Environmentalists around the world have a field day this week as international media pick up on the oil market forecast in the recent BP Energy Outlook 2020. It looks like the old peak oil theory is back in the spotlight, BP indicating that oil demand may never return to 2019 levels. While BP’s report was being digested, OPEC released a report lowering its forecast for global oil demand by 400,000 bpd for 2020, forecasting a demand decrease of 9.5 million bpd on average from its previous estimate of 9.1 million bpd. He forecast demand growth of 6.6 million bpd in 2021, 400,000 bpd lower than his previous estimate. The oil cartel blames economic woes related to COVID-19 for the downgrade. While the OPEC report had an impact on oil prices, it was the BP Energy Outlook 2020 that made bigger waves. Both suggest that the United States will face significant constraints in bringing oil demand back on line, but are slightly more optimistic about European and Chinese demand. Oil demand in OECD countries is expected to recover slowly, but demand from the aviation industry is unlikely to rebound anytime soon.
Its most recent report is not the first time that the big British oil company BP has made the headlines in recent months with its efforts for a greener future. But his assessment of the energy outlook is probably the most shocking to date. The report says that if governments are more aggressive in their attempts to reduce carbon emissions, demand may never recover from its current slump. He also said demand for oil is expected to drop significantly over the next 30 years, mainly due to the growth of renewables.
While the report’s image of the terminal oil industry in decline grabbed the headlines, there are several reasons why its projections should be viewed with skepticism.
The first reason is that right now, the destruction of demand we are seeing has been brought about by COVID-19, a Black Swan event that will – at some point – abate. In the meantime, many seem to forget that the demand picture was bleak even before COVID arrived, with too much oil on the markets and in inventory. Ultimately, COIs and OPEC will have to act to counter this oversupply, and when they do, demand will respond positively. Related: China Not Looking To Ban Gasoline Cars Anytime Soon
The second reason to be skeptical about this report is economic. The demand for energy and electricity is increasing, not in OECD countries but outside, mainly in India, China, the MENA region and Africa. These fundamentals are inevitable. The economic and trade disruption caused by COVID could even boost demand for oil and gas, as a possible redistribution of regional production centers in current China could increase demand for energy for transportation.
Third, the media and analysts need to start dividing their oil and gas ratings between the two main blocs, CIOs (Shell, Chevron, BP, Exxon, ENI and Total) and NOCs (Aramco, ADNOC, Gazprom, etc.) . The future of CIOs could be as BP describes it, as financial markets and investors are increasingly aware of the environment. CIOs may face a peak in oil (and gas) production if militant shareholders and media / government pressures force them to go green. The main threat will be the decline in investments combined with the decline in income, margins and dividends. NOCs and perhaps independents such as Petrofac could, however, envision a bright and prosperous future. Even if the demand for oil and gas peaks one day, the demand for NOC oil will increase. The drop in COI production will cause demand to shift to the NOCs and new incumbent operators.
Yet if there is, as noted by BP and media analysts, the threat of a peak oil demand scenario in the years to come, it is the CIOs that will bleed. The lack of proactive strategies and the overestimation of their own power have become evident, although they have yet to be recognized by London, The Hague and other places. Built-in oils from 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 unlikely in the next 10 to 15 years.
By Cyril Widdershoven for OilUSD
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