Future of the World Oil Market with an Expanding Role of Shale Oil: A System Dynamics Approach

In this paper, we develop a dynamic system model to predict the effects of shale oil production on demand and supply of oil.  We study the interaction between demand and supply of OPEC and non-OPEC member countries and supply of shale oil, oil price, growth of the global economy, development of new oil reserves and  alternative energies. In our model, OPEC acts passively and covers the market demand deficit, while other conventional and unconventional oil producers operate in a competitive market. Shale oil production is estimated so as to maximize long-term profit and extraction of shale oil reservoirs.   Oil price is a non-linear function of OPEC's spare capacity. The results show that oil demand will rise to 117 million barrels per day in 2030, with an average annual growth rate of 1.4%. Oil supply from non-OPEC countries will grow at an average of 0.9 percent per year to 64 million barrels. Shale oil supply will reach 19 million barrels per day, indicating an average annual growth of 10%. OPEC's oil supply will fluctuate around 34 million barrels a day. Oil prices will fluctuate between $ 20 to $ 130 per barrel.