The United States will need oil production for at least another decade, President Joe Biden said in his State of the Union address earlier this month. Analysts and major forecasters say that globally, it could be at least another decade until oil demand peaks, and even after that, consumption will not fall off a cliff. Instead, in most scenarios, oil demand is set for a long and slow decline through 2050, but even in 2050, the world will need oil, all forecasters say.
“At Least Another Decade”
President Biden slammed Big Oil in his State of the Union address, saying, “Have you noticed — Big Oil just reported its profits. Record profits. Last year, they made $200 billion in the midst of a global energy crisis. I think it’s outrageous.”
Then he veered off the prepared speech and said that in talks with some oil companies, they told him why they didn’t invest more to increase domestic production.
“And when I talked to a couple of them, they say, “We were afraid you were going to shut down all the oil wells and all the oil refineries anyway, so why should we invest in them?” I said, “We’re going to need oil for at least another decade, and that’s going to exceed…” — and beyond that. We’re going to need it. Production.”
The President and his Administration are calling on energy firms to boost oil production in the short term to keep American gasoline prices low. But the industry wants long-term policy encouraging investment in supply and assurances that the U.S. oil and gas industry will be treated as an asset, not a liability. Oil firms want to know whether their potential future investments have a chance to make returns and not be botched by federal regulatory and policy hurdles.
Since President Biden took office, the American Petroleum Institute (API) has called on policymakers to ensure U.S. oil production is thriving.
In one of the latest initiatives, API proposed a policy plan for Congress to promote policies enabling investment in the U.S. oil, gas, and refining sectors.
“Independent experts agree that global oil and natural gas demand will increase over the next 30 years. And nearly half of the world’s energy is expected to come from natural gas and oil in 2050,” API President and CEO Mike Sommers said last month, commenting on the plan.
“That demand will be met one way or another. If America does not meet it, it will be met by countries that do not share our security interests, environmental standards, or values,” Sommers added.
Peak Demand Doesn’t Mean ‘No Oil’
Global fossil fuel consumption is expected to peak or plateau within this decade, accelerated by the policy and trade flow shifts following the Russian invasion of Ukraine, the International Energy Agency (IEA) said in its latest annual report last year.
For the first time ever, a World Energy Outlook scenario from the IEA based on the current government policies and settings has global demand for every fossil fuel showing a peak or plateau, the agency said in its World Energy Outlook 2022. Even natural gas, which was previously expected to continue rising, could now join coal and oil in peaking around 2030, per the IEA’s latest estimates.
According to the BP Energy Outlook 2023, oil demand is expected to peak between the late 2020s and early 2030s as the Russian invasion of Ukraine is accelerating investment in clean energy and governments are looking to bolster energy security with higher shares of renewables in the energy mix.
However, BP’s chief economist Spencer Dale said, “The scale of the economic and social disruptions over the past year associated with the loss of just a fraction of the world’s fossil fuels has also highlighted the need for the transition away from hydrocarbons to be orderly.”
BP’s CEO Bernard Looney also stressed “an orderly” transition when he announced this month that the supermajor would be producing more oil and gas for longer, and now aims for a fall of 20% to 30% in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35-40%.
Whatever the speed of the energy transition, the world will still need oil and gas for decades. Industry professionals say that exploration and production will still be needed because the rate of depletion of existing fields is faster than the rate at which oil demand is expected to begin falling once it peaks, probably at some point around 2030.
Known fields alone cannot meet oil and gas demand to 2050, Andrew Latham, Vice President, Energy Research at Wood Mackenzie, said in a report this month.
“The world is far from the end of the hydrocarbon era,” Latham said, adding that in WoodMac’s base-case Energy Transition Outlook (ETO), oil demand peaks in 2030, before declining slowly to 94 million barrels per day (bpd) in 2050. Even in the Accelerated Energy Transition (AET) outlook of global net zero by 2050 and achieving the most ambitious targets in the Paris Agreement, oil demand will still be 33 million bpd by 2050.
“We see enough advantaged resources to satisfy only about half of our base-case oil and gas demand forecast to 2050,” Latham says. According to WoodMac, “advantaged resources” are the supply of lower-cost, lower-carbon barrels. And this supply remains scarce, the consultancy notes.
By Tsvetana Paraskova for Oilprice.com
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