Oil's well—for now
Experts differ on when oil demand will peak but agree we're accelerating towards it
Global demand for oil will hit its all-time peak within less than five years and thereafter begin a steady long-term decline, according to a bold forecast by respected Norwegian institute
DNV GL in a thought-provoking study. The think tank and registration society estimates that 2022 will be oil's peak year, which is at least a decade earlier than previous studies, including those by oil and gas majors. The study also forecasts that Opec's strategy of limiting the supply of crude to global markets will unravel as oil companies steadily reduce their cost of production and undercut the group's output. In the biggest transition for the industry since the industrial revolution, DNV GL also foresees a slow-down in overall energy demand over the current and next decade before it begins what amounts to a terminal decline as gas and renewables increasingly take over in an era of diminishing demand.
"After 2030 (final energy demand) will become virtually flat because of slower growth in productivity and global population and (because of) continuous increases in energy efficiency," the study says. Among the factors eroding demand for conventional hydrocarbons, it cites continuing improvements in solar, wind power and electrification. As for coal, "its high point has already passed", the study says flatly. DNV GL puts a hard number on the world's final energy demand, estimating it to flatten out at 430 exajoules as soon as 2030, or up by just 7% compared with 2015. (One exajoule is equivalent to 23.88m tonnes of oil equivalent.)
Based on a complex model, the study analysed in detail the forecast demands of all the main energy-consuming industries. From there, it presents a single "most likely" future rather than a collection of scenarios. The researchers expect "significant uncertainties" between now and 2050, citing future energy policies, human behaviour and its reaction to governmental strategies, and the pace of technological progress.
DNV GL isn't alone in its assumption that the world of hydrocarbons is changing faster than the oil majors expect. "Given events post-Paris, oil companies will have to wake up to the fact that things are happening much faster than they thought," Warwick Business School's Professor Michael Bradshaw, an authority on the geopolitical economy of global energy, told
Petroleum Economist. He highlights the recent falls in the prices of wind and photovoltaic energy to the point where they are competitive with hydrocarbons, the rapid uptake of liquefied natural gas in the maritime industry, and the rapid adoption of electric vehicles.
More circumspect than DNV GL, Bradshaw suggests that demand for oil is more likely to peak sometime in the 2030s. "The growth of electric vehicles has got to accelerate very quickly to match some scenarios," he points out. "In the UK, for instance, last year they amounted to just 2% of total vehicle sales, including hybrids." Also, he adds, so far there's no viable alternative for aviation fuel.
The Norwegian institute isn't, however, forecasting the imminent demise of hydrocarbons. "Oil and gas will play a very important role in the energy mix throughout our forecasting period," the study notes. "Although we expect renewable energy sources to take an increasing share of this mix, we forecast oil and gas to account for 44% of the world's primary energy supply in 2050, down from 53% today."
Along the way, though, the group sees some tectonic shifts in the industry. Conventional onshore production is forecast to fall by an average 1.4% a year while unconventional onshore production will roughly double to around 22m barrels a day by 2035. By then, it would account for nearly 30% of all global crude oil production. As for offshore output, its share of all global crude output is estimated to collapse by nearly 30% as soon as 2035, which is well inside the period of some upstream contracts being written at present.
Yet the overall trend is clear for DNV GL. While demand for oil should, as widely expected, increase in emerging countries, significant declines are foreseen in North America, Europe, the Pacific and, albeit later, in China because of the swing to electrically-powered transport and more efficient conventionally-powered engines.
Here again, DNV GL puts a number on a transformational era in transport: "While transport remains the main source of oil demand throughout the period, reliance on oil for this purpose will reduce from 104 exajoules a year in 2030 to 51 exajoules by 2050."
If this timetable is accurate, the implications for countries that have factored economic growth on oil-based revenues are profound. As Bradshaw warns, nations such as Bolivia and Russia could be in trouble: "It may not be so much a question of 'a lower price for longer' as a lower price for ever."
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