The last year has seen an unprecedented fall in global oil demand and investment following the COVID-19 pandemic and resulting movement restrictions worldwide, leading some to forecast an end to oil demand growth and an acceleration of a transition away from oil & gas, says Majid Jafar, CEO of Crescent Petroleum and Board Managing Director of Dana Gas. Though we are still in the pandemic and with most of the developed world in lockdowns, oil prices have recovered to $65, and oil demand shows steady and solid recovery, with the exception thus far of the aviation sector. And the vaccination campaigns now well underway worldwide hold the promise of a quicker return to normality and pre-crisis levels, he explains
Jafar says that much has also been made of electric vehicles (EVs) and their potential impact on oil demand. So far all the electric cars in the world reduce global oil demand by less than 0.1%. And the problem also is that more than half of them are in China where the majority of electricity comes from coal and so although they may help with cleaner air in cities, they are actually worsening CO2 emissions and its effect on climate change. Though the EV market will continue to see rapid growth, this will mainly impact the light vehicle segment, leaving trucking, shipping and aviation still dependent on oil.
And by far the fastest growth in oil demand actually now comes from the petrochemicals sector and making things we all use every day. One need only consider the past year and all the items we have come to rely on – whether it is smartphones and computer screens, medical face masks, hand sanitizer, medicines, or even vaccines, they all contain downstream products of the oil industry.
Whether we have already reached peak oil demand or will reach it a few decades from now, at some point in this century, the oil demand growth curve will flatten out. But it will be a long plateau, likely higher than 100 million barrels per day, and will still require trillions of dollars of investments to sustain it. With natural decline in production from mature fields taking at least 4 million barrels per day off the market annually, the world needs to add the equivalent of a new Saudi Arabia every few years even without demand growth. And yet the steep decline in investment in exploration and production poses a serious risk of an undersupplied market and price spikes in the not too distant future.
Turning to natural gas, it has a critical role to play in the energy transition in the power generation sector, especially in developing countries which are overly dependent on coal to meet growth, and where 1 billion people still don’t have access to electricity and almost 3 billion still don’t have clean cooking. Natural gas acts as both a necessary complement to intermittent renewable energy, and as an enabler of a future hydrogen economy. In fact, natural gas replacing coal has over the past 5 years achieved global CO2 emissions reductions one hundred times more than all the electric cars in the world. The UAE’s energy policy 2050, which targets an almost equal balance between natural gas and renewables, and the recently announced Abu Dhabi Hydrogen Alliance, present a model for future energy policy in this regard.
As we look forward to the post COVID-19 recovery for the world, reliable and sustainable energy will be key to support economic development and the transition to a more equitable and sustainable future. Oil & gas will continue to play important and different roles in the decades to come as part of a broader energy mix, and what will be important is to maintain low cost while achieving lower carbon. In this regard, the Middle East, with roughly half the world’s oil & gas reserves and some of the lowest cost, will continue to make a vital contribution to world energy supply. Both newer technologies and expanding the role of the private sector will enhance that potential, explains Jafar.