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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Exxon To Produce All Of Its Oil Despite Peak Demand Fears

offshore rig

ExxonMobil was forced to finally acknowledge the possibility that future climate change policy could lead to peak oil demand, a serious threat to the company’s operations over the long-term.

In response to a shareholder resolution passed last year, the oil major just released a report that recognizes the danger of peak oil demand. By 2040, climate change policies and regulations could cut into oil demand, leading to a drop in consumption by 20 percent.

Under this scenario, oil demand would decline by an average of 0.4 percent per year, with the lower end of the range seeing declines of 1.7 percent per year.

This would mean that global oil demand would decline to 78 million barrels per day (mb/d) by 2040, down from 95 mb/d in 2016. In the most pessimistic scenario (from the oil industry’s perspective), demand drops to 53 mb/d.

It’s a rather bleak picture for oil, and one echoed by a long list of analysts, environmental groups, and increasingly, the oil industry itself. A few weeks ago, a report coauthored by a top BP official, lays out a case in which oil demand peaks and declines, ushering in an era of permanently lower oil prices.

Still, Exxon was clearly issuing the report under duress. The tone of Exxon’s “2°C pathway” scenario suggests that the company doesn’t really see it playing out. While the report suggests that oil demand could fall, Exxon goes to great lengths to downplay the significance, arguing that “[o]il demand is projected to decline modestly on average, and much more slowly than its natural rate of decline from existing producing fields,” and “[e]ven under a 2°C pathway, significant investment will be required in oil and natural gas capacity,” and “[p]roduction from our proved reserves and investment in our resources continue to be needed to meet global requirements,” and the like. Related: Oil Prices Fall On Rising Crude Inventories

Moreover, the oil major issued a second report, “2018 Outlook for Energy,” that basically undercut its own report on a low-carbon future. In this more bullish report, Exxon predicted oil demand would rise by 20 percent through 2040, essentially the opposite conclusion from the scenario in which climate policy slashes oil demand.

We can tell which one Exxon really believes because it says it uses the more bullish Outlook for Energy report “to help inform our long-term business strategies and investment plans.”

(Click to enlarge)

Ultimately, Exxon predicts that it will be able to produce 90 percent of the total oil and gas reserves that it has in its portfolio. The company also says that even in the climate scenarios in which demand falls, ongoing investment will be needed to offset depletion from existing fields. So, even in that case, the oil major still believes that it will produce nearly all of the oil and gas it has on its books. Related: LNG: Glut Today, Shortage Tomorrow

That is the justification for why Exxon envisions “little risk” related to climate change policies. Exxon says that only a small portion of its reserves would be affected by climate policy, but in those situations the company believes “that investments could mitigate production-related emissions and associated costs,” which could make them viable even in a carbon-constrained world.

Plus, the company would learn a lot more about the reserves in the ensuing decades. “Accordingly, we believe the production of these reserves will likely remain economic even under the 2°C Scenarios Average.”

As a result, Exxon does not see a scenario in which it will be forced to leave oil in the ground — it plans to produce everything it has, even in the face of tightening climate regulations.

Environmental groups say that is exactly the problem. “ExxonMobil’s own analysis assumes the world will continue to burn through oil and gas to drive their profits and keep us on a path toward global temperatures well above the 2 degree Celsius target,” Kathy Mulvey, a campaign manager at the Union of Concerned Scientists, said in an emailed statement to Bloomberg. “Nowhere do they foresee carbon emissions bending rapidly toward zero — as they must well before 2040,” she wrote.

By Nick Cunningham of Oilprice.com

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  • Ron Burgundy on February 07 2018 said:
    It's not necessarily a bad thing that peak demand could be in play if peak supply is also in play. The problem with commodity markets is that there is an incentive to produce everything NOW, even if there is only 25 yrs worth of supply remaining, hypothetically. The companies and countries in need of oil revenue are price takers and must sell for whatever is the market clearing price. Front-month and near term future contracts do not say much about future supply/demand balance. The peak demand theory only helps the oil companies because it convinces the public and other less savvy investors that prices should be lower and then major oil companies buy reserves at cheap prices, but when the truth becomes reality that there is limited supply, the reserves will skyrocket. It's all part of their master plan. Don't be fooled.
  • Bill Simpson on February 08 2018 said:
    The demand for crude oil will never voluntarily peak. It will collapse when the global economy collapses after the amount of oil that we can produce begins to decline, no matter how expensive oil gets. Peak oil production will force the entire economy to start shrinking, which has to take down the banking system which is designed to survive only in an ever expanding economy. Debt doesn't work during a permanent depression from not having enough energy for transportation. The global debt bubble will pop, like it almost did in 2008. And that was from a trivial event, compared to a permanent fuel shortage. 2008 was man made. Peak oil is physics. Humans can't change physics. And money can't make a single drop of oil, which is finite.
    Peak oil deniers will learn a cruel lesson. The only question is when the class will convene.

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