Although natural gas is projected to be the fastest-growing fossil fuel over the next two decades, the global oil market won't likely be far behind.
Multiple organizations project that global oil consumption will grow by an annual average of over 1 million barrels per day (BPD) through 2030. However, natural gas is projected to grow at an even faster rate, so the oil's global energy market share will decline.
In the 2030s, oil demand is finally forecast to begin slowing as a result of fuel economy gains and competition from electric vehicles. Oil demand is projected to peak in the early 2030s, but it will do so at a level 10-15 million BPD higher than current production.
That means that new oil supplies will have to be continually added to account for both new demand and declines in existing fields. This means the upstream oil industry will remain a large, viable industry for the foreseeable future. It is not - as some have projected - on its last legs.
Most new global oil supplies over the next decade are projected to come from the U.S., Canada, and Brazil. These new supplies are projected to be profitable at below $100/barrel, and that will help moderate oil price spikes.
The viability of the oil industry will remain even when oil demand plateaus in the 2030s, due to the large sums of investment and activity to maintain oil production levels as existing fields deplete. Oil will no longer be a growth industry in the 2040s, but the industry will remain a vital part of the global energy system.
Oil's staying power is a result of its high energy density, convenience, availability, and existing infrastructure (both personal transportation and oil transport infrastructure).
But this price premium will ultimately be oil's downfall, as it speeds the adoption of alternatives to oil such as electric vehicles.
By Robert Rapier
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Comments
Does the industry seriously expect to be selling oil at close to 100 dollars (I'm assuming this is the equivalent of 100 of todays dollars) in the 2030s? By then, renewables and EVs/batteries will be quite mature technologies/industries.
Are these expectations of flat demand based on the needs of populations in developing nations that are also quite vulnerable to anthropogenic climate change? Does the oil industry seriously think that these regions will continue betting their livelihood on this product/infrastructure during the 2050s by which time alternative technologies will be dirt cheap?
I would kindly ask these economics based reports to try to understand technology a little better than has been the case up to now because their rosy reports are creating the perfect economic storm for the future.
I think this is an optimist view of oils future 20 years from now.
No one has a crystal ball but here's some predictions.
1) The decline of OPEC . As demand drops imports drop as well.
2) Quality and stability over price. Countries that are stable will gain market share. I think Canadian oil sands will do well in this type of market due to the stability of reserves and infrastructure. The pipeline issues need to get sorted out though.
3) Russia will remain an economic basket case. I think even post Putin Russia won't do well. Sure natural gas might cushion oil export demands a bit but the future doesn't look bright.
4) Oil majors will be more like utility stocks. Little to no growth but with high dividend yields to keep investors interested.
Rapier argues that it does not matter because massive investment is still required to keep oil flowing. What I find incredibly naïve here is that a high level of investment would continue even as investors recognize that demand is steadily shrinking. Without robust demand growth, investors would be right to demand a higher return to compensate for greater risk.
For example, the risk of an extended glut goes up considerably when demand is shrinking. The last glut took about 2-3 years to resolve even with strong demand growth. Imagine how long such a glut could persist had demand actually been in decline.
Let's not forget how quickly coal companies lost over 95% of their market cap when coal demand peaked just 4 years ago. When oil demand peak, investors should expect that capital will take flight long before there is a material reduction in actual consumption. The decline in market cap is not because coal consumption is nearing an end, but because holding long-lived assets in the face of declining and uncertain demand is very risky. As the risk goes up, investors will expect a much higher reward; equity and bond values will slip very quickly to compensate.
So go ahead a say demand growth just doesn't matter, 2023 be here more quickly than you expect.