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Paris Agreement Could Trigger Free Fall In Oil Demand

Paris

Crude oil demand could begin declining steadily from 2025 onwards if governments and industries get serious about tackling climate change and reducing emissions, asset manager Legal and General Investment Management has warned.

Reuters quoted the company as saying if everyone who signed the Paris Agreement on Climate Change decides to really fulfill their commitments by implementing new policies and shrinking the use of fossil fuels, oil demand could shed as much as 40 percent by the early 2040s from today’s levels. This means it would stand at around 60 million barrels daily.

If, however, there is no change in policies concerning climate change, crude oil demand would likely peak at some 110 million bpd around 2030, the asset manager said in a study of the issue. The study aimed at identifying companies that would both benefit from stricter environmental policies and not suffer any negative consequences if no such policies are enforced.

Both of these scenarios are less realistic than a middle one, in which governments continue to enforce new policies aimed at arresting the rise in average global temperatures but not at the optimal pace and with the optimal scope.

“It’s hard to argue that if oil demand starts to go into free fall, which is what we see as plausible, that ... the oil and gas industry as a whole remains as intrinsically as profitable as it does today,” the head of commodity research at Legal and General Investment Management, Nick Stansbury, told Reuters.

Stansbury added oil companies even stand to benefit from pro-environment policies if they re-orient themselves ahead of the changes such policies bring about. No wonder we are seeing Big Oil expand into non-core business areas that it plans to turn into core business in the future. The latest big announcement here was Shell’s plan to become the world’s largest power utility.

By Irina Slav for Oilprice.com

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