Jet fuel and petrochemicals are expected to fuel crude demand this decade, while oil demand in the transport sector is set to peak by 2026, one year earlier than originally anticipated. Goldman Sachs believes oil demand will peak in 2026, while BP Plc believes the highest global demand growth is already over, and International Energy Agency (IEA) thinks the peak could come later, in 2030. However it’s framed, it is clear that the oil and gas industry is facing a turbulent future.
The adoption of electric vehicles (EV) is expected to increase sharply over the next decade, driving down demand for oil to power road transportation. According to Deloitte, we can expect a CAGR of 29 percent for the EV industry between now and 2030, with sales expected to increase from 2.5 million in 2020 to 11.2 million by 2025, and 31.1 million by 2030.
It is thought that China will account for around 49 percent of the global EV market share, with Europe following at 27 percent and the USA with a 14 percent market share. Developed countries are expected to drive EV demand over the next decade until growth levels out in the 2030s.
In the latest Goldman Sachs report the bank explains, “Government policies driving higher efficiency gains and lower emissions have had the strongest bearing on road transport demand”. In addition, “Petrochemicals will become the new baseload for oil demand, driven by economic growth and rising consumption, especially in emerging markets.”
Net-zero targets across Europe and the U.S. will drive the development of renewable energy alternatives and will encourage the uptake of electric vehicles due to an increase in taxation on traditional vehicles.
However, we cannot discount oil altogether as demand for the vital energy source will continue well into the next two decades, albeit at lower levels. In addition, while developed countries are pushing to decrease their consumption of fossil fuels, many developing nations continue to rely on oil and gas as core energy sources.
Increasing populations and higher income levels across developing countries, particularly in Asia, are likely to contribute significantly to oil demand within the next decade and beyond, according to the IEA. Imports of crude oil in the region are expected to increase to around 27 million bpd by 2026, requiring the Middle East to ramp up its production levels substantially. The region’s import dependence could rise to as much as 82 percent that same year.
In response to the stagnation of oil demand post-2026, global oil prices could be pushed down to as little as $40 a barrel by 2030 according to the latest estimates. Brent could continue decreasing, hitting a low of between $10-$18 a barrel by 2050 if this demand trend continues.
Energy consultancy WoodMac's Ann-Louise Hittle explains, "If we move to keep global warming to the 2 degrees Celsius limit set by the (U.N.-backed) Paris Agreement, the energy matrix will change – and change profoundly".
However, despite hopeful Paris Agreement objectives, few countries have made advances in line with these aims to date, suggesting this change in demand levels is somewhat optimistic. For example, emissions increased from 50 billion to 55 billion tonnes between 2015 and 2020, according to UN statistics.
Ban Ki-moon stated during the Paris Agreement Conference in December, “We have lost a lot of time. Five years after the agreement in Paris was adopted with huge expectations and commitment by world leaders, we have not done enough.”.
While the oil demand outlook for the next decade looks bleak when you look at the push by many governments to reduce carbon emissions and develop renewable alternatives, the failure to act on Paris Agreement promises over the last five years suggests these projections may be exaggerated. In addition, developing economies could also contribute substantially to these demand levels over the coming decades.
By Felicity Bradstock for Oilprice.com
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