BP: ‘Era of ever-growing demand for oil is over’
The British oil company, BP, one of the five largest oil groups in the world, believes that the era of ever-increasing oil consumption is already behind us, and that 2019 will go down in oil history as the year in which oil consumption – at 99,7 million barrels a day – reached its highest level ever.
BP is the first oil giant to proclaim the end of an era, which, according to many others, would last for at least another decade or more. The company makes the forecast in its annual Energy Outlook.
In its Outlook from last year, the forecast at the time was – although limited – an average increase of 0,3% until the 1930s. Now, BP’s prognosis for the future, prompted by the corona pandemic and climate change, looks completely different, and it even represents a historic break with the trend that BP saw until last year.
Consumption is unlikely to reach pre-corona crisis levels as energy transition moves away from fossil fuels. At the height of the crisis, in April, global oil consumption fell by almost 30 million barrels a day. The International Energy Agency estimates that oil consumption in 2020 will be 8 to 9 million barrels lower than in 2019.
BP now expects ever-increasing pressure to work on the fight against climate change, and this will slow down the rise in oil consumption. In other words, the corona pandemic is a turning point in the era of fossil capitalism, the era in which the growing global economy also systematically pushed up oil demand.
The BP Energy Outlook describes several scenarios. In the ‘Business-as-usual’ scenario, oil consumption would continue to rise slightly above the level of 2019 until around 2025, before gradually decreasing thereafter. The other two BP projections assume that we will need less and less oil from this year onward.
The ‘Rapid’ scenario, if governments around the world will increase CO2 taxes on fossil fuels, results in an average demand in 2050 of 50 million barrels of crude oil per day. That is a halving compared to 2019. In the ‘Net Zero’ scenario, based on the assumption that the 2015 Paris Climate Conference agreement will be met, it is estimated that 33 million barrels per day will still be needed in 2050.
Increasing of green energy
According to an analysis of the report by De Tijd, the reason for the decline lies in the transport sector. Working from home reduces the need for transport. With electric vehicles, oil-free transport is possible. The first trend has an effect in the short term; the second in the longer term. Together they mean that the demand for oil does not increase significantly today and does not catch up later.
Previously, oil consumption was already decreasing as a percentage of total energy consumption. The fact that it is now beginning to fall in absolute terms has never been seen. “Never before in modern history has demand for any fuel decreased in absolute terms,” says Spencer Dale, BP’s chief economist. At the same time, according to him, the share of green energy is growing rapidly.
Fossil energy currently accounts for 85% of total energy consumption worldwide. In BP’s scenario, this will fall to 20 to 65% by 2050. The share of green energy, fired by wind and solar energy, would increase from 5 to 60% of the total.
European oil companies, such as Shell and Total, are already putting much more money into renewable energy than BP. In the Netherlands, for example, Shell is co-investing in the development of offshore wind farms, and recently said it would delay new fields in the Gulf of Mexico and in the North Sea, while Total profiles itself as an electricity supplier and manufacturer of solar panels.
But for the time being, BP is going the furthest in preparing for the post-oil era. In August, the new top executive Bernard Looney announced a radical change in course, writes De Standaard. Over the next ten years, oil and gas production will be cut by 40%, while at the same time, 5 billion dollars will be invested in renewable energy. BP has also promised not to hunt for oil in any new country. The ambition is to transform BP into the world’s largest renewable energy company.
BP has aspired to be a different kind of energy company before – in 2000, it adopted the slogan Beyond Petroleum – through its forays into renewable energy lost momentum after the 2010 Deepwater Horizon accident in the Gulf of Mexico.
BP’s share fell by 1,9% on Monday on the London Stock Exchange. BP not only went down, but it also dragged the whole sector down with it. Nevertheless, BP’s share price jumped by more than 7% during trading when the ambitious plan for cleaner energy was announced in August.
Peak not yet there
Analysts monitoring the oil companies are keeping a cool head. “BP’s vision is a maverick, almost all analysts and oil companies officially assume that we haven’t seen the peak yet. We, too, think that the peak is not yet there,” says Steven Vermander, the oil specialist at KBC Asset Management.
According to Vermander, Europa and the US have seen the peak, but a rapid decline is not expected because the road to full car electrification is slow. Demand in Asia, however, continues to grow strongly. As a result, the demand for energy products is still rising sharply, he concludes.
Either way, many longtime veterans of the oil business share the vision that the sudden plunge in demand for oil caused by the pandemic – and the accompanying collapse in earnings (BP reported a 16,9 billion dollars quarterly loss) – is another warning that unless they change the composition of their businesses, they risk being dinosaurs headed for extinction.