OPEC admitted that demand for its oil over the next few years could be drastically weaker than it previously thought, due to a combination of a weakening economy, rising supply elsewhere, and pressure from climate activists.
In its World Oil Outlook, OPEC said that demand for its oil may only reach 32.8 million barrels per day (mb/d) by 2024, a figure that is substantially lower than the 35 mb/d from last year’s estimate. Demand is still expected to grow in non-OECD countries going forward, but OPEC admitted that demand may peak in the OECD in 2020.
Slower economic growth also factored into the lower medium- and long-term estimates. “Given recent signs of stress in the global economy, and the outlook for global growth, at least in the short- and medium-term, the outlook for global oil demand has been lowered slightly this year to 110.6 mb/d by 2040,” OPEC’s Secretary-General Mohammad Barkindo said in the report.
OPEC said that non-OPEC production continues to rise, particularly from U.S. shale, although not exclusively. The cartel has had to restrain production for several years to keep prices from crashing, even in the face of relentless shale growth. U.S. shale is growing, but is now slowing dramatically. At the same time, countries such as Norway, Brazil, Canada and Guyana are expected to continue to add supplies in the next few years. Steady supply increases puts OPEC in a bind.
Meanwhile, the attention paid to the risks of demand destruction in the OPEC report is notable. The phrase “climate change” appears nearly 50 times in the report and the cartel acknowledged that electric vehicles are “gaining momentum.”
OPEC said it was “fully engaged and supportive of the Paris Agreement,” and that there is “no Planet B.” The group reiterated the urgent need for oil-exporting countries to diversify their economies, even as there is relatively scant evidence that OPEC member countries are actually doing so. Related: Trump Vows To Protect Syrian Oil Fields From ISIS
Indeed, OPEC is not exactly preparing for the end of the oil era. It still sees demand growing by around 12 mb/d over the next two decades, a scenario that would be utterly at odds with any viable chance to head off the climate crisis.
In fact, despite all of the climate risks, all of the urges to diversify economies, the possibility of weakening demand and the competition from non-OPEC supply, the cartel still seems unbowed, at least outwardly.
As if to refute any pending doom for oil-producers, Barkindo said that while renewables lead the way in growth going forward, “oil and gas are still forecast to meet more than 50% of the world’s energy needs” in 2040. Even though the growth in consumption is slowing, “demand expands in every five-year period to the end of the timeframe,” Barkindo emphasized.
He said that the global upstream, midstream and downstream oil sectors “need” $10.6 trillion in investment between now and 2040. “OPEC Member Countries are fully committed to making the necessary investments to keep consumers well supplied,” Barkindo said.
Still, in the next paragraph, he admitted the risk at hand. “The industry is now concerned about policies that may detrimentally impact investments; for example, those related to climate-related financial disclosures.” Related: Iran’s $280 Billion Sanction Skirting Scheme
Just a few months ago, Barkindo said that the greatest threat to the global oil industry came from climate activists. “There is a growing mass mobilisation of world opinion... against oil,” Barkindo said. In response, 16-year-old Swedish climate activists Greta Thunberg tweeted “Thank you! Our biggest compliment yet!”
Recently, Kuwait said that it might lower its oil production targets because of climate change. Instead of aiming to produce 4.75 mb/d by 2040, the country may only target 4 mb/d, sources told Bloomberg.
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Even the partial IPO of Saudi Aramco could be viewed in the context of questions about peak demand. With consumption growth in doubt, and climate pressure escalating, Riyadh is hoping to cash in some chips today.
By Nick Cunningham, Oilprice.com
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Virtually everything humans use is moved using oil. Oil grows and transports the vast majority of all food.
Oil demand will keep increasing for at least the next 20 years. After world population begins to decline, around 2060, oil use will begin to shrink, but that will be a gradual decline.
Without oil, gas, and electricity, you're soon dead. There are about 5 billion too many of us to do our own subsistence farming, even if we knew how, and had the time to make the transition, which we wouldn't.
The demand for OPEC oil will continue unabated in coming years albeit at a slower rate because its members are the only oil-producing nations with the capacity to increase production in coming years despite climate change arguments. US shale oil production is slowing down so fast that in 5-10 it will be no more. Norway’s production has declined by 75% in the last 10 years and it will continue its decline at 7% per annum in coming years. Both Canada and Brazil have the potential to increase production slightly but they can never match OPEC’s production capacity and production costs. And despite recent discoveries in Guyana, it will be a small fish to impact global oil production.
When it comes to the risk of climate change on global oil demand, OPEC is not different from major oil companies in trying to burnish its environmental credentials. So one should not read too much into OPEC repeating a reference to climate change 50 times in its report.
The only significant bearish factor currently affecting oil prices is the trade war between the United States and China. This, however, will soon come to an end by domestic dictates in the United States and also by the fact that China has already won the war.
The partial IPO of Saudi Aramco has nothing whatsoever to do with peak oil demand and everything to do with persistent question marks about Saudi proven oil reserves and the US risk of litigation relating to 9/11.
That are three major NOs in the world of oil: NO post-oil era, NO peak oil demand either and NO imminent energy transition for the foreseeable future.
There will be no post-oil era throughout the 21st century and probably far beyond. The reason is that it is very doubtful that an alternative as versatile and practicable as oil, particularly in transport, could totally replace oil in the next 100 years and beyond.
There will be no peak oil demand either. While an increasing number of electric vehicles (EVs) on the roads coupled with government environmental legislations could slowly decelerate the demand for oil, EVs could never replace oil in global transport throughout the 21st century and far beyond.
There will be no imminent energy transition. With global oil consumption currently exceeding 100 million barrels a day (mbd) and growing, the notion of imminent energy transition looks like a mirage. That remains so despite being challenged by serious environmental policies and despite a global expenditure of $ 3.0 trillion on renewable energy during the last decade. This is a hefty price to pay just to gain only a percentage point of market share from coal.
Oil and gas will remain the core business of Big Oil well into the future or at least until returns on clean energy start making commercial sense.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Here's the definition of a Cartel:
"An association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition."
This is true whether these are Columbian drug lords or OPEC in their heyday, when they dominated world oil production and extorted the United States. Now that OPEC's share of world production has dropped to below 40%, it's amusing to see OPEC quoted as if it's still a Cartel, which by definition it's not.
Yes, Shale "growth" is slowing which means it's still growing and will continue to act as a permanent pricing ballast whenever oil prices spike, delivering enormous benefits to the U.S. economy, including lots of well-paying jobs.