OPEC admitted that demand for its oil over the next few years could be drastically weaker than it previously thought, due to a combination of a weakening economy, rising supply elsewhere, and pressure from climate activists.
In its World Oil Outlook, OPEC said that demand for its oil may only reach 32.8 million barrels per day (mb/d) by 2024, a figure that is substantially lower than the 35 mb/d from last year’s estimate. Demand is still expected to grow in non-OECD countries going forward, but OPEC admitted that demand may peak in the OECD in 2020.
Slower economic growth also factored into the lower medium- and long-term estimates. “Given recent signs of stress in the global economy, and the outlook for global growth, at least in the short- and medium-term, the outlook for global oil demand has been lowered slightly this year to 110.6 mb/d by 2040,” OPEC’s Secretary-General Mohammad Barkindo said in the report.
OPEC said that non-OPEC production continues to rise, particularly from U.S. shale, although not exclusively. The cartel has had to restrain production for several years to keep prices from crashing, even in the face of relentless shale growth. U.S. shale is growing, but is now slowing dramatically. At the same time, countries such as Norway, Brazil, Canada and Guyana are expected to continue to add supplies in the next few years. Steady supply increases puts OPEC in a bind.
Meanwhile, the attention paid to the risks of demand destruction in the OPEC report is notable. The phrase “climate change” appears nearly 50 times in the report and the cartel acknowledged that electric vehicles are “gaining momentum.”
OPEC said it was “fully engaged and supportive of the Paris Agreement,” and that there is “no Planet B.” The group reiterated the urgent need for oil-exporting countries to diversify their economies, even as there is relatively scant evidence that OPEC member countries are actually doing so.
Indeed, OPEC is not exactly preparing for the end of the oil era. It still sees demand growing by around 12 mb/d over the next two decades, a scenario that would be utterly at odds with any viable chance to head off the climate crisis.
In fact, despite all of the climate risks, all of the urges to diversify economies, the possibility of weakening demand and the competition from non-OPEC supply, the cartel still seems unbowed, at least outwardly.
As if to refute any pending doom for oil-producers, Barkindo said that while renewables lead the way in growth going forward, “oil and gas are still forecast to meet more than 50% of the world’s energy needs” in 2040. Even though the growth in consumption is slowing, “demand expands in every five-year period to the end of the timeframe,” Barkindo emphasized.
He said that the global upstream, midstream and downstream oil sectors “need” $10.6 trillion in investment between now and 2040. “OPEC Member Countries are fully committed to making the necessary investments to keep consumers well supplied,” Barkindo said.
Still, in the next paragraph, he admitted the risk at hand. “The industry is now concerned about policies that may detrimentally impact investments; for example, those related to climate-related financial disclosures.” Just a few months ago, Barkindo said that the greatest threat to the global oil industry came from climate activists. “There is a growing mass mobilisation of world opinion… against oil,” Barkindo said. In response, 16-year-old Swedish climate activists Greta Thunberg tweeted “Thank you! Our biggest compliment yet!”
Recently, Kuwait said that it might lower its oil production targets because of climate change. Instead of aiming to produce 4.75 mb/d by 2040, the country may only target 4 mb/d, sources told Bloomberg.
Even the partial IPO of Saudi Aramco could be viewed in the context of questions about peak demand. With consumption growth in doubt, and climate pressure escalating, Riyadh is hoping to cash in some chips today.