Movers and SHAKERS
When Does OPEC Expect Oil Demand to Plateau?
The Organization of the Petroleum Exporting Countries released its 2020 World Oil Outlook in which it forecasted that world oil demand will rise to 107.2 million barrels per day (bpd) from the current level of 90.7 million bpd. The increase largely reflects the recovery of lost demand due to a global economic slowdown. At the same time, OPEC expressed concern that global oil demand may plateau after 2030 due to shift away from commuting, efficiency improvements, and a shift to electric cars.
OPEC is not alone in predicting that oil demand will peak soon. Royal Dutch Shell sees oil demand beginning to decline in the early 2030s. The U.S. Energy Information Administration expects oil demand to slow down after 2025. BP Amoco thinks the demand for oil may have peaked last year, noting the demand may never recover from the impact of the coronavirus.
OPEC also indicated that even with a sharp rebound in 2021, global oil demand would remain below previous projections due to the lingering effects of COVID-19. The pandemic is only part of the story behind slowing demand growth. Demand growth had been slowing well before the impact of COVIC-19. The figure below shows that growth rates peaked in 2015 at 2.2% and then trended lower during the next four years. This year growth rates are expected to turn negative because of the pandemic.
The Independent Commodity Intelligence Services (ICIS) breaks down the impact various components of demand are having on overall oil demand growth. The chart below shows that power generation has resulted in less oil demand in the last 20 years. This reflects a growth in wind and solar power. The chart also shows decreasing use of oil for space heating as buildings become more efficient. The biggest change, however, comes from cars, which has been contributing about one-third of oil demand growth in recent decades but is expected to result in reduced oil consumption beginning as soon as 2030.
Source: Independent Commodity Intelligence Services (ICIS), November 13, 2019
All these scenarios assume that governments maintain their current or stated policies towards carbon emission. But what would happen if governments enact and achieve a carbon-neutral strategy? Sixteen developed countries, including Brazil, France, Germany, and Mexico, have pledged to become carbon neutral by 2050. Many states, cities, and corporations have also made such a declaration to limit the average global temperature increase to 1.5 degrees Celsius.
The IEA’s 450 Scenario describes a pathway with a goal of limiting the average global temperature increase by seeking to limit the concentration of greenhouse gas in the atmosphere to around 450 parts per million of CO2 equivalent. The 450 Scenario is aligned with the goals of the Paris Accord although it only limits the rise in temperature to 2 degrees Celsius. As the chart above shows, the EIA believes implementation of the 450 Scenario would not only halt the growth of global oil demand but significantly reduce the demand by 2040.
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https://www.reuters.com/article/us-oil-opec-outlook/opec-in-major-shift-says-oil-demand-to-plateau-in-late-2030s-idUSKBN26T24C, Alex Lawler, Reuters, October 8, 2020
https://www.offshore-energy.biz/opec-oil-demand-to-decline-after-plateauing-in-late-2030s/, Bojan Lepic, Offshore Energy, October 9, 2020
https://www.icis.com/explore/resources/news/2019/11/13/10443245/petchems-demand-for-crude-oil-set-to-boom-despite-rising-recycling-rates-iea, Jonathan Lopez, ICIS, November 13, 2019
https://www.aljazeera.com/economy/2020/10/8/to-pump-or-not-to-pump-opec-sees-rise-then-fall-in-oil-demand, Aljazeera, October 8, 2020
http://priceofoil.org/2018/10/31/explainer-iea-scenarios-and-the-paris-goals/, Greg Muttitt, OilChange International, October 31, 2018