Let’s continue with the story of the Opec’s Secretariat’s latest ‘World Oil Outlook’.

Last week’s column was on the oil supply and demand balance. It concluded that due to rising demand for liquids, especially oil, driven by the decline in prices and the modest decline in non-Opec supplies, the call on Opec’s crude oil production is forecast to grow from 30 million barrels a day (mbd) in 2014 to 40.7 mbd in 2040. And Opec’s share may then rise gradually from 33 to 37 per cent through the period.

If Opec — or its leading member Saudi Arabia’s — current policy is to gain market share, then the Secretariat is plainly telling us this is a very expensive pursuit.

The investment foreseen in the global oil industry up to 2040 is, according to WOO, $10 trillion in 2014 dollars, with the upstream sector’s share at $7.2 trillion. This is necessary to develop new fields and to arrest the decline at current fields. Most of this investment will be made in non-Opec countries where high cost oil is generally the norm. The OECD’s share is over half of the above for the same reason of cost for both conventional and non-conventional oil.

As for Opec countries, the report says that it ‘will need to invest an average of more than $40 billion annually in the remaining years of this decade, and over $60 billion annually in the long-term’. This may be necessary as the natural decline of current fields will eat up the greater majority of its capacity.

Therefore, the investment is actually to maintain or recover that capacity and to increase it to the level of meeting the expected demand. It may even maintain a small surplus capacity for unseen market conditions. In any case, the expected needs seem to be high even if reflecting the rise in upstream development cost and the cost of engineering projects that goes with it.

But WOO tells us that ‘The outlook is clouded with uncertainty stemming from economic growth risk in particular’. Remember the economic growth in the reference case is an annual 3.5 per cent — but if a higher or lower economic growth rate is realised then this will have its implications with respect to oil supply and demand.

Opec considers a high growth case of 3.7 per cent and a low growth case of 3.1 per cent ‘if negative factors persist’. In these two cases crude oil demand will be higher by 4.9 mbd or lower by 7.3 mbd respectively and the call on Opec crude will then be 45.4 mbd and 33.5 mbd. With such a huge difference between the two cases, we can only say Opec should tread carefully especially in the next 10 years.

The uncertainty associated with non-Opec supply complicates matters further and could impact Opec’s prospects by about plus 3- to minus 6 mbd from the reference case to 2040. Therefore watching world economic growth is probably more important for Opec than watching non-Opec prospects — watching both is much better.

Needless to say that in all these cases, investment needs will be affected in proportion to the final volumes required. It is incumbent on Opec to be careful to avoid the creation of large excess capacity that will overhang the market and depress prices as experienced many times in the past, especially during the 1980s and 1990s.

It is also important to watch out for policy changes with respect to ‘additional climate change mitigation actions’ after the euphoria of the last Paris conference and the pledges given by countries to reduce their carbon dioxide emissions. The support given by various governments, rich and poor, to renewable energy projects is another factor worthy of consideration.

Even Opec members, to varying degrees, are now interested to pursue renewable and nuclear energy to meet their future domestic demand and to manage higher volumes of crude oil for export. This is welcome indeed, especially with the declining cost of renewable energy projects. But it does have its implications on returns in the oil sector.

I like to add here that the current WOO is rightly dedicated by the Secretariat to Gary Brennand, a leading member of the team that produced the annual series and who passed away earlier in 2015. While the published reports started in 2007, Gary also worked on versions which were not made public for 15 years. I had the pleasure and honour of having him as a member of the department I headed for eight years. May God rest his soul ...

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.