THE notion that ‘oil demand is approaching the cliff’ is now being formalised. Global energy leaders are beginning to assert oil is past its peak.
Not that oil would not be required in the years and decades to come. It would still be in demand but the world would not be critically, crucially, and strategically dependent on oil then as it is today.
2020 may be the turning point for the energy world, the guru of the current energy world, good, old, friend Fatih Birol, the executive director of the Paris-based International Energy Agency underlined in a video presentation at the ONS Digital Conference.
Costs are declining for alternative energy such as solar and there is a “growing determination” of governments to curb carbon emissions, Fatih reiterated. Companies also are changing strategies to address climate change and “major coal phase-outs” are being discussed. As opposed to 1974 when the Strait of Hormuz was the hot topic in energy security, today the focus is on electricity security, he said.
Addressing the video conference, Total SA CEO Patrick Pouyanne said global oil production is set to peak by 2030 or 2040 with more energy coming from solar, wind, and carbon capture while storage solutions are being discussed.
Pouyanne said oil will not disappear; it is still the most efficient source of energy, it is easy to transport and it is relatively inexpensive, noting that a litre of crude oil costs less than a litre of water. But by 2050, “we think that we’ will have something like 40 million barrels of oil per day, but it’s not zero,” the Total CEO clarified. “It is much less than (the roughly) 100m per day which is the actual consumption (today). Clearly, we will face a peak in oil production around 2030-2040, which will begin to decline,” he commented.
Faced with the Covid-19 pandemic, the oil industry is beginning to think over the long-term consequences of the sudden halt in global economic activity and whether it might bring forward the long-term demand decline.
In a report released last June, energy consultancy Rystad Energy said the pandemic will accelerate ‘peak oil’ by three years. The report then cut its estimate for future oil production by ‘an amount that exceeds the reserves of Saudi Arabia,’ considering the long-term effects of the coronavirus on consumption habits and slower exploration plans. ‘Peak oil’, or the hypothetical moment where global oil production reaches its maximum, can happen as soon as 2027 or 2028, the report pointed out.
As per its global energy outlook, Rystad Energy underlined that the Covid-19 downturn will expedite peak oil demand, putting a lid on exploration efforts in remote offshore areas, reducing the world’s recoverable oil by around 282 billion barrels, equivalent to entire oil reserves of Saudi Arabia. Interestingly, the notion of recoverable reserves brandished by Rystad Energy is primarily economical and is not based on geological considerations.
“Non-Opec countries would account for the lion’s share of ‘lost’ recoverable resources, with more than 260bn barrels of undiscovered oil now more likely to be left untouched,” says Rystad Energy’s Head of Analysis Per Magnus Nysveen.
Regarding oil, it is interesting to see how fast the public debate has moved in just a few decades, from “peak oil supply” to “peak oil demand”. Peak demand does not mean that consumption will fall off a cliff overnight, underlined economist Alexandre Kateb while commenting on the report.
The shale oil revolution that started in 2008 in North America against a background of exceptionally high oil prices was a game-changer. It led to a structural oversupply in the market that had to be managed through increased restraint from the Organisation of the Petroleum Exporting Countries (Opec) and its allies.
The global energy landscape is changing fast. Over a fifth of Europe’s energy was generated by solar panels and wind turbines in the first half of 2020, reported Rosie Frost writing for euronews.com.
In a half-year review released in July by the think tank Ember, all renewables — including wind, solar, hydroelectricity and bioenergy — were found to have exceeded fossil fuel generation for the first time ever. They produced 40 per cent of the EU’s power from January to June with fossil fuels contributing 34pc.
“Countries across the world are now on the same path — building wind turbines and solar panels to replace electricity from coal and gas-fired power plants,” Dave Jones, senior electricity analyst for Ember was quoted as saying by Frost.
Indeed, a new energy order is in the making.
Published in Dawn, September 6th, 2020