Abu Dhabi (Platts)--23Apr2013/252 am EDT/652 GMT

Abundant and relatively cheap supplies of natural gas threaten almost a quarter of total world oil demand, Edward Morse, global head of commodity research for Citi Group, said Tuesday.

Citi has identified an estimated 20 million barrels/day of world oil demand which could be replaced by demand for natural gas-based fuels, including 12 million b/d of oil demand from the transport sector, said Morse, who was speaking at the Middle East Petroleum & Gas Conference in Abu Dhabi.

The amount of oil demand under threat from more affordable gas, according to Morse's estimates, represents almost a quarter of total world oil demand. According to the latest monthly oil market report, the International Energy Agency expects to see global oil demand come in at 90.58 million b/d this year, up 790,000 b/d from last year's 89.78 million b/d.

OPEC, in its own latest monthly oil market report, said earlier this month that it expected to see world oil demand rise to 89.66 million b/d in 2013, up from an estimated 88.87 million b/d in 2012.

Morse said Citi's research group believes that substantial volumes of oil demand from the world's transportation sector could be replaced by natural gas supplies.

Among the 12 million b/d of oil demand from transport that could be replaced, Morse estimated that 9 million b/d oil oil demand from diesel use in global trucking (including 2 million b/d of on-road diesel use in the US) could be encouraged to move to gas.

A further 3 million b/d of global marine fuel demand, currently supplied by residual fuels like fuel oil, and 200,000 b/d of diesel-based demand from railways around the world, could move to gas-based fuels.

$90/B BRENT COULD BECOME A CEILING FOR GLOBAL OIL MARKETS

Looking forward, Morse said global oil markets might have reached a medium-term peak in price. "We are moving into an environment where $90/b Brent will become more of a ceiling for the market," said Morse. "But it's hard to pick where the bottom will be."

"Petrostates stand to lose, importers stand to gain," he said, adding that Citi estimated a 3% uplift in GDP for importers by 2020 as a direct result of a possibly cheaper energy prices.

The impact of shale oil production has already been felt in the form of a sharp reduction in US imports of light sweet crude oils, Morse said. But the global market would next see an "onslaught" on Middle East crudes as Canadian exports increase, backing out imports of heavier, sourer crudes to North America by 2015.

Canadian crude exports in the Pacific arena would even outpace Russian ESPO crude production in the coming years, bringing pressure directly on many producers in their key Asian markets.

To maintain access to refinery markets, Middle East exporters will face the challenge of having to either discount sales or shut in production. "There is no alternative," Morse said.

For OPEC, there was also pressure from production growth within, notably in Venezuela and Iraq, and from demand moderation outside. "A decade of demand growth is coming to a tipping point," Morse said.

Morse's forecast is consistent with a bearish tone that has recently featured in Citi forecasts. Earlier this month, Morse said in a research report that the so-called commodity super-cycle has come to an end after 13 years of rallying global prices (see more in our blog, The Barrel, at http://plts.co/YCad7g).

--Dave Ernsberger, dave_ernsberger@platts.com

--Jonty Rushforth, jonty_rushforth@platts.com

--Edited by Wendy Wells, wendy_wells@platts.com

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