Fossil fuel power demand ‘peaking worldwide’
The advent of electric vehicles, growing call for decarbonisation and the rise of renewable energy are exerting significant pressure and competition for oil within its core source of demand – transport and industry. This means that growth in oil demand will slow down gradually and eventually peak. Covid-19 has accelerated the pace. Renewable options such as solar and wind are already the cheapest source of new power generation in 90 percent of the world’s markets, meaning developing nations can avoid oil and gas as they seek to meet their growing electricity demand.
The COVID-19 pandemic this year has dented oil consumption and brought forward forecasts by energy majors, producers and analysts for when the world’s demand for oil may peak.
Demand was about 100 million barrels per day (bpd) in 2019 and has yet to recover to that level because of the pandemic. The rise of electric vehicles and a shift to renewable energy has also led to revisions in forecasts. There is no consensus on when oil demand could peak, but the predictions could affect oil exploration and development plans.
BP provides three scenarios, all showing the pandemic reduced demand growth. In one scenario, the British energy producer says demand may have peaked in 2019, while another of its scenarios sees a peak in 2035. The Norwegian oil and gas producer expects oil demand to peak from 2027 to 2028, two to three years sooner than it previously forecast. In its main scenario, Equinor sees oil demand at 99.5 million bpd in 2030 and 84 million bpd in 2050.
The French oil major, which previously forecast a peak around 2030, now says demand is expected to peak before 2030 and would drop to 40 million to 64 million bpd by 2050, while Consultancy Rystad Energy sees demand peaking at 101.6 million bpd in 2026, revised down from its previous forecast for a peak in 2028 of 102.2 million bpd. “The adoption of electrification in transport and other oil-dependent sectors is accelerating and is set to chip away at oil sooner and faster than in our previous forecast,” Rystad wrote.
The Paris-based International Energy Agency foresees a peak to oil demand in all its various future demand scenarios. It puts the date sometime in the mid‐2030s in its most conservative Stated Policies Scenario forecast with a very gradual decline but in its Net Zero by 2050 case sees demand plateauing within a decade and dropping further by nearly three-quarters by 2050. Goldman Sachs says the rise in electric cars, renewable energy and plastics recycling will sap oil demand but growth in developing countries will push a peak in demand beyond 2030. The does not expect global oil demand to peak before 2030 because of solid fundamental economic growth, emerging market demographics and relatively low oil prices.
But the Organisation of Petroleum Exporting Countries (OPEC) – the biggest supplier of world oil – slightly differs with the oil majors’ forecast. In its first prediction for peak oil demand, the OPEC says that demand would recover in the next two years (2022 and 2023) and plateau by 2040. “At the global level, oil demand is expected to increase by almost 10 million bpd over the long term, rising from 99.7 million bpd in 2019 to 109.3 million bpd in 2040 and to 109.1 million bpd in 2045,” it said in its World Oil Outlook.
However, India’s peak oil demand will come much later than what the rest of the world might anticipate, creating enough room to pursue refinery expansions and secure crude supplies through diversification drives. Indian refining capacity is projected to expand 30 percent to 6.9 mbd by 2030 while the global capacity is expected to increase just 3 percent. The refining capacity is expected to contract in North America, Europe, Russia, Japan and Korea but will expand in China, Middle East, and Africa, as per IEA’s projections. Oil minister Dharmendra Pradhan said that with the country’s oil demand expected to double by 2040, India would look to boost refining capacity from the current 250 million tonnes/year to 450 million tonnes/year.
The projection shows the centrality of oil in the Indian economy over the next three decades and runs counter to BP’s forecast last year that estimated the country’s oil demand to peak in 2025. Under the IEA’s stated policies scenario, the global oil demand will peak in 2030 at 103 mbd and stay unchanged until 2050.
