April 19, 2019
Most analysts think the era of oil is about to come to an end—not because the oil reservoirs underground are exhausted but because alternative—and cheaper —sources of energy are now booming.
This isn’t just environmentalists, who want to kill off oil, predicting oil’s end. It’s also such oil firms as Shell, BP and Exxon.
Many critics of the industry say peak demand for oil will arrive as soon as 2023, just five years away.
Shell, BP and Exxon don’t agree. They think the peak year for oil might come as late as 2040, 22 years away. Either way, Iran faces a challenge that makes President Trump’s sanctions look small.
But it doesn’t mean that oil sales would end in 2040, just that sales would peak then and begin to drop off ever after.
In February, BP became the first Western supergiant oil firm to wave a red flag on flagging demand for oil.
Tamed by a steady surge of wind and solar power, electric cars, more frugal vehicles and curbs on some plastics, Europe’s number two producer sees oil demand peaking in the “late 2030s.” A year earlier, it expected oil demand to rise beyond 2040.
The actual timing of the peak is less important than the direction of travel.
Updating its influential long-term “Energy Outlook,” BP’s less rosy outlook for oil demand speaks volumes to the growing concerns in many quarters that the world may be on a lot faster, and potentially more traumatic, path to energy transition than previously expected.
Until now, everyone in the oil industry— with the exception of Norway’s Statoil—expected oil demand to keep growing over the next two decades, albeit at a slowing pace.
Even the Paris-based International Energy Agency still believes oil demand will continue to rise through 2040.
BP’s latest report shows how far oil companies have come in their public narrative as they face a world beyond oil.
Used as a benchmark for internal planning beyond just BP, the benchmark report also informs industry executives keen to grasp both the challenges and opportunities created by the rise of alternative fuels and renewable energy.
ExxonMobil believes that demand for oil will likely continue to grow to 117 million b/d in 2040. BP sees it topping out at 110 million b/d, up from about 97 million b/d currently.
For its part, the IEA believes the prediction on peak oil is premature and the furor over the electronic car boom is creating a misinformed debate.
“Oil demand growth today is not driven by cars, it’s driven by trucks, planes, ships and the petrochemical industry,” IEA executive director Fatih Birol said in January. “Even if there was a big electrification of cars in the years to come, oil demand will still grow.”
Birol also points to the world’s poor track record since the 1980s on weaning itself off fossil fuels to decarbonize energy supplies. Over the last 30 years, he said, the share of fossil fuels has not fallen from 81 percent.
What now seems likely, however, is that world’s track record on fossil fuels is about to change radically. Driven mainly by policy support in China and India, BP predicts renewable energy will grow five-fold over the next two decades, accounting for more than 40 percent of incremental energy supply. Combined with nuclear and hydro, many say non-fossil fuels combined are set to provide a quarter of the world’s energy in 2040.
Two reports issued this month predict demand for oil will come much sooner, in 2023. London-based Carbon Tracker Initiative and DNV GL, a Norwegian risk-management firm, issued separate reports that see the demand for oil peaking in just five years
The future story line for oil seems clear and one tied to that of the world’s original fossil fuel: coal; a slow but inexorable loss of share in the global energy mix from around a third today to a quarter in 2040 when renewables and gas take precedence.
Asked if BP has been surprised by the surging footprint of wind and solar power in recent years, the response of its chief economist, Spencer Dale, was unequivocal. “Massively,” he replied. “If you can find anybody who hasn’t been surprised, could you let me know?… Have we learned our lesson? I think so.”
