Demand for oil likely peaked in 2019 and will be on a long descent for decades into the future,
said in an annual report published on Monday.
Covid-19, which has led to a sharp drop in the use of oil and gas, hastened the beginning of the end. And in two of the three possible scenarios outlined by BP (ticker: BP), demand will never recover. In the third scenario, oil demand will essentially stabilize over the next few years before declining.
Oil and gas, while still needed for decades, will be increasingly challenged as society abandons its dependence on fossil fuels, according to the company’s annual Energy Outlook report.
The projection further proves that even companies that depend on oil and gas production have started to accept a sharp drop in consumption in the years to come. Investors rarely like to invest money in declining industries, so companies like BP are already changing their business models. Just last week BP announced that it will invest $ 1.1 billion in US offshore wind projects with
(EQNR), another major European oil company.
BP said earlier this year that it plans to transfer its business to produce net zero carbon emissions by 2050.
There is disagreement over when oil demand will peak, but analysts generally believe it will happen within the next decade. BP’s projection is surprising mainly because the company thinks there’s a good chance it’s already done. Several governments around the world have imposed changes in energy consumption or incentivized producers of renewable energy such as solar and wind power. Carbon taxes are increasingly common, making oil production more expensive for businesses. Covid-19 appears to have accelerated this trend, as activities like air travel could take years to recover.
In BP’s most aggressive scenario, consumption of liquid fuels could drop to 30 million barrels per day in 2050 from 100 million barrels last year. Under the less aggressive projection, or the status quo, demand for oil would remain stable for around 20 years before falling to 95 million barrels per day in 2050.
In this case, the demand for liquid fuels continues to grow in India, [parts of] Asia and Africa, offset by the downward trend in consumption in developed economies, the report says.
Some analysts have found BP’s argument compelling, while warning that there are still a lot of unknowns.
Edward Jones analyst Jennifer Rowland called BP’s projection a true probability.
When I think of the behavioral changes after the pandemic, most of these would be negative for energy use, whether it’s more people working remotely or the length of demand for air travel. , she said in an interview. That said, other trends are moving in the other direction, including the possibility that people are moving to the suburbs of cities and using vehicles more instead of public transportation.
She believes the best way for investors to play the transition to less oil and gas use is to keep their overall energy exposure relatively low while betting on the best-capitalized large caps. In the United States, it would be
(CLC). Overseas, she loves the French giant
(TOT), which has managed to retain its dividend while competitors have reduced their payments. These large companies can survive the transition to renewables because of their strong balance sheets and ability to transition business models to take advantage of that transition, she says. So-called integrated oil and gas companies with multiple lines of business should persevere, she said.
Exposure to energy is expected to come primarily from integrated systems, she said. It is really the integrated ones that can navigate successfully. They not only have the balance sheets, they also have the people, the technology, the relationships across the world with governments and other companies, these are all real critical pieces that will allow them to pivot their business models as they grow. time. How is a small oil and gas producer going to navigate it? This challenge is getting almost too big for smaller oil and gas companies.
Write to Avi Salzman at [email protected]