The COVID-19 crisis has accelerated the timeline of peak oil demand while government policies to build back better and greener are speeding up the energy transition, major oil companies and forecasters say.
Most industry professionals and analysts believe that peak oil demand will occur at some point between the end of this decade and the latter half of next decade—sooner than thought before the pandemic.
Some, like BP, even say that the world may have already passed peak oil demand. Yet, it is also BP’s chief executive Bernard Looney who said at CERAWeek’s India Energy Forum in October that “peaking of oil demand does not mean the end of oil. Oil will be around for a very, very long time.”
Regardless of when peak oil demand occurs, the world will not stop using oil, and any decline will only be very gradual, despite the wishes of environmental activists that Big Oil (and any oil firm) stop pumping oil immediately and leave the world to run on green energy.
The reality is that even the energy transition will need a lot of fossil fuel-powered energy to build out the infrastructure necessary to support a shift to green energy sources, Neal Kimberley, commentator on macroeconomics and financial markets, writes for South China Morning Post.
Demand for oil is here to stay in the coming decades, even if the world is moving irreversibly toward increased electrification in transport and a growing share of renewable energy sources in the power generation mix. ‘Peak oil demand’, after all, means that global demand will stop growing, not the world weaning itself off crude.
In the coming years, the global recovery from the pandemic is set to bolster oil demand and oil prices, on the one hand. On the other hand, the COVID-related crash in investments in new oil supply—necessary to offset declines from maturing oilfields—could create a supply gap amid solid oil demand. And that could result in oil price spikes in as early as two or three years.
BP and Shell, for example, will be reducing their oil production as part of the net-zero pledges and the foray of Europe’s Big Oil into renewable energy, including EV charging, solar and offshore wind power, hydrogen, and carbon capture. But the world will still need oil in 2030 when BP plans to have cut its oil and gas production by 40 percent. Even if oil demand peaks by 2030, global consumption will plateau, not plunge.
If BP isn’t pumping the oil the world needs, someone else will, probably Saudi Aramco, because the world will need at least as much oil as it did in 2019—around 100 million bpd.
Growing emerging economies in Asia will need more and more oil even if fuel demand from light-duty vehicles in developed economies begins to decline due to the growing share of electric vehicles (EVs) in the fleet.
Oil demand for transportation fuel is just one part—a third, to be more precise—of total global oil consumption. Electric vehicles (EVs) are set to displace some oil demand for gasoline and diesel in mature economies. But the rising preference for non-electric SUVs, which consume on average over 20 percent more energy than a medium-size car for the same distance traveled, completely canceled the estimated 2020 reduction of oil demand due to higher EV share, the International Energy Agency (IEA) said in an analysis last month. The growth in SUVs in the United States, China, and Europe completely offset the 40,000 bpd reduction in oil demand from higher EV sales.
There is a clear trend for SUVs preferences, and while electric SUVs offerings are certainly not lacking, the share of e-SUVs needs to proliferate to over 35 percent by 2030 if the world is to shift onto a path aligned with the climate goals of the Paris Agreement, the IEA said. Last year, fossil fuel-powered SUV sales accounted for nearly 97 percent of global SUV sales.
While road transportation fuel drove oil demand growth in the past decade, the next decade’s growth will be driven by petrochemicals, the IEA reckons. Emerging economies will continue to need increased volumes of oil, and the economy needed to build out the infrastructure for the energy transition will also need fossil fuels.
Greener economies will eventually start eroding global oil demand, but it will be a prolonged decline in a decade or two from now. At the same time, if low investment to replenish production from maturing oilfields persists, it could open a supply gap, overtighten the market, and lead to oil price spikes.