Oil demand growth will slow and supplies will remain abundant in the coming decades, meaning producers in the Middle East, Russia and US continue to gain market share at the expense of higher-cost rivals, said BP.
Demand for oil will expand by an average 0.7 per cent a year over the next two decades, little more than half the rate in the preceding 20 years, BP said on Wednesday in its Energy Outlook 2035 report.
By the early 2030s, transport will cease to be the main driver of growth, a significant departure from the historical trend.
“We are seeing a shift in the global energy mix,” Bob Dudley, BP’s chief executive officer, said at a briefing in London. “There is a continuous decarbonisation of the fuel mix. Oil demand continues to grow over the next 20 years, but energy efficiency will moderate growth in demand.”
BP’s analysis suggests the dominant oil market trends of the past few years – plentiful supply, competition for market share between the biggest producers and moderate demand growth – will prove to be long-term phenomena.
The expansion of electric cars, increasing energy efficiency and more renewables could potentially cause oil demand to peak in the mid-2040s, said BP’s chief economist Spencer Dale.
Change from the past
He said the most important source of growth in oil demand in the 2030s would not be to cars, trucks or aircraft, but to other industries such as plastics and fabrics. That would be “quite a change from the past”.
Global oil demand grew at an average annual rate of 1.3 per cent from 1995 to 2015, BP said. All of the predicted 0.7 per cent a year growth to 2035 would come from emerging economies, with China accounting for half the increase.
The oil slump that started in 2014 has changed the shape and look of the industry. Companies have sought to significantly cut costs so they are able to make a profit with oil at $50 a barrel instead of $100.
Cost management is the top priority for 85 per cent of senior oil executives, according to a surveyed published by technical advisor DNV GL on Thursday. Some 63 per cent see their current cost-efficiency measures marking a permanent shift toward a leaner way of working.
Mr dale said the world had enough oil reserves that can be extracted with current technologies to be able to meet demand two times over until 2050. As demand growth tapers, holders of these resources could potentially change policies, favouring pumping the oil sooner rather than later.
Rationing production
“Over the long run there seems to be increasing incentive for those producers that hold lots of low-cost oil” to rethink the strategy of rationing production, he said. “The view that a barrel not be produced today, but produced tomorrow” may become less compelling.
The Organisation of Petroleum Exporting Countries (Opec) and 11 other major producers agreed last month to cut production by a combined 1.8 million barrels a day over six months in order to eliminate an oversupply and boost prices.
The world has about 2.6 trillion barrels of technically recoverable oil reserves, with about 1.7 trillion located in the Middle East, North America and the former Soviet Union, BP said in the report.
Cumulative oil demand out to 2035 is expected to be around 0.7 trillion barrels, significantly less than recoverable oil in the Middle East alone, said Mr Dale. – (Bloomberg)
