THE transition from oil is underway. All stakeholders — from the Organisation of Petroleum Exporting Countries (Opec) and Russia to the oil majors — are all beginning to appreciate, realise and react to this changing global energy kaleidoscope.
Russia has been denying the reality. Now this is changing.
“The peak of consumption may have already passed,” said Deputy Russian Finance Minister Vladimir Kolychev in an interview in Moscow. “The risk is rising in the longer term,” that hydrocarbon revenues could come in below the current outlook, Bloomberg reported him saying.
Until recently, Russia appeared hesitant in conceding it. Russian President Vladimir Putin said in October that growing demand from Asia will support the country’s energy exports in the coming decades. In March, the Russian Economic Ministry forecasted oil consumption would peak around 2045. The pandemic has changed the perspective altogether.
With global oil demand declining, sooner than anticipated, the Bloomberg report added that the Russian Finance Ministry has begun preparing for lower revenues from oil. The halcyon ‘crude’ days are over.
Others too are also beginning to understand the changing crude climate. The Opec is now acknowledging that an end (to the crude era) is in sight-albeit-some two decades away. The organisation sees oil demand peaking in 2040. However, it also acknowledges that this new forecast might still prove to be too optimistic for oil.
Consequently, the rush to monetise the crude assets is also on. Despite the global loss in crude appetite, the UAE is planning to invest $122 billion in the oil and gas sector over the next five years. In order to maximise its returns from assets beneath the earth, a debate is also on in Abu Dhabi; should the UAE continue to be a part of the Opec? Others too are evaluating on the same lines.
Although the Paris based International Energy Agency (IEA) sees global energy demand “plateauing” and not peaking over this decade, yet, is conceding that solar is the new king. In the introduction to its 2020 World Energy Outlook (WEO), IEA’s Executive Director Fatih Birol dubbed solar as “the new king of electricity.”
The report underlined that “based on today’s policy settings, solar energy is on track to set new records for deployment every year after 2022.”
The growing emphasis on green energy, the increasing use of batteries and not fuel to drive vehicles, the plummeting prices of batteries, the growing numbers of electric vehicles on the streets throughout the globe, the change in the direction, the US is going to witness under Biden and to top it all, the ongoing pandemic, all have contributed towards making the ‘crude future’ uncertain and gloomy.
And these changes are here to stay. “We’re not going back to the same economy,” US Federal Reserve Chairman Jerome Powell cautioned mid-November. A new economy is dawning upon us, he asserted.
That new economy means people will continue to work from home, traveling less, and staying in to binge on digital programming. About two-thirds of Covid-19’s impact on oil demand will be from setbacks to the global economy, according to some estimates, and one third will be from permanent changes in behaviour.
The Peak Oil is suddenly upon us, Tom Randall and Hayley Warren, wrote in a piece early December. And oil majors are taking the cue. British oil giant BP Plc in September made an extraordinary call: Humanity’s thirst for oil may never again return to prior levels. That would make 2019 the high-water mark in oil history. BP underlined that a hobbled economy and changing (consumer) behaviors will ripple out for decades to come.
Royal Dutch Shell is also committed to net zero emissions by 2050. Total SA, France’s biggest oil producer, is also committed. Spain’s Repsol and Italy’s Eni had made similar pledges back in 2019.
The list of energy analysts, underlining that peak oil demand is drawing closer seems growing. As compiled by Randall and Warren, the list includes Norway’s state-owned oil company Equinor (peaking around 2027-28), Norwegian energy researcher Rystad Energy (2028), French oil major Total SA (2030), consulting firm McKinsey (2033), clean-energy research group BloombergNEF (2035), and energy-industry advisers Wood Mackenzie (2035).
These forecasts mark an overwhelmingly emerging view that this year’s drop in oil demand is not just another crash. While a number of other factors were already in play leading the world towards a ‘peak demand’, Covid-19 has resulted in accelerating the long-term trends, transforming the global energy equation altogether — especially from a source perspective. Some of those changes will be permanent.
Peak oil demand is imminent. The only issue is, how soon? To be fair, it is not too far off.