Published in Oil & Gas Executive Report, Volume 2, Number 2, 1999, pages 28-31.
As I see it, there are three key elements to succeeding in the global oil industry of the future. They are positioning for growth in emerging markets, keeping costs as low as possible, and increasing market share through new market penetration.
Looking at the oil industry from Moscow, we see two very distinct worlds. The developed economies of the countries in the Organization for Economic Cooperation and Development (OECD) are one world. In that world, there are approximately 750 million people who consume about 40 million B/D of oil. For oil companies, these countries usually are referred to as "mature markets." In the other world, there are more than 5 billion people consuming 35 million B/D. For the oil companies, these countries are grouped together as emerging markets even though the size of their populations and their economies vary widely.
From my perspective, describing OECD countries as mature markets really means that the prospect of oil demand growth there is limited. This is the result of several factors that include interfuel competition, particularly with gas; saturated automobile markets; environmental pressures; and older populations.
As oil continues to be squeezed out of power generation and space heating in these markets, primarily by natural gas, any increase in oil demand will be in the transport sector. In Europe, demand for oil in the transport sector is under pressure from high end-user prices, more efficient cars, and the growing number of diesel-powered cars. In the U.S., transport demand for oil has been increasing lately because of low prices; strong economic growth; and a switch to less efficient cars, such as sport utility vehicles. We think that this trend will run its course and that, in the end, the U.S. oil market also will peak sometime in the next 5 to 10 years.
The outlook for the emerging markets is quite different. If oil demand per capita were the same in these markets as in the OECD markets, demand would be somewhere around 300 million B/D. I am not predicting that oil demand will rise to anywhere near that level, but it does challenge the imagination to think of just how great that untapped market must be. Clearly, it is in these emerging markets that real demand growth will come because the drivers for growth are almost the opposite of those in the OECD—that is, less interfuel competition, although it is a factor; lower numbers of automobiles per capita; and younger populations.