Global liquid fuels
Global Petroleum and Other Liquid Fuels Consumption. Based on preliminary data and estimates from 1Q21, as well as our assumptions of continued economic recovery, we forecast consumption of global petroleum and other liquid fuels will grow by 5.3 million b/d in 2021. This growth follows a decline of 8.6 million b/d in 2020. Forecast growth in global oil consumption of 3.7 million b/d in 2022 would bring global oil consumption to 101.4 million b/d, which would be 0.4 million b/d higher than in 2019. Our global economic growth forecasts come from Oxford Economics, which forecasts GDP in 2021 will increase by 6.3% and by 4.8% in 2022, compared with a decline of 3.4% in 2020.
We expect oil demand growth in 2021 to be fairly evenly split between the OECD and non-OECD. OECD oil demand grows by 2.5 million b/d, and non-OECD demand grows by 2.8 million b/d. Our forecast assumes that business activity and travel will continue to increase throughout 2021 and into 2022. For 2021, in addition to rising economic activity, oil consumption growth is driven by reopening economies and a return to travel patterns more similar to pre-pandemic norms. In 2022, economic growth alone becomes the main driver of oil consumption growth.
We expect U.S. liquid fuels consumption in 2021 to rise by 1.5 million b/d from 2020, making it the largest contributor to global consumption growth in the forecast. Since the beginning of 2021, some of the most significant increases in our expectations for oil demand have been for Europe. Strict travel restrictions imposed by many of the European OECD countries in 1Q21 gradually eased in the second quarter as a result of successful large-scale vaccination campaigns. As a result, Europe has experienced a significant increase in economic activity in 2Q21 as capacity limits and restrictions on mobility and non-essential business activity have either been reduced or eliminated. We estimate that 2Q21 liquid fuels consumption in OECD Europe was up 1.8 million b/d from the same period in 2020, contributing to our expectation that liquids consumption in OECD Europe will be up 0.5 million b/d for all 2021 compared with 2020.
Oil consumption growth in many of the non-OECD regions remains more uncertain. Large-scale vaccination campaigns in Asia, Latin America, the Middle East, and Africa have been relatively slower—with some exceptions—than in Europe and the United States. Outbreaks of COVID-19 infections and the re-imposition of restrictions on mobility and business activity still pose a significant downside risk in these regions. In 1H21, Malaysia, Thailand, and Vietnam, where a majority of the populations remain unvaccinated, imposed mobility and business activity restrictions after experiencing large outbreaks of COVID-19 infections.
In addition, the spread of COVID-19 variants and the effectiveness of the vaccines against these variants are significant risk factors to a full and sustained global recovery. India experienced its worst outbreak of COVID-19 infections in 2Q21 when the Delta variant spread, which is reportedly more virulent and contagious than other variants, and the outbreak led to a sharp reduction in economic activity from which the country is now slowly recovering. If the vaccines currently available are not effective against the Delta or other variants, countries will have to continue to rely on mobility and activity restrictions to mitigate the spread, which will lead to a longer, more drawn-out return in global oil demand.
For 2021, we forecast liquid fuels consumption in India to grow by 0.3 million b/d (6%), consumption in China to grow by 0.9 million b/d (6%), and consumption in the rest of non-OECD to grow by 1.7 million b/d (5%).
Non‐OPEC Production of Petroleum and Other Liquid Fuels. Following a 2.5 million b/d decrease in 2020, with declines extending into 1Q21, we estimate that non-OPEC liquid fuels production increased by 2.6 million b/d in 2Q21 from 2Q20. Almost three quarters of this increase came from two non-OPEC producers: the United States and Russia. We expect non-OPEC production to rise by 1.1 million b/d in 2021 and by 3.1 million b/d in 2022. We expect Canada and Brazil to lead non-OPEC production growth in 2021 and the United States and Russia to lead growth in 2022.
We expect Canada’s production of petroleum and other liquid fuels to increase by more than 0.3 million b/d in 2021, which would make it the leading source of non-OPEC liquid fuels supply growth this year. Despite heavier-than-normal turnarounds at a number of oil sands projects in 1H21, we forecast Canada’s production to reach new record highs in 2H21. Output growth in 2021 is driven by increasing refinery demand for crude oil in the United States, the end of Canadian government-ordered curtailments, and the restart of oil sands expansion projects that were deferred during 2020. We do not expect any new upstream projects to come online in Canada during the forecast period. Forecast crude oil production growth comes from expansions or debottlenecking of existing projects.
In January 2021, President Biden revoked the presidential permit authorizing the construction of the Keystone XL pipeline, and in June 2021, owner TC Energy officially canceled the project. The pipeline would have expanded Canada’s crude oil export capacity to the United States by 830,000 b/d. The cancellation of the Keystone XL does not materially affect our production outlook for Canada, and we expect Canada’s pipeline export capacity will be adequate through the end of the forecast period. Enbridge’s Line 3 replacement (370,000 b/d) will come online at the end of 2021, the TransMountain expansion project (590,000 b/d) in 2022, and additional Enbridge expansion and optimizations to its existing pipeline system can bring more than 400,000 b/d of increased export capacity over the forecast period. Forecast production in Canada grows by 0.2 million b/d in 2022.
Even as production in most non-OPEC producers declined in 2020, Brazil’s liquid fuels supply grew by 0.1 million b/d during 2020. We expect Brazil’s production to grow by more than 0.2 million b/d in 2021. However, our current forecast is 0.1 million b/d lower on average compared with the January 2021 STEO and reflects the difficulties Brazil’s national oil company, Petrobras, experienced at the beginning of 2021 with restarting fields that had undergone heavy maintenance in 4Q20. Growth in 2021 is further limited as a result of delayed startups. Petrobras has postponed the start-up of the first phase of the Mero oil field development, the floating production storage and offloading vessel (FPSO) Guanabara, from 4Q21 to 1H22. The restart of the Equinor-operated Peregrino field has also been delayed to 2022. The current operational asset in the Peregrino field has been offline since 2019 because of technical issues and was delayed again in 2020 because of COVID-19 safety protocols. The startup of its second phase of development has also been delayed to 2022 because of work disruptions caused by the pandemic. Forecast production in Brazil will grow by 0.3 million b/d in 2022. We expect that five new FPSO units will ramp up through the forecast period and continue to drive growth, notably at the Sepia, Mero, and Buzios fields. Each of these FPSOs has a production capacity of 180,000 b/d.
Russia is the second-largest producer of liquid fuels among non-OPEC countries after the United States. Production in Russia grew by 0.5 million b/d in 1H21 from 2H20, as OPEC+ participants eased crude oil production cuts. We expect Russia’s liquid fuels production to increase by 0.2 million b/d for all of 2021 and by 0.8 million b/d in 2022. After the OPEC+ agreement ends in early 2022, we expect Russia’s production to rise above 11.5 million b/d during 2H22, with annual average production in 2022 equal to 2019 levels.
China’s liquid fuels production in our forecast increases by more than 0.1 million b/d in 2021. China’s government outlined its goals for national oil companies to increase upstream crude oil and natural gas production during the next few years to help meet its outlined energy security goals. We expect slight declines in crude oil production in 2022 will be offset by both increasing production of other liquids and by increasing refinery gains, resulting in a small increase in China’s overall production.
Norway’s liquid fuels production rises in our forecast by about 0.1 million b/d in both 2021 and 2022. Norway’s Ministry of Petroleum and Energy enacted unilateral production limits on the Norwegian continental shelf from June 2020 to December 2020. When production limits expired, Norway’s liquid fuels production was up slightly in 1H21 compared with 1H20. We expect liquid fuels production to continue to grow in 2H21 and in 2022 as new fields come online and ramp up production, including the much-delayed Martin Linge field. The Johan Sverdrup field, which was the main driver of growth in Norway’s liquid fuels production in 2020, will also contribute to growth in 2021 and 2022.
Mexico’s forecast liquid fuels production averages 1.9 million b/d in 2021, almost unchanged from 2019 and 2020. We have revised our 2021 production forecast upwards from its January 2021STEO estimate of 1.8 million b/d because private operators have surpassed our expectations regarding their ability to ramp up the Ixachi, Pokoch, and Hokchi fields. We expect Mexico’s oil production to fall to 1.8 million b/d on average in 2022, reflecting financial constraints at Mexico’s national oil company, PEMEX, and continued large declines in mature fields. New growth in foreign-operated fields in 2021 is insufficient to offset declines from PEMEX’s older fields, in particular the Maloob field.
We forecast that output across a number of other non-OPEC producers will decline in 2021 and 2022, notably Indonesia, the United Kingdom, and Colombia.
OPEC Production of Petroleum and Other Liquid Fuels.At the April 2021 OPEC+ meeting, the OPEC+ countries agreed to incrementally raise their production from May through July 2021, including a full reversal of Saudi Arabia’s voluntary production cut of 1 million b/d. They reaffirmed this agreement at their June meeting. This forecast was completed on July 1, prior to OPEC+ calling off its most recent meeting on July 5. However, we forecast that OPEC and its OPEC+ partners will continue to increase crude oil production beyond July in response to rising global oil consumption.
Although our forecast assumes current U.S. sanctions remain in place for Iran and Venezuela for the entire forecast period, we expect Iran will increase crude oil supply somewhat in the coming months. We also expect that OPEC+ will not implement further production cuts to accommodate any potential increases in oil output from Iran or Venezuela.
After holding crude oil production near 25 million b/d during the first four months of 2021, OPEC began increasing production in May based on its agreement with OPEC+ partners. We expect OPEC will increase production by 2.4 million b/d from May through August, raising production in response to rising global oil consumption. In our forecast OPEC crude oil production averages 28.2 million b/d in 2H21, up 2.9 million b/d from 1H21 and up 4.0 million b/d from 2H20. For all of 2021, we forecast that OPEC crude oil production will average 26.8 million b/d, up 1.2 million b/d from 2020. We forecast OPEC will raise crude oil production by an additional 1.8 million b/d in 2022 to 28.6 million b/d.
Our OPEC crude oil production forecast is subject to considerable uncertainty. OPEC+ implemented monthly meetings to assess global oil market conditions, and the group’s production targets are potentially subject to regular adjustments. OPEC+ has indicated it will adjust production targets in response to changes in global oil demand, but the path of global oil demand in the comings months remains highly uncertain. Also, the manner in which OPEC+ would change production targets in response to higher production from Iran, or other changes in the oil market, is not clear. Finally, country compliance with existing production targets as the oil price rises is uncertain.
Even with increased OPEC crude oil production, remaining surplus production capacity will be more than sufficient to meet additional demand should consumption exceed our expectations. We expect that OPEC surplus crude oil production capacity, which averaged 6.2 million b/d in 2020, will average 6.7 million b/d in 2021 and 4.8 million b/d in 2022, compared with average surplus capacity of 2.2 million b/d from 2010–19. These estimates do not include additional capacity that may be available in Iran that is offline because of U.S. sanctions on Iran’s oil sales. All else equal, elevated levels of OPEC surplus production capacity tend to have a moderating effect on crude oil price increases.
Venezuela is not subject to the current OPEC+ production target, and in contrast to the rest of OPEC, we expect Venezuela’s crude oil production to continue to decline as a result of ongoing operational difficulties, lack of field and facility maintenance, and continuing sanctions. Venezuela’s production declines accelerated in 2020 after the United States government imposed new sanctions on its main oil trader, Rosneft Trading, in mid-February 2021. In addition, the decline in global oil demand following the onset of the COVID-19 pandemic further reduced the demand for Venezuela’s oil.
OPEC Non-Crude Oil Liquids. We estimate that OPEC production of other liquids declined to 5.1 million b/d on average in 2020, down from 5.4 million b/d in 2019. The 2020 production decrease was driven by reduced output of associated condensate stemming from reduced crude oil production. In the forecast, associated liquids production rises as OPEC relaxes its crude oil production cuts. We expect OPEC non-crude oil liquids production will rise to 5.3 million b/d in 2021 and to 5.5 million b/d in 2022.
Global Oil Inventories. We estimate global oil inventories increased by 1.2 billion barrels during the first five months of 2020. Inventories subsequently fell by 0.8 billion barrels from June 2020 through June 2021. However, we expect that markets will be much more balanced during 2H21 and in 2022. Although global oil demand continues to rise, relaxed OPEC+ production targets during the second half of the year, rising oil supplies in Iran, and rising non-OPEC production will result in global oil inventory draws of 0.2 million b/d during 2H21, compared with our estimate that inventory draws were 1.7 million b/d in 1H21. We expect inventories to build at a rate of nearly 0.5 million b/d in 2022 as OPEC continues to raise production in response to rising demand and as non-OPEC production growth, particularly in the United States, accelerates.
