IEA’s ‘Peak Oil’ assessment contradicts OPEC’s reality!
By Dr. Cyril Widdershoven ? Berry Commodities ? Global Head of Strategy & Risk
The IEA?s World Energy Outlook 2019, published on November 13, the main flagship publication used by energy professionals worldwide, presents a slightly dire picture for the oil sector. The WEO indicates that global oil demand will plateau around 2030. The latter, considered as peak oil, is based on the assessment that more efficient EVs will enter the market very soon, putting major pressure on oil demand.? The IEA expects that until 2025 oil demand will increase by 1 million bpd (1% per year), but slows down between 2025-2030 to 100,000 bpd growth at the end. It also states bluntly that conventional vehicles (gasoline/diesel) will have peaked by that time. Fatih Birol, IEA?s executive director, stated that ?oil demand plateaus post-2030?.? Birol?s statement indicates a peak oil situation, adding that hydrocarbon demand is under pressure due to strategies of countries seeking to avert climate change, and an expected strong growth of renewable energy sources.
IEA?s optimism about US shale oil, Iraq and Brazil, seems to be unwavering. Again the WEO states that ?the largest increases in production between 2018 and 2040 come from the United States, Iraq and Brazil?. It also is skeptical about the OPEC+ market share, as it says that the share in oil production from countries in OPEC plus Russia falls to 47% for much of the 2020s, a level not seen since the 1980s. These assessments are based on factors still unclear. Optimism about Iraq and Brazil, which has been the case for years, has not yet materialized at all. The IEA?s strong optimism about US shale is maybe even biased. Looking at current market fundamentals and negative financial news in the US, the future of shale, not even discussing growth, is not bright. However, ?wishful thinking and political support? are not strange to some IEA assessments the last years.
The IEA assessments however stand in clear contrast to OPEC?s assessments. In the World Oil Outlook 2019 (WOO), published on November 5, OPEC? stated that, even when the market is facing global and unprecedented challenges, no peak demand is yet in sight. The need for multi-trillion dollar investments, the impact of renewables and possible ?peak demand?, are still not seen as a strong indicator for peak oil scenarios. According to the WOO, until 2040, the required global oil sector investment is estimated at $10.6 trillion.
Overall primary energy demand is still facing an increase of 25% between 2018 and 2040. The largest demand growth is for natural gas in real terms, while renewables are showing the largest percentage terms increase. OPEC stated that, even in the case of decarbonization of economies and growth of EVs, oil is expected to remain the fuel with the largest share in the energy mix throughout the forecast period to 2040. The OPEC assessments set peak oil demand at 110.6 mb/d by 2040m supported by petrochemicals (4.1 million bpd), road transportation (2.9 million bpd) and aviation (2.4 million bpd).? These figures are based on a growth of the global vehicle fleet by 1 billion to 2.4 billion in 2040.? OPEC assessments show that the share of EVs globally will reach 13% of total by 2040, indicating that most new vehicles will be conventional.
Demand for OPEC liquids will increase from 36.6 million bpd in 2018 to 44.4 million bpd in 2040. Non-OPEC liquids will increase by 9.9 mb/d between 2018 and 2024, mainly US shale, but from mid-2020 the latter will decline.
Peak oil discussions are not new, as already in the 1970s these theories were presented by Prof Hubbert and the Club of Rome. Until now, demand for oil has only shown continuous growth. The IEA?s optimism about the impact of EVs on global demand seem to be slightly politically instigated. Looking at the overall growth of EVs in Europe (except Norway) or Asia, no indicator shows a major shakedown. European countries are officially pro-EVs, but have largely removed subsidies to promote the introduction. China?s well-documented official policy to promote EVs has been already put on hold. OPEC?s optimism about crude oil demand is not far from reality, but could still face a major issue not yet fully appreciated. The growing activism of institutional investors and banks with regards to project finance or loans to hydrocarbon producers and service companies is a major threat. A lack of investment, as the sector needs around $11 trillion the coming years, could bring smaller oil (and gas) companies to a standstill.
The main point of criticism with regards to the IEA report is that it is too much inclined to take renewables and EV successes for granted. Emerging markets, China-India, and others are not yet convinced or inclined to take the decarbonization road. EV introduction and renewable energy is still far from being a major threat to hydrocarbons.? Global growth of energy demand is too high to be covered by additional renewable energy capacity. It is also a slight Western opinion to expect low-income emerging markets to be willing to buy electric vehicles or set up GigaWatt solar and wind projects without looking at the intrinsic costs and constraints in place.
On one issue OPEC and IEA agree, hydrocarbons are facing a financial challenge. Whatever global demand will be facing, depleting oil? and gas fields will need to be replaced or take large new investments. New reserves are needed, to keep supply at the same levels, while growth of energy demand continues. It doesn?t matter in reality if demand in 2040 will be 110.6 million bpd (OPEC) or 106.4 million bpd (IEA). More investments and new technology is needed.? With non-OPEC facing high investment costs and production decline rates, OPEC producers such as Saudi Arabia and others are king. New financial structures are needed to get enough investments in to keep the sector running.
By Dr. Cyril Widdershoven