Environmentalists around the world are celebrating a field day this week as international media quipped on the oil market forecasts in the recently released BP Energy Outlook 2020. It seems that the old theory of peak oil is back in the limelight, with BP indicating the demand for that oil. May never return to 2019 level. As the BP report was being digested, OPEC released a report cutting the global oil demand forecast for 2020 by 400,000 bpd, with an average demand drop of 9.5 million bpd, compared to its previous estimate of 9.1 million bpd Was predicted. It sought to increase 6.6 million bpd in 2021, 400,000 bpd less than its previous estimate. The oil cartel attributes COVID-19 related economic issues to the downward revision. While the OPEC report impacted oil prices, it was the BP Energy Outlook 2020 that created big waves. Both suggest the US will face significant hurdles in bringing oil demand back online, but Europeans and Chinese are slightly more optimistic about demand. OECD oil demand is expected to recover gradually, but demand from the aviation industry is unlikely to bounce back soon.
Its most recent report is not the first time that British oil major BP has made news in recent months with its push for a greener future. But its energy outlook assessment is perhaps the most shocking. The report indicated that if the government becomes more aggressive in its efforts to reduce carbon emissions, demand may never overcome its current recession. It has also been said that the demand for oil is likely to fall dramatically in the next 30 years, mainly due to the growth of renewable energy.
While the oil industry report paints headlines in the terminal decline in the picture, there are several reasons why its projections should be viewed with skepticism.
The first reason is that the demand destruction we are currently seeing is driven by COVID-19, a Black Swan event that will – at some point – subside. Meanwhile, many people forget that the demand picture was depressed, with COVID coming on the market and storage being very high. Ultimately, the IOC and OPEC will have to take action to counter this overplay, and when they do, demand will respond positively. Related: China is not looking to ban gasoline powered cars anytime soon
The second reason to doubt this report is an economic one. The demand for energy and electricity is increasing not only in OECD countries but outside, mainly in India, China, MENA and Africa. These basic elements are unattainable. Economic and trade-related barriers caused by COVID may also increase oil and gas demand, as possible redistribution of regional production centers from the current China focus could increase transportation energy demand.
Third, media and analysts need to divide their oil and gas estimates between two main blocks, IOC (Shell, Chevron, BP, Exxon, ENI, and Total) and NOC (Aramco, ADCOC, Gazprom, etc.) . The future of IOC could be in the form of BP, as financial markets and investors are becoming environmentally conscious. There is a chance that IOCs face peak oil (and gas) production if pressure from activist shareholders and media / government forces them to become green. Low investment combined with low revenue, margins, and dividends will be the major threat. NOCs and possibly independents such as Petrofac, however, can see a bright and prosperous future. Even if someday oil and gas demand is at peak, calls on NOC oil will increase. Reduced production of IOCs will change the demand for NOCs and new incumbents.
Nonetheless, if there is, as BP and media analysts have indicated, the risk of a peak oil demand scenario in the coming years, it is the IOC that will bleed. The lack of active strategies and the overestimation of one’s own power has become apparent, even though it has not yet been recognized by London, The Hague, and some 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 the scenario of peak oil not possible in the next 10-15 years.
By Cyril Withersoven for Oilprice.com
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