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The U.S. Energy Information Administration, the U.S. government’s official source for energy data and trends, has issued projections of global oil demand growth between now and 2028 that are half the projection of other major official sources. If our own government has underestimated the world’s need for oil and makes policy decisions that assume low demand growth and discourage investment in our own energy resources and domestic energy development, America could fall irreversibly behind, with American consumers paying more for energy and being overly reliant on OPEC+ nations, whose objective has been to increase their market power and prices.
There is unanimous consensus that the global population will continue to grow, and that population growth drives economic and oil demand growth. Currently home to 8 billion people and expected to grow to 9.8 billion by 2050, our planet has energy needs that are set to rise. As such, both OPEC+ and the EIA project oil demand growth through 2045 and 2050, respectively. However, their near-term demand growth projections vary widely.
OPEC’s five-year projection implies a global oil demand growth twice that of our government’s projections — a difference of nearly 3.9 million barrels per day, which is comparable to all of the oil supply non-OPEC producers added to the market over the past five years. The gap between OPEC and EIA’s projections could necessitate almost $200 billion in capital investments in the next few years.
Adding fuel to this debate, the International Energy Agency (IEA) anticipates a peak in oil growth demand by 2030 — 7 years from now. OPEC suggests that IEA’s projections could lead the global energy system to “fail spectacularly.” Should the EIA and IEA forecasts discourage oil production investment by non-OPEC countries, this could inadvertently strengthen OPEC’s market dominance. As global demand continues to grow, if American investments don’t keep pace, it could jeopardize our nation’s energy security and the stability of global energy markets.
However, amid these contrasting viewpoints, there is agreement: The U.S. is expected to be the world’s largest source of global oil supply growth. Specifically, the EIA projects the U.S. — with Texas at its forefront — to contribute up to 60% of non-OPEC supply growth between 2023 and 2028. However, making strong U.S. production growth become a reality will require tens of billions of dollars in affirmative investment decisions to be made, supported by access to resources and expanded infrastructure through the value chain, from drilling and services to processing, pipelines and export facilities. These are stark reminders of the long planning period and alignment across an entire supply chain the industry needs — and why the most recent five-year demand projections from EIA could chill investment in future U.S. oil output.
Starting with their projections for 2024, all three agencies — EIA, IEA and OPEC — anticipate record global economic activity and oil demand next year. Yet, the range of their estimates varies by more than 2 million barrels per day (2% of the global market), primarily based on differing views about the pace of electrifying vehicles in advanced economies.
Such disparities underscore the need for U.S. energy policymakers to have pragmatic conversations about energy and enact sound policies. The energy sector is a marathon, not a sprint. Crafting policies that promote resource access, encourage investment and facilitate infrastructure development is crucial. It’s a reminder that the long-term vision is crafted from myriad short-term decisions.
As the world navigates challenging uncertainties, divergent oil forecasts serve as a strong reminder of the oil and natural gas industry’s complexities. While it’s common for predictions to vary, the current stakes, especially with recent geopolitical and economic developments, make this divergence especially consequential. Smart policy, rooted in sound data, will ensure that the U.S., particularly Texas, can serve as a stabilizing force for the world. Decisions made today will echo in the annals of energy history, underscoring the delicate balance between immediate choices and their long-term repercussions.
Dean Foreman is chief economist at the Texas Oil & Gas Association in Austin.
