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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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What BP Got Wrong About Global Oil Demand

Environmentalists around the world are having a field day this week as international media picks up on the oil market forecasts in the recently released BP Energy Outlook 2020. It appears the old theory of Peak Oil is back in the spotlight, with BP indicating that oil demand may never return to 2019 levels. Just as BP’s report was being digested, OPEC released a report cutting its global oil demand forecast by 400,000 bpd for 2020, predicting an average demand drop of 9.5 million bpd compared to its previous estimate of 9.1 million bpd. It predicted demand to grow by 6.6 million bpd in 2021, which was also 400,000 bpd lower than its previous estimate. The oil cartel blames COVID-19 related economic issues for the downward revision. While OPEC’s report did impact oil prices, it was the BP Energy Outlook 2020 that made bigger waves. Both suggest that the U.S. will face significant constraints in bringing oil demand back online but are slightly more optimistic about European and Chinese Demand. OECD oil demand is expected to slowly recover, but demand from the aviation industry is unlikely to bounce back anytime 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 probably the most shocking yet. The report indicated that if governments grow more aggressive in their attempts at reducing carbon emissions, demand may never recover from its current slump. It also stated that oil demand is likely to dramatically fall in the next 30 years, mainly due to the growth of renewable energy.

While the picture the report paints of the oil industry in terminal decline has grabbed headlines, there are several reasons that its projections should be viewed with skepticism.

The first reason is that, at present, the demand destruction we are witnessing has been driven by COVID-19, a Black Swan event that will – at some point – subside. In the meantime, many seem to forget that the demand picture was gloomy even before COVID came along, with too much oil on the markets and in storage. Eventually, IOCs and OPEC will have to act to counter this oversupply, and when they do, demand will react positively. Related: China Not Looking To Ban Gasoline Powered Cars Any Time Soon

The second reason to be skeptical of this report is an economic one. Demand for energy and electricity is growing, not in OECD countries but outside, mainly in India, China, MENA, and Africa. These fundamentals are unavoidable. The economic and trade disruptions caused by COVID could even boost oil and gas demand, as a possible redistribution of regional production centers from the current China focus could increase the energy demand for transportation.

Thirdly, the media and analysts need to start dividing their oil and gas assessments between the two main blocks, IOCs (Shell, Chevron, BP, Exxon, ENI, and Total) and NOCs (Aramco, ADNOC, Gazprom, etc.). The future of IOCs could be as BP paints it, because financial markets and investors are becoming increasingly conscious of the environment. There is a chance that IOCs face peak oil (and gas) production if activist shareholders and media/government pressure force them to become green. Lower investments combined with lower revenues, margins, and dividends, will be the major threat. NOCs and possibly independents such as Petrofac, however, could be looking at a bright and prosperous future. Even if the demand for oil and gas someday does peak, the call on NOC oil will increase. Lower production of IOCs will be shifting demand to NOCs and new incumbents.

Still, if there is, as indicated by BP and media analysts, the threat of a peak oil demand scenario in the coming years, it is the IOCs that will bleed. The lack of proactive strategies and the overestimation of their own power has become clear, even if it has yet to be recognized by London, The Hague, and some other places. The integrated oils of the past will be removed or substituted by the New Seven Brothers of the Future. Their margins and financial powers are different, making Peak Oil scenarios unlikely in the next 10-15 years.

By Cyril Widdershoven for Oilprice.com

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  • Mamdouh Salameh on September 17 2020 said:
    BP like other European supermajors is trying to burnish its environmental credentials in order to mask its financial losses, cutting dividends drastically and making thousands of employees redundant while blaming it on what it calls the approaching peak oil demand. BP is absolutely wrong.

    The three scenarios it offered in its energy outlook 2020 are based on flawed assumptions and I will explain why.

    The first scenario (business-as-usual) will not only prevail over the other scenarios but will also see global oil demand continuing to rise at a slightly less rate than usual because of limited penetration of electric vehicles (EVs) into the global Transport system. This scenario will be underpinned by the realities of no post-oil era and no peak oil demand throughout the 21st century and probably far beyond. It will also be underpinned by the notions that an imminent global energy transition from oil and gas to renewables and a zero emission are illusions. Oil and gas will continue to be the core business of the global oil industry and the fulcrum of the global economy well into the future.

    The ‘rapid scenario’ which sees oil demand declining to 55 million barrels a day (mbd) by 2050 is a non-starter. It will never see the light of day as long as the global transport system and the petrochemical industry run on oil and gas. EVs may only slightly decelerate the growth of global oil demand but their share in the global transport system will not exceed 100 million cars or 3.6%.

    The Net Zero scenario is a mirage. It is simply dead in the water.

    The global oil demand according to my calculations will end 2020 at 96 mbd, just 5 mbd short of the 2019 level of 101 mbd.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Arch Region on September 18 2020 said:
    Interesting analysis however there are three points that cause skepticism at the conclusion:

    1) The first reason given that we should view reports of the terminal decline of oil with skepticism has two parts that are contradictory to each other.

    On one hand demand destruction has been driven by COVID-19, a Black Swan, on the other the demand picture was gloomy even before COVID-19 came along. Indeed ExxonMobile had already gone from 80 USD on October 23 2017 to 50 USD on February 28 2020 before COVID 19 broadsided the economy.

    2) Second reason given is the hope that countries outside the 47 western block in Asia, Africa, and Arabia will pick up the demand slack. Sorry to point out that the contagion of clean renewables has spread well past the OECD country borders. Yes overall energy demand will rise but how much will be met with disease causing and climate holocaust threatening fossil fuels? How long will the oil industry survive when the health costs resulting from air pollution, are monetized and are included in the price of gas at the pump?

    3) The reason I chose October 23 2017 to beg ExxonMobil's economic decline by 40% before COVID-19 (55% collapse after COVID 19) was because October 22 was the last day of DONG, a Danish NOC. Orstead the new energy company as DONG was renamed had shed since announcing on November 6 2016 their intention, 100% of their fossil fuel assets. I came to same conclusion that NOCs like DONG are better positioned to weather the transition than IOCs. Not because anything can alter oil's terminal trajectory, but because NOC business goal is not purely economic success but to serve the public good, a little alike a utility.

    Paradoxically national companies serving the public good may prove more profitable than independents blinded by concerns of stranded assets. Of 100% of the 2016 oil companies the only one that did not shrink in capitalization was DONG whose stock with the new name Orsted shored from 19.98 USD on October 23 2017 to 45.72 USD today 225% growth.

    Is it possible that BP is following Orstead into the future of energy production? They do not even need to change their initials. Can a privately held company be as entrepreneurial as a government controlled one, doing well while doing good?
  • Maik Mehler on September 21 2020 said:
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