Environmentalists around the world are having a field day this week as international media pick up oil market predictions in the recently released BP Energy Outlook 2020. It appears that the old peak oil theory is back in the spotlight, with BP indicating that oil demand may never return to 2019 levels. Just as BP’s report was digested, OPEC released a report that cut its forecast for global oil demand by 400,000 bpd for 2020, predicting an average drop in demand of 9.5 million bpd from its previous estimate of 9.1 million bpd. Demand is expected to grow by 6.6 million barrels per day in 2021, which is 400,000 barrels per day lower than the previous estimate. The oil cartel blames economic issues related to COVID-1
Its most recent report isn’t the first time British oil major BP has made headlines in recent months with its push for a greener future. But his assessment of the energy outlook is arguably the most shocking so far. The report indicated that if governments become more aggressive in their attempts to reduce carbon emissions, demand may never recover from its current slump. He also said that oil demand is expected to drop dramatically over the next 30 years, mainly due to the growth of renewables.
While the picture the report paints of the terminal decline oil industry has captured the headlines, there are several reasons why its projections should be viewed with skepticism.
The first reason is that, at the moment, the demand for destruction we are seeing has been driven by COVID-19, a Black Swan event that will – at some point – subside. Meanwhile, many seem to forget that the demand picture was bleak even before the arrival of COVID, with too much oil on the markets and in storage. Eventually, the IOC and OPEC will have to act to counter this oversupply, and when they do, demand will react positively. Related: China isn’t looking to ban gasoline-powered cars anytime soon
The second reason to be skeptical of this relationship is economic in nature. The demand for energy and electricity is growing, not in OECD countries but outside, mainly in India, China, MENA and Africa. These fundamentals are inevitable. Economic and trade disruptions caused by COVID could even increase demand for oil and gas, as a possible redistribution of regional production centers from China’s current focus could increase energy demand for transportation.
Third, the media and analysts need to start splitting their oil and gas valuations between the two main blocks, IOC (Shell, Chevron, BP, Exxon, ENI and Total) and NOC (Aramco, ADNOC, Gazprom, etc. .). The future of CIOs could be as BP paints it, as financial markets and investors are becoming more environmentally aware. There is a chance that CIOs will face peak oil (and gas) production if activist shareholders and media / government pressure force them to go green. Lower investments combined with lower revenues, margins and dividends will be the main threat. However, NOCs and perhaps independents like Petrofac could look forward to a bright and prosperous future. Even if the demand for oil and gas peaks one day, the demand for NOC oil will increase. Lower IOC production will shift demand towards NOCs and new incumbents.
However, if there is, as indicated by BP and media analysts, the threat of a peak oil demand scenario in the coming years, it will be the CIOs that will bleed. The lack of proactive strategies and the overestimation of one’s power has become clear, although it has yet to be recognized by London, The Hague and a few other places. The integrated oils of the past will be removed or replaced by the New Seven Brothers of the Future. Their margins and financial powers are different, making peak oil scenarios in the next 10-15 years unlikely.
By Cyril Widdershoven for Oil “
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