Oil demand for power generation has been in long-term decline since 1990 as countries have gradually displaced oil with cheaper feedstocks, primarily coal and natural gas. Since 1990, this process has freed up some 2 million b/d of oil for other uses. However, oil for power still accounts for just over 4 million b/d of demand or 4-5% of global oil consumption.
There are two reasons why oil-for-power use will buck its long-term trend in both 2019 and 2020, even though the secular forces pushing it slowly towards obscurity are now more powerful than ever before.
Iran’s use of oil for power generation is likely to rise sharply this year as a result of the re-imposition of US sanctions on the country’s crude exports from November 5 last year. Iran’s crude exports were estimated at between 1.1-1.3 million b/d in January and February, according to industry sources, down from 2.5 million b/d in April 2018 just before Washington withdrew from the 2015 Iran nuclear deal.
Iran’s internal response to sanctions in the past has been to increase oil burn for power generation, maximise refinery throughput and use petrochemical plant to produce oil products such as gasoline. In 2010, Iran’s oil use in power generation was about 225,000 b/d, but, by 2013, at the height of the earlier sanctions period, this had more than doubled to 471,000 b/d.
Since then its ability to export both gas and electricity to Iraq has increased.…