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Page added on March 13, 2018

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BP’s Twisted Timeline Of Oil And Gas’ Future

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Spencer Dale, BP’s (NYSE: BP) group chief economist, isn’t trying to predict the future—whether it’s the doomsday scenarios of peak oil demand or the advent of electric vehicle (EV) “carmageddon.”

At Rice University’s Baker Institute for Public Policy, the unabashedly candid economist presented BP’s Energy Outlook 2018, which is interwoven with what appears likely to happen and thought experiments on how badly things could go haywire.

“The value of an exercise like this isn’t to predict the future, it’s to better understand the uncertainty you face,” he said.

Underscoring that uncertainty, Dale addressed topics such as autonomous vehicles, peak oil, investment in oil production and tight oil volumes by saying no less than five times, “I don’t know.”

That’s not necessarily a bad thing. On peak oil demand, for instance, Dale cannot see the summit out to 2040 which is “quite important,” he said.

“There’s a cottage industry of people what want to keep predicting when oil demand is likely to stop growing,” he said. “Think plateau, not peak.”

In the base scenario BP has constructed, oil demand grows by about 13 million barrels per day (MMbbl/d) by 2040 with global demand closing in on 110 MMbbl/d by 2040.

“Nobody expects oil demand to grow very rapidly in the next 25 years, nobody expects it to decline very rapidly over the next 25 years,” he said.

Nevertheless, Dale devised a hypothetic future in which all investment in oil production is eliminated and existing oil production declines at about 3% annually.  Even in such a scenario, oil production would still be able to produce up to 45 MMbbl/d by 2040.

Even with more EVs likely to be on roads by 2040, he said, the most likely use of oil heading into the future isn’t as a source of energy but “rather as a source of feedstock, particularly for the petrochemical industry.”

When Dale recently spoke to investors in New York about the energy outlook, EVs were foremost on their mind, “which is odd because I was trying to persuade them I don’t think it’s the least bit important,” he said.

While the importance of EVs is often stated in terms of the number of electric-powered cars on the road at any given time, Dale said a better way to measure their impact is in passenger miles.

BP estimates that by 2040, about 30 percent of passenger car miles will be powered by electricity with EVs rising to 300 million “out of a vehicle car park in 2040 of about 2 billion cars.”

Even if the number of cars varied by 100 million, the implications for oil and gas and trivial, he said.

“The impact of this scenario on oil demand is you reduce oil demand by about 2 MMbbl/d  by 2040,” he said. “This is a market which today consumes 97 MMblld/d and is likely to grow to well in excess of 100 MMbbl/d. It’s just arithmetic.”

Even in a hyper-aggressive model, in which all combustion engines and hybrids are banned by 2040, oil demand would fall by 10 MMbbl/d. Under that scenario, “the level of oil demand in 2040 is still higher than it is today,” Dale said.

The U.S. is on track to become “far and away” the largest producer of that. BP’s forecast for U.S. production tops 20 MMbbl/d by 2040, a point at which Saudi Arabia will produce about 15 MMbbl/d.

BP’s base case sees tight oil growing by another 5 MMbbl/d and peaking at 10 MMbbl/d by the early 2030s before “plateauing out,” he said.

But the pace and duration of shale oil production is also hard to predict. If rig counts were to double by 2025, for instance, while productivity remained the same, tight oil would peak earlier at around 12 MMbbl/d—but then decline more rapidly if the same total resource is extracted.

For natural gas the “daylight is even greater” with U.S. producers contributing a quarter of global supplies. However, U.S. exports will remain relatively small as much of the nation’s domestic energy is consumed here.

Challenges from renewables could also make for a more competitive energy marketplace. By BP’s estimates, solar and wind are growing fastest than any other energy source, “gaining share in power at an unprecedented rate.”

With coal essentially flatling in the next decade, “we’re moving from a world where we think oil, gas, coal and non-fossil fuels will each provide around a quarter of the world’s energy.”

Dale noted that the U.S. was once the major leader of renewable energy but has ceded its leadership role in recent years, with Indian and China taking command.

Most oil investors may not mind, since renewable energy isn’t traded. But Dale said renewables, as the fastest growing energy source, is also bringing about the most technological breakthroughs.

“You may think it’s a bit worrying not playing a leadership role in that,” he said.


2 Comments on "BP’s Twisted Timeline Of Oil And Gas’ Future"

  1. dave thompson on Tue, 13th Mar 2018 4:11 pm 

    If the above graph is any indication, that little tiny strip of blue should say wonders to anyone thinking that humans are in the process of energy transition to a clean green solar and wind powered electric world.

  2. dave thompson on Thu, 15th Mar 2018 2:40 am 

    HHMM all I been hear’in is crickets………………………………………………………………………………………………..

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