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Page added on March 5, 2018

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The end of the Oil Age may be closer but more uncertain

Consumption

Exactly when the world’s thirst for oil starts to ebb as a shift to cleaner, renewable energy gathers pace is increasingly occupying forecasters on both sides of the debate.

The booming growth of renewable energy and high hopes for electric cars are seen equally as a challenge or a panacea by the producers of fossil fuels and environmental groups alike.

Last month saw the dial appear to shift in favor of the latter, however, after BP became the first Western supermajor to pinpoint an inflection point in the world’s need for oil.

Tamed by a steady surge of wind and solar power, electric cars, more frugal vehicles and curbs on some plastics, Europe’s number two producer now sees oil demand peaking in the “late 2030”. A year ago it expected oil demand to rise beyond 2040.

The actual timing of the peak is less important than the direction of travel.

Updating its influential long-term Energy Outlook, BP’s less rosy outlook for oil demand speaks volumes to the growing concerns in many quarters that the world may be on a lot faster, and potentially more traumatic, path to energy transition than previously expected.

Until now, everyone in the oil industry— with the exception of Norway’s Statoil— expected oil demand to keep growing over the next two decades, albeit at a slowing pace.

Even the International Energy Agency still believes oil demand will continue to rise through 2040.

BP’s latest report shows how far oil companies have come in their public narrative as they face a world beyond oil.

Used as a benchmark for internal planning  beyond just BP, the benchmark report also informs industry executives keen to grasp both the challenges and opportunities created by the rise of alternative fuels and renewable energy.

ExxonMobil, the industry’s biggest protagonist, has doggedly stuck to a more optimistic future for oil. ExxonMobil believes that demand for oil will likely continue to grow by 19% to 117 million b/d to 2040. BP sees it topping out at 110,000 b/d, up from about 97,000 b/d currently.

Oil heading south in primary energy mix

ON THE DEFENSE

A marked proliferation of future energy scenarios in BP’s outlook is also telling.

Eager to avoid even a reference to “base case”, or most likely scenario, BP offers no less than six different potential future trajectories for global energy, twice the number in its previous outlook.

In addition to considering a swifter shift to renewable energies and electric vehicles, BP even provides a ‘what-if’ scenario for a world where conventional, and even hybrid cars, are banned from 2040. Importantly, all but one of the scenarios—which assumes a slower rise of natural gas—are even more pessimistic on the future of oil demand.

As disruptive technologies such as electric cars and self-driving vehicles loom large, the future energy landscape becomes harder to predict. Key players, it seems, are hedging their bets much more than in the past.

Like the IEA, however, BP is keen to dispel the popular narrative that EVs will spell the collapse of world oil demand and send future oil prices plummeting. While more now optimistic on EV penetration rates, BP sees EV’s impact on demand in 2040 (some 4.5 million b/d) by far
outstripped by growth in demand for travel which is expected to double.

For its part, the IEA believes the call on peak oil is premature and the furore over the EV boom is creating a misinformed debate.

“Oil demand growth today is not driven by cars, it’s driven by trucks, planes, ships and the petrochemical industry,” the IEA’s executive
director Fatih Birol said in January. “Even if there was a big electrification of cars in the years to come, oil demand will still grow.”

Birol also points to the world’s poor track record since the 1980s on weaning itself off fossil fuels to decarbonize energy supplies.

Over the last 30 years, he said, the share of fossil fuels has not fallen from 81%.

AN UNPREDICTABLE DEMISE

What now seems clear is that world’s track  record on fossil fuels is about to change radically. Driven mainly by policy support in China and India, BP predicts renewable energy will grow five-fold over the next two decades,  accounting for more than 40% of incremental energy supply. Combined with nuclear and hydro, non-fossil fuels combined are set to provide a quarter of the world’s energy in 2040.

The future story line for oil seems clear and one tied to that of world’s original fossil fuel coal; a slow but inexorable loss of share in the global energy mix from around a third today to a quarter in 2040 when renewables and gas take precedence.

With uncertainties over the impact of upstart technologies and global policy support for alternatives fuels and cleaner air, unpredictability over when peak oil arrives seem inevitable. But BP’s latest report shows just how fast the energy industry is having to recalibrate its expectations to fit a rapidly changing world.

Asked if BP has been surprised by the surging footprint of wind and solar power in recent years, the response of its chief economist Spencer Dale response was unequivocal.

“Massively,” he replied “…If you can find anybody who hasn’t been surprised, could you let me know?…Have we learned our lesson? I think so.”

platts



4 Comments on "The end of the Oil Age may be closer but more uncertain"

  1. Davy on Mon, 5th Mar 2018 6:46 am 

    Nowhere in this article was the health of the economy mentioned as usual so the article is not complete. There are too many forces at work to understand where we are factually going with energy. Yet, I will say fracking and renewable growth have been game changers we discounted and dismissed just a few years ago. Whether or not their trends continue is a big if. The sweet spots are always easy to hype. Let’s see how both these forces fare in the years ahead. Renewables have big hurdles ahead with storage and intermittency scale and fracking has the red queen of depletion rates to deal with. These are exciting times indeed.

  2. Cloggie on Mon, 5th Mar 2018 11:12 pm 

    “There are too many forces at work to understand where we are factually going with energy. Yet, I will say fracking and renewable growth have been game changers we discounted and dismissed just a few years ago. ”

    Well, well, well, our Meathead is changing course. Have you already told your wife you stopped being a doomer and that this prepper existence you are inflicting on her is merely a hobby?

    Won’t be long until Meathead will be a “Natzi” as well, with a wife from Italy that voted 33 + 37=70% populist right last Sunday. Hasn’t she enough from your baked-in low-standards under-achieving Marxism already?

  3. Davy on Tue, 6th Mar 2018 5:03 am 

    Come on nedernazi, this is not changing course like an extremist like you think. This is not either or extremism. It is about adapting to change. This is something you can’t do being locked into the 20th century of lies. You are all about the revision of the failures of your people in the 20th century. You are all about a fantasy agenda of your people’s future of greatness. This is about a selfish fantasy of empire and hostility. It is based on hate and about exploitation. It is these kinds of extremist agendas that lead to a final solution because, you know, people like you and greggie are all about the ends justify the means.

    My wife agrees with what I am doing. She has embrace what I am doing in her own way and I respect that. She is not a student and teacher of this way as I am but she sees the wisdom of this path. I am not sure if I will realize what I am preparing for but my kids likely will. For you nedernazi there is no one and this explains why you are so selfish and self-absorbed. You really only have yourself and that is why you are so mean and bitter. You are so boastful and narcissistic because everything is about you. The whole European renewable push and your fantasy armies and empire is really about you. You are a disgusting person as several other are here who push agendas of hate. Nazis like you and closet Nazis like greggie are distorting and clouding a real wisdom that could be found here but instead it is about competition and winning. You are all about winning with no empathy or compassion for others.

  4. Davy on Tue, 6th Mar 2018 5:25 am 

    Of course the nederliar has spinned this differently
    “Debt Crisis Dead-Ahead: Italy’s Results Are Truly Forza Italia!”
    https://tinyurl.com/yas4y9bo

    “Europe is headed for a breakup. But, after a year of watching the EU establishment work the polls just enough to maintain the status quo in the Netherlands, France and Germany I wasn’t expecting much from yesterday’s Italian elections…Last week I told you the markets were getting nervous about this election. This weekend the news was all about how subdued the reaction was to the polling. As if a major technical breakout to the upside on Italian bond yields in the face of furious ECB buying wasn’t a strong enough market response?”

    “The most important person in Italian politics right now is The League’s leader, Matteo “The EU can go F&%k itself” Salvini. When the final votes are revealed, if The League out-polled Silvio “Establishment Stalking Horse” Berlusconi’s Forza Italia! then he has the hammer in coalition negotiations. This is exactly the situation I was hoping for in this election. Because this paves the way for Salvini to pull out of the weak coalition with Berlusconi and form a stronger government with Five Star. And at that point the price of Tums in Germany rises sharply on new demand. Because the ‘agita’ over Italy’s untenable banking and debt situation will be enormous. But, if you want to know what the real issue is just look at this map of Italian unemployment. 1% GDP growth is not something to cheer about when you have this kind of capital destruction for half of a country. And with the euro above $1.20, just like Germany wants it, this is only making it harder for Italy to compete in world markets. In other words, German strong-euro policy is creating the very election results now creating agita in Berlin.”

    “For months I’ve been warning you that that all we needed was a trigger to end this counter-trend rally in the euro and firm up the U.S. dollar. We’ve seen the rush into the euro while bond yields began rising a few months ago. This is an investor class moving to cash pre-positioning for a chaotic market. We’ll see a bit more of this while these results are digested and there is still hope for a Grand Coalition deal between Berlusconi’s center-right coalition and the failing Democrats. But, more likely is what I just laid out above. So, the next step will be the wholesale pulling out of assets from Europe once Salvini rejects a deal from Berlusconi and he and Di Maio form a government. And once that occurs, CDS rates will rise, bond yields (already under pressure from a tightening Fed) will rise as well and the next wave of the cycle can begin.”

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