The world is past the era of growing crude oil demand, BP said in its annual energy outlook report, which was released today. The message of the outlook, according to media reports, is that oil consumption may never recover to pre-pandemic levels, and not just because of the pandemic itself but because of factors that have been at play long before the coronavirus made the jump from bats to humans.
“Demand for oil falls over the next 30 years,” the company said in the report. “The scale and pace of this decline is driven by the increasing efficiency and electrification of road transportation.”
In the report, BP looks at three scenarios for the future of oil demand: Business-as-usual, Rapid, and Net Zero. None of them envisage growth in oil demand over the long term. The most optimistic one—from the oil industry’s perspective—is the business-as-usual scenario, which sees demand recover from the pandemic’s effects but plateaus in the next few years before beginning to decline.
Yet this scenario, which envisages government policies being adopted at the rate they have been in the recent past, may not be the most likely one. Many governments have pledged increasingly aggressive environmentalist agendas that will see policies applied much more quickly. If these scenarios play out, oil demand will never return to pre-pandemic levels, according to BP. This means demand will have peaked in 2019, at a level of about 100 million barrels daily.
Under BP’s Rapid scenario, demand for liquid fuels will drop to 55 million bpd by 2050, with the scenario also factoring in a 70-percent reduction in emissions from energy use by that year. Under the Net Zero scenario, emissions will be reduced by 95 percent by 2050, which would result in liquid fuel demand shrinking to 30 million bpd.
By Irina Slav for Oilprice.com
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The first scenario (business-as-usual) will not only prevail over the other scenarios but will also see global oil demand continuing to grow but at a slightly lesser 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 peal 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 the global transport system and the petrochemical industry continue to run on oil and gas. EVs may only slightly decelerate the growth of global oil demand but they will never have more than a 3.6% share of the global transport system.
The 'Net Zero' scenario is a mirage. It is simply dead in the water.
BP should know that there will never be a global economy and a civilization as we know and enjoy without oil and gas and vice versa.
There you have it.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London