also considers alternative futures. In EIA's High Oil and Gas Resource case, U.S. crude oil production in 2025 is 3 million barrels per day higher than in the Reference case, and NGPL production is about 1 million barrels per day higher. If those production increases are fully offset by lower OPEC production, and the global economic scenario remains at or near its baseline, global liquids demand and prices would also be at or near the baseline, and the increment to U.S. production would be reflected directly as a reduction in the call on OPEC.

Even with the assumption that changes in U.S. supply in the High Oil and Gas Resource case are passed directly into the call on OPEC, the revised estimate of the change in the projected call on OPEC over the next 12 years still would not come close to replicating the large absolute decline that occurred in the 1973-1985 period. Substantially lower demand projections, much higher production estimates for the United States and other non-OPEC sources, or both, would be needed to duplicate the situation during that earlier period. Although such scenarios cannot be ruled out, they require additional changes in demand or supply.

In considering impacts on world oil markets, it should be emphasized that the implications of a given change in the projected call on OPEC for the ability and willingness of its members to influence global market prices is inevitably highly dependent on developments within OPEC itself. Currently, Saudi Arabia is the only OPEC producer with significant spare production capacity, although Iraq and Iran, each holding large reserves and resources of oil that are easy to produce, both have a strong interest in increasing their capacity and production if internal and external barriers can be overcome. Venezuela also has access to large, albeit more challenging, reserves and resources. As discussed above, the future production levels in Iraq and Iran could vary dramatically, depending on their respective success in addressing internal and external factors that have held their production well below the levels that their resources might support. The more success these countries have in raising their capacity and production, the more difficult it may be for OPEC to remain cohesive at any given level of call on its members' aggregate supply.

A new EIA-sponsored assessment of shale resources in 41 countries

EIA recently issued an assessment of 137 shale formations in 41 countries outside the United States, published in the report, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Other than the United States. This new report expands on the 69 shale formations within 32 countries considered in a 2011 report by Advanced Resources International (ARI) that was released as part of an EIA publication entitled World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States. Whereas the 2011 report focused exclusively on shale gas, the new assessment also highlights the role of shale formations as a source of crude oil, lease condensate, and a variety of liquids processed from wet natural gas.

Estimates in the updated report, taken in conjunction with EIA's own assessment of resources within the United States, indicate worldwide technically recoverable resources of 345 billion barrels of shale oil resources and 7,299 trillion cubic feet of shale gas resources. Although the shale resource estimates are likely to change over time as additional information becomes available, it is evident that shale resources that were until recently not included in technically recoverable resources constitute a substantial share of total technically recoverable oil and natural gas resources. The shale oil resources assessed in the new report, combined with EIA's previous estimate of U.S. tight oil resources that are predominantly in shale formations, add approximately 11 percent to the 3,012 billion barrels of proved and unproved non-shale oil resources identified in recent assessments. The shale gas resources assessed in the new report, combined with EIA's prior estimate of U.S. shale gas resources, add approximately 47 percent to the 15,583 trillion cubic feet of proved and unproved non-shale gas resources. Globally, 32 percent of total estimated natural gas resources are in shale formations, and 10 percent of total estimated oil resources are in shale or tight formations.

In considering the market implications of abundant shale resources, it is important to distinguish between technically recoverable resources, the focus of EIAss new assessment, and economically recoverable resources. Technically recoverable resources represent the volumes of oil and natural gas that could be produced with current technology, regardless of oil and natural gas prices and production costs. Economically recoverable resources are resources that can be produced profitably under current market conditions. The economic recoverability of resources depends on three main factors: the costs of drilling and completing wells, the amount of oil or natural gas produced from an average well over its lifetime, and the prices received for oil and gas production.

Recent experience with shale gas in the United States and other countries suggests that economic recoverability can be influenced significantly by above-ground factors, as well as by geology. Key positive above-ground advantages in the United States and Canada that may not apply in other locations include major private ownership of subsurface rights (often by surface owners) that provides a strong incentive for development; availability of many independent operators and supporting contractors with critical expertise and suitable drill rigs; preexisting gathering and pipeline infrastructure; and availability of water resources for use in hydraulic fracturing.

Given variation across shale formations in both geology and above-ground conditions, it is not clear that similar proportions of technically recoverable resources will prove to be economically recoverable across different shale formations. Tight oil and shale gas resources have been revolutionary in the United States—providing 29 percent of the country's total crude oil production and 40 percent of its total dry natural gas production in 2012—because they have proven to be quickly producible in large volumes at relatively lower costs than the large amounts of other types of oil and natural gas resources that had been identified previously. The market impact of shale resources outside the United States will depend on their production costs and volumes. For example, a potential shale well that costs twice as much and produces half the output of a typical U.S. well would be unlikely to replace current supply sources of oil or natural gas. In many cases, even significantly smaller differences in costs, well productivity, or both can make the difference between a resource that is a market game changer and one that is economically unimportant.

Tight oil and other non-OPEC supply developments have the potential to augment or reduce the call on OPEC to the extent that they exceed or fall short of the projections in this outlook. However, future capacity and production levels in OPEC member countries with large resources of relatively easy oil that are not currently being exploited may play an even larger role in shaping future oil markets. Regardless of tight oil and other non-OPEC supply developments, the Middle East remains the center of global oil supply, and decisions regarding capacity and production by leading OPEC producers will remain the linchpin of the global oil supply system. Economic growth in developing countries remains a key demand driver, but demand will also respond to a significant and sustained change in oil prices. This long-term price sensitivity of demand is a key factor that will tend to limit the persistence of scenarios with extremely high or extremely low prices.

Non-OPEC supply

In the IEO2013 Reference case, sustained high oil prices encourage producers in non-OPEC nations to continue investment in petroleum production capacity, EOR projects, and nonpetroleum liquids production. Non-OPEC total liquid fuels production increases steadily in the projection, from 51.8 million barrels per day in 2010 to 58.2 million barrels per day in 2020 and 66.0 million barrels per day in 2040, as rising prices attract investment in areas previously considered uneconomical, and fears of supply restrictions encourage some net consuming nations to expand nonpetroleum liquids production from domestic resources, such as coal and crops.

Among non-OPEC producers, the near absence of prospects for new large petroleum liquids projects, along with declines in production from existing fields, results in heavy investment in the development of smaller fields. Producers are expected to concentrate their efforts on more efficient exploitation of fields already in production, either through the use of more advanced
technology for primary recovery efforts or through EOR.

Americas

Brazil

Brazil experiences the most robust production growth of any country outside OPEC, with production increasing by more than 5 million barrels per day from 2010 to 2040. Brazil's production growth relies on the successful development of its significant offshore pre-salt resources, made available by relatively high oil prices and technological improvements in extraction techniques for very deep water. The large deepwater pre-salt discoveries in Brazil are estimated to include as much as 28 billion barrels oil equivalent. In January 2013, the offshore Sapinhoa oil field began producing oil from pre-salt deposits [43]. Similarly, analysts expect the Papa Terra heavy crude oil field to begin producing in 2013 [44]. This trend continues into the future, with Brazil's offshore production consisting largely of heavy crude oil grades.

The IEO2013 Reference case anticipates substantial increases in the production of Brazil's pre-salt resources, but future largescale development of those resources will require the participation of companies with the technical resources and capital that are needed to produce them. Brazil delayed its 11th bid round while the country devised a new rule for distribution of oil royalties among producing and nonproducing regions, with the government unable to resume lease auctions until the royalty issue had been resolved. The result has been some delay in expanding the country's pre-salt reserves. Despite a new law outlining the rules for distributing oil royalties, the Brazilian Supreme Court postponed its implementation after Rio de Janeiro, São Paulo, and Espìrito Santo claimed that the rule breached Brazil's constitution [45]. The bid round still is scheduled to continue in 2013 (the first in five years), with a separate licensing round for pre-salt areas toward the end of the year. There is a great deal of interest in the round, with 64 companies prequalifying to participate, indicating their optimism regarding pre-salt resource development.

In addition to rising offshore production, Brazil increases its production of biofuels, largely sugarcane ethanol. Currently, Brazil's biofuels are the highest yielding and least expensive ethanol fuel supply worldwide. Brazil's biofuels production grows in the Reference case by 700,000 barrels per day from 2010 to 2040, a tripling of current production. Rising biofuels production alone meets a large part of the growth in Brazil's liquids consumption, enabling the country to use its growing supply of petroleum liquids for export.

North America

In North America, the United States and Canada continue strong growth in their liquids production in the Reference case. Canada's production increases by an average of 1.8 percent per year, more than twice as fast as U.S. production growth of 0.8 percent per year. Liquids production in Canada comes from three principle sources: bitumen from the oil sands of Alberta; crude oil in the broader Western Canada Sedimentary Basin (WCSB); and offshore oil fields in the Atlantic Ocean. Production from oil sands accounted for more than one-half of Canada's oil output in 2011, a proportion that has increased steadily in recent decades. In total, Alberta was responsible for almost 75 percent of Canada's oil production in 2011, according to data from Statistics Canada [46]. Western Canadian provinces (Alberta, British Columbia, and Saskatchewan) account for an increasing proportion of the country's overall oil production in the future. The changing mix of crude oil qualities within the Americas could have a substantial impact on refined product trade in the future (see "Atlantic Basin refinery considerations").

United States. The potential for world production of tight oil resources could be substantial. In the United States, unproved technically recoverable resources of tight oil are estimated at 58 billion barrels. Over the 30-year projection period, the United States produces around 26 billion barrels of tight oil from the Bakken/Three Forks, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs, and Monterey plays in the IEO2013 Reference case, which incorporates the AEO2013 Reference case projections for U.S. production. However, in the AEO2013 High Oil and Gas Resource case, U.S. tight oil production is substantially higher. As discussed above, this has some implications for world oil markets through its effect on the call on OPEC producers.

Crude oil production in the U.S. Gulf of Mexico trends upward over time, as the pace of development activity quickens and brings into production new large-development projects, predominantly in deepwater and ultra-deepwater areas. In addition to tight oil and offshore plays, relatively abundant natural gas production in the United States results in low levels of GTL production emerging around 2020 and increasing to 0.2 million barrels per day in 2040.

Total U.S. liquids production in the IEO2013 Reference case remains at or above 11.5 million barrels per day from 2013 through 2040, peaking at 12.8 million barrels per day around 2020 and settling at 11.7 million barrels per day in 2040. Total U.S. production is significantly higher in the High Oil and Gas Resource case, as discussed in AEO2013.

Mexico and Chile. Unlike the other countries in the OECD Americas, Mexico and Chile see liquids production declines through the mid term and modest recoveries later in the projection period, although production remains below current levels as a result of declining output from mature fields. From a combined 3.0 million barrels per day in 2010, liquid fuels production in Chile and Mexico declines steadily through 2025, when their production totals 1.8 million barrels per day. After 2025, production in the region gradually recovers as investment in the petroleum sector improves, but total liquids supply in 2040 still is about 0.9 million barrels per day lower than in 2010.

Atlantic Basin refinery considerations

The makeup of crude oil supplies in the Atlantic Basin is beginning to change as new sources of petroleum liquids are developed. Increasing production of light sweet crude oil in the United States and heavy crude in Canada and Brazil, combined with declining crude oil production in Mexico, has a notable impact on crude oil supplies from the Atlantic Basin. In the United States, as production of light crude oil has increased, reliance on imports has decreased. The same trend is expected to continue through the mid term. Even as Mexico's production of heavy crude has decreased, production of heavy crude/bitumen in Canada and Brazil has increased. As a result, those countries have supplied a growing share of U.S. imports of heavy crude oil.

Increasing crude production from the Americas will affect refinery operations and petroleum product balances throughout the Atlantic Basin. Access to the Americas' production of light sweet and heavy crude oil and access to U.S. production of natural gas will benefit U.S. refining. In addition, access to U.S. production of tight oil will benefit refining operations in eastern Canada. The increase in refinery utilization could alter gasoline and distillate supply patterns, possibly reducing gasoline imports into the U.S. East Coast, affecting European refineries, and supporting gasoline exports from the U.S. Gulf Coast to Europe and the Americas, notably Mexico and Venezuela. However, changes in gasoline and distillate fuel subsidies or retail price controls in those countries could put downward pressure on demand for refined products that would, in turn, reduce export opportunities for U.S. refineries.

Other non-OPEC supply

Non-OEC D Europe and Eurasia

Outside of the Americas, the largest increases in non-OPEC supplies come from the nations of non-OECD Europe and Eurasia. In the IEO2013 Reference case, Kazakhstan and Russia account for virtually all production growth from the region. Liquid fuels production in Kazakhstan grows by an average of 3.0 percent per year, from 1.6 million barrels per day in 2010 to 3.9 million barrels per day in 2040. Much of the country's production growth comes from the Kashagan and Tengiz oil fields in the Caspian Sea [47]. In particular, Kashagan has been described as one of the largest fields discovered in the past 30 years outside the Middle East. A consortium of partners under a joint operating company, North Caspian Operating Company (NCOC), operate the field and spent $28 billion on its development through 2010 [[48], [49]]. The IEO2013 Reference case assumes that production at Kashagan begins in
the mid term with construction of the export infrastructure needed to supply world markets with additional Caspian oil.

Russia's petroleum production shifts gradually from western Siberia to eastern Siberia because of declines in existing, mature oil fields and the opportunity to increase exports to China and other Asian markets, including India and Japan. Russia's production grows at an annual rate of around 0.5 percent from 2010 to 2040. At the same time, there is significant potential for tight oil development in western Siberia to at least offset declines from existing fields. The geology of areas like the Bazhenov shale in the Western Siberian Basin is conducive to tight oil development. An estimated 75 billion barrels of technically recoverable shale oil resources may lie in the Siberian Bazhenov shale formation [50]. While taxation and other issues currently impede significant expansion, Royal Dutch Shell and Gazprom have an agreement to develop the Bazhenov resource that could result in long-term commercial production [51].

Outside of Russia and Kazakhstan, Azerbaijan and Turkmenistan are the only other countries in the region that have sizeable liquid fuels production. In IEO2013, Azerbaijan's petroleum and other liquids production declines, as fields mature and maintenance periods are extended with each season. Azerbaijan gradually shifts from oil to natural gas production. In Turkmenistan, growth in liquids production consists mostly of condensate and NGPL from producing natural gas fields.

North Sea

The North Sea continental shelf contains significant oil reserves and is the largest source of oil production in OECD Europe. According to international agreements, five countries (Denmark, Germany, Netherlands, Norway, and the United Kingdom) can award licenses for crude oil production in the area. Several production streams from the North Sea constitute the Brent international benchmark for oil prices. However, since reaching peak production of almost 6.3 million barrels per day in 1996, crude oil output from the North Sea has been declining slowly, to 3.6 million barrels per day in 2010.

In the Reference case, declines in North Sea oil production continue, averaging 1.6 percent per year, from 3.6 million barrels per day in 2010 to 2.2 million barrels per day in 2040. The largest decline is in the United Kingdom's production, as a result of depleting reserves and an aging oil infrastructure [52]. Norway may have some potential to offset the North Sea decline but faces structural issues that may affect long-term production.

Non-OPEC Asia

Few non-OPEC Asian countries are able to increase their liquid fuels production substantially, except for China. In the IEO2013 Reference case, China's liquids production grows by an average of 0.8 percent per year, to 5.6 million barrels per day in 2040. Much of the increase results from investments by Chinese national oil companies, such as CNPC and CNOOC, in deepwater offshore exploration in the Pearl River Mouth Basin and some onshore fields, such as Changqing and Tarim [53]. Liquids production in India and the other non-OECD Asian oil countries, including Vietnam, Indonesia, and Thailand, declines by an average of 0.7 percent per year through 2040 because of aging petroleum fields and a lack of substantial new discoveries.

World oil reserves

Proved reserves of crude oil are the estimated quantities that geological and engineering data indicate can be recovered in future years from known reservoirs, assuming existing technology and current economic and operating conditions. As of January 1, 2013, proved world oil reserves, as reported by the Oil & Gas Journal, were estimated at 1,638 billion barrels—120 billion barrels (about 7 percent) higher than the estimate for 2012 [54]. According to the Oil & Gas Journal, around one-half of the world's proved oil reserves are located in the Middle East, and more than 80 percent are concentrated in eight countries, of which only Canada (with oil sands included) and Russia are not OPEC members (Table 6). Most increases in proved reserves since 2000 have come from revisions to reserves in discovered fields rather than new discoveries [55].

In 2013, the largest increase in proved reserves by far was attributed to Venezuela, as the country now reports its Orinoco belt extra-heavy oil in its totals [56]. Venezuela's reserves alone increased by 86 billion barrels from 2012 to 2013. Russia also reported a significant gain of 20 billion barrels. Country-level estimates of proved reserves published by the Oil & Gas Journal are developed from data reported to the U.S. Securities and Exchange Commission, from foreign government reports, and from international geologic assessments. The estimates are not always updated annually.

In some cases in the IEO2013 projections, country-level volumes for cumulative production through 2040 exceed the estimates of proved reserves. This does not imply that resources and the physical limits of production have not been considered in the development of production projections, or that the projections assume a rapid decline in production immediately after the end of the projection period as reserves are depleted. EIA considers resource availability in all long-term country-level projections, the aggregation of which gives the total world production projection. However, proved reserves are not an appropriate measure for judging total resource availability in the long run. For example, despite continued production, global reserves historically have not declined, because new reserves have been added through exploration, discovery, and reserve replacement.

Proved reserves include only estimated quantities of crude oil from known reservoirs, and therefore they are only a subset of the entire potential oil resource base. Resource base estimates include estimated quantities of both discovered and undiscovered liquids that have the potential to be classified as reserves at some time in the future. The resource base may include oil that currently is not technically recoverable but could become recoverable in the future as technologies advance. In the Reference case, the resource base does not pose a global constraint on oil supply.

In order to construct realistic and plausible projections for liquids production, and especially for petroleum liquids production, underlying analysis must both consider production beyond the intended end of the projection period and base production projections on the physical realities and limitations of production.

Proved reserves cannot provide an accurate assessment of the physical limits on future production but rather are intended to provide insight as to company-level or country-level development plans in the very near term. In fact, because of the particularly rigid requirements for the classification of resources as proved reserves, even the cumulative production levels from individual development projects may exceed initial estimates of proved reserves.

EIA attempts to address the lack of applicability of proved reserves estimates to long-term production projections by developing a production methodology based on the actual physical limits of production, initially-in-place volumes, and technologically limited recovery factors. By basing longterm production assessments on resources rather than reserves, EIA is able to present projections that are physically achievable and can be supported beyond the 2040 projection period. The realization of such production levels depends on future growth in world demand, taking into consideration such above-ground limitations on production as profitability and specific national regulations, among others.