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| Is this the sunset of the oil industry? (AFP Photo/Paul Ratje) |
Although crude prices have rebounded from coronavirus crisis lows, oil execs and experts are starting to ask if the industry has crossed the Rubicon of peak demand.
The plunge
in the price of crude oil during the first wave of coronavirus lockdowns --
futures prices briefly turned negative -- was due to the drop in global demand
as planes were parked on tarmacs and cars in garages.
The
International Energy Agency (IEA) forecast that average daily oil demand will
drop by eight million barrels per day this year, a decline of around eight
percent from last year.
While the
agency expects an unprecedented rebound of 5.7 million barrels per day next
year, it still forecasts overall demand will be lower than in 2019 owing to
ongoing uncertainty in the airline sector.
Some are
questioning whether demand will ever get back to 2019 levels.
"I
don't think we know how this is going to play out. I certainly don't
know," BP's new chief executive Bernard Looney said in May.
The
COVID-19 pandemic was in full swing then with most planes grounded and
white-collar workers giving up the commute to work from home.
"Could
it be peak oil? Possibly. I would not write that off," Looney told the
Financial Times.
Summited?
The concept
of peak oil has long generated speculation.
Mostly, it
has been focused on peak production, with experts forecasting that prices would
reach astronomical levels as recoverable oil in the ground runs out.
 |
Owing to
the coronavirus, in recent months the concept of peak demand for oil
has come
into vogue (AFP Photo/SCOTT HEPPELL)
|
But in
recent months, the concept of peak demand has come into vogue, with the
coronavirus landing an uppercut into fuel demand for the transportation sector
followed by a knock-out punch from the transition to cleaner fuels.
Michael
Bradshaw, professor at Warwick Business School, said environmental groups are
already lobbying to prevent the Paris agreements becoming another casualty of
the pandemic, stressing the need for a Green New Deal for the recovery.
"If
they are successful, demand for oil might never return to the peak we saw prior
to COVID-19," he said in comments to journalists.
The
transport sector may never fully recover, Bradshaw posited.
"After
the pandemic, we might have a different attitude to international air travel or
physically going into work," he said.
'Science
fiction'
Other
experts say we haven't reached the tipping point yet, and might not for a
while.
"Many
people have said, including some CEOs of some major companies, with the
lifestyle changes now to teleworking and others we may well see oil demand has
peaked, and oil demand will go down," IEA executive director Fatih Birol
said recently.
"I
don't agree with that. Teleconferencing alone will not help us to reach our
energy and climate goals, they can only make a small dent," Firol added
while unveiling a recent IEA report.
 |
IEA
executive director Fatih Biron does not believe that lifestyle changes such as
teleworking will cause demand for oil to decline substantially (AFP Photo/Ye
Aung THU)
|
Moez Ajmi
at consulting and auditing firm E&Y dismissed as "science
fiction" the idea that a definitive drop in oil demand could suddenly
emerge.
He expects
a slow recovery in demand even if the coronavirus leaves the global economy
weakened.
That
weakness would also likely slow adoption of greener fuels.
"It
will take time for fossil fuels, which today still account for some 80 percent
of primary global consumption to face real competition" from rival energy
sources, he said.
Meanwhile,
the oil industry could face financing challenges.
Bronwen
Tucker, an analyst at Oil Change International, says the industry is now under
pressure from investors.
After
"a pretty big wave of restrictions on coal and some restrictions on oil
and gas, the risks to oil and gas investment right now feel a lot more
salient," she said.
The
industry is already writing down the value of assets to face up to the new
market reality of lower demand and prices.
Royal Dutch
Shell said this past week that it will take a $22 billion charge as it
re-evaluates the value of its business in light of the coronavirus.
Last month,
rival BP reduced the worth of its assets by $17.5 billion.
"This
process has further to run, and we expect further large impairments to occur
across the sector," said Angus Rodger of specialist energy consultancy
Wood Mackenzie.
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