Demand for oil may have peaked last year, according to BP, which says the global market for crude might never recover from the coronavirus pandemic.
In a new report published on Monday, the company lays out three scenarios for energy demand, all of which forecast a decline in demand for oil over the next 30 years. The scale and pace of the decline will be driven by the increasing efficiency and electrification of road transportation, BP (BP) said.
In a “business-as-usual” scenario, in which government policies and social preferences evolve in the same way as in the recent past, oil demand picks up slightly following the coronavirus hit, but then plateaus around 2025 and starts to decline after 2030.
In two other scenarios, in which governments take more aggressive steps to curb carbon emissions and there are significant shifts in societal behavior, demand for oil never fully recovers from the decline caused by the pandemic. That would mean that oil demand peaked in 2019.
The new report is a major change from last year, when BP expected growth in oil demand to continue into the 2030s.
The shift reflects the profound effect that the pandemic, which brought travel and manufacturing to a near standstill, has had on global energy markets. Analysts think the crisis will accelerate the shift away from fossil fuels towards renewable forms of energy, particularly as governments and investors heap pressure on companies to tackle the climate crisis amid growing evidence of its devastating effects.
A second wave of coronavirus, which is causing some governments to tighten restrictions once again, also increases the likelihood that behavioral changes become permanent. For example, BP (BP) thinks that increased working from home may persist, weakening demand for travel.
A resurgence of the virus will also weigh on economic activity. The Organization of the Petroleum Exporting Countries (OPEC) said on Monday that world oil demand is expected to grow at a slower pace in 2021 than it thought a month ago. It also forecast an even steeper contraction in demand this year than previously predicted.
Secretary General Mohammad Barkindo told CNN Business’ John Defterios that that the global economy is recovering at a slower pace than OPEC had earlier projected. But the organization is still expecting demand to rise in the first half of 2021.
“We remain cautiously optimistic that the worst is over and that what we are facing is a recovery,” Barkindo said. “But the shape and form of that recovery is still of some contention.”
Investors demand climate action
BP is less bullish, which is why it is trying to pivot away from oil after a century of exploration. This week the company will provide investors with more detail on its new strategy, which involves a 10-fold increase in annual low carbon investments to $5 billion by 2030, when it expects its oil and gas production to have fallen by 40% from 2019 levels.
”As difficult steps go, BP’s pirouette from traditional oil company to green energy giant ranks among the more challenging,” Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown said in a note to clients.
“The company still produces 2.6 million barrels of oil a day, and making an abrupt heel-turn away from its core business towards renewables could see investors used to steady returns, leaving their seats and heading for the exit,” she added.
These firms, together with 157 others deemed the world’s worst polluters, were sent a letter on Monday from a group representing investors with more than $47 trillion in assets, calling on them to put in place strategies to achieve net zero emissions by 2050 or sooner.
Climate Action 100+ said the companies are collectively responsible for up to 80% of global industrial greenhouse gas emissions. The group said it will publish a report evaluating the progress made by companies next year in order to inform investment strategies.
“The benchmark will ensure it’s clear which companies are acting on climate change as a business-critical issue,” Stephanie Pfeifer, CEO of the London-based Institutional Investors Group on Climate Change said in a statement. “Investors will be paying particular attention to those shown to be falling short,” she added.
— John Defterios contributed reporting.