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next five years, namely Iran and the UAE. As for Libya, the current turmoil needs to come to an end, while the scale of any Iraqi long-term output increase remains the biggest uncertainty.

Chart 38: We estimated that demand will grow by 5.9mn bpd in 2015-20
Global oil consumption
BofAML fcast
mn bpd
105
100
95
90
85
80
75
70
65
60
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Source: IEA, BofA Merrill Lynch Commodities Research

Chart 39: Other than Saudi Arabia, some OPEC countries will also expand their capacity in the next five years, namely Iran the UAE
OPEC capacity growth, 2015-2020F
Kuwait
Algeria
Qatar
Venezuela
Angola
Ecuador
Nigeria
UAE
Libya
Iran
Saudi Arabia
mn b/d
-0.3 -0.1 0.1 0.3 0.5
Source: IEA, BofA Merrill Lynch Commodities Research

Saudi plans to keep capacity flat add to medium term tightness
Saudi Arabia has 12.5mn bpd of crude production capacity, according to the government, and the country suggested within the NTP that it plans to maintain capacity at the current level to 2020. Saudi Arabia is the only material holder of spare crude oil production capacity around the world. Spare capacity currently sits at c2mn bpd, which is one of the lowest levels ever. Even if Saudi Arabia did start investing today, it would take a number of years to be completed and would unlikely be ready before 2020 in any case. Hence, as Saudi ramps up production over the medium-term by digging into its spare capacity, the risk premium in the oil market will rise as the market becomes increasingly less able to handle future supply disruptions.

Chart 40: The supply side in oil faces a lot of disruptions linked to geopolitics and broad economic mismanagement
Major oil supply disruptions (excluding disruptions due to OPEC policy changes)
mn b/d
6
5
4
3
2
1
0
Kuwait,
Venezuela, oil strikes
Iraq, Gulf War
Nigeria unrest
post Arab spring
90 91 92 93 94 95 96 97 98 99 00 01 03 04 05 06 07 08 09 10 11 12 13 14 16
Iraq, civil war
Libya, civil war
Nigeria, oil theft
Syria, civil war
Yemen, civil war
Iran, US/EU embargo
Source: IEA, BofA Merrill Lynch Commodities Research

Chart 41: Saudi Arabia has 12.5mn bpd of crude production capacity, and currently is c2.0 of spare capacity over current production
Saudi Arabia spare crude oil production capacity
mn b/d
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Jan-09 Nov-09 Sep-10 Jul-11 May-12 Mar-13 Jan-14 Nov-14 Sep-15
Source: IEA, BofA ML Commodities Research. IEA estimates Saudi production capacity at 12.2mn bpd

If Saudi gas production gets off the ground, it could crowd out oil demand...
The Saudi NTP plans to grow domestic gas production by 50% to 18 bcf/d by 2020, and to use most of this gas to meet a 30% rise in domestic power demand and moreover boost gas' share in power generation to 70%, up from 50% currently. This implies that oil burned for power generation could drop by 30% or 300 thousand bpd by 2020, most of which would likely be crude which is more valuable in the export market than the

38 GEMs Paper #26 | 30 June 2016
Merrill Lynch
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