Energy Policy, Vol.62, 844-859, 2013
The rapid growth of OPEC's domestic oil consumption
OPEC's domestic oil consumption has increased seven-fold in 40 years, to 8.5 million barrels per day (mbd). They consume almost as much oil as China. This constitutes one-fourth of their production. Such rapid growth in consumption (5.1% annually, faster than their income growth of 3.1%) will challenge OPEC's ability to increase their oil exports, which are relied upon in long-term world oil projections by the International Energy Agency (IEA), US Department of Energy (DOE/EIA) and British Petroleum (BP). However, these institutions assume unprecedented slowdowns in OPEC oil consumption - to less than 2% in the future - allowing them to project increases in OPEC oil exports with only modest increases in production. We analyze 1971-2010 data econometrically, with panel co-integration methods. We estimate that the income elasticity of consumption is about 1 for energy and oil. This means that OPEC's energy and oil consumption will grow as rapidly as their income. Hence, continued high growth rates for domestic oil consumption are more likely than the unprecedented slowdowns projected by IEA, DOE/EIA and BP - adding an extra 6 mbd of OPEC consumption in 2030. This will have major implications for OPEC production and export levels, and for world oil prices. (C) 2013 Published by Elsevier Ltd.