By - Jim Vess

Oil demand has peaked and won’t recover from the pandemic, BP and DNV GL say

Energize Weekly, September 23, 2020

One casualty of the novel coronavirus pandemic – which will not recover – is the global oil market, according to analyses by oil major BP and consultant DNV GL.

BP in its 2020 Energy Outlook projects that the market hit its peak in 2019 and “does not fully recover” from the COVID-19 pandemic.

The International Energy Agency is projecting a 6 percent drop in demand year-on-year for 2020 to 92 million barrels a day, an annual drop on a percentage basis surpassed only by the 1918 Spanish flu pandemic and World War II.

BP is projecting that even in a business-as-usual scenario, oil demand will decline 10 percent by 2050 and in a net-zero scenario – where policy and consumer preferences push to no carbon emissions – oil demand could plummet 50 percent in the next 30 years.

“Oil and gas – while remaining needed for decades – will be increasingly challenged as society shifts away from its reliance on fossil fuels,” the BP Outlook said.

DNV GL, an Oslo, Norway-based risk management and quality assurance consultant, also puts oil’s peak demand in 2019 and notes that coal peaked in 2014 and the natural gas peak is forecast for 2032.

“Without COVID-19 effects, oil would have plateaued in 2023, and declined more gently towards 2050,” DNV GL said. “The pandemic will likely lead to a 13 percent reduction in global crude-oil demand in 2020, mainly due to the impact on the transport sector. Oil demand has already reached a plateau, peaking in 2019, and will not increase further.”

Energy demand will pick up in 2021, DNV GL said, but it will be from a lower base and for years to 2050, demand will fluctuate some 6 percent to 8 percent below the consultant’s pre-pandemic forecast.

“Pandemic-linked behavioral shifts, like remote working and reduced commuting, will have a lasting effect lowering energy use,” DNV said in its energy transition analysis.

Among the key sectors hit by declining demand is transportation in both the BP and DNV GL analyses.

“Demand for oil falls over the next 30 years,” BP said. “The scale and pace of this decline is driven by the increasing efficiency and electrification of road transportation.”

BP has transport demand for oil peaking in the mid-to-late 2020s. Oil share of transport consumption drops from 90 percent in 2018 to 80 percent in 2050 in the business-as-usual scenario and just 20 percent in the net-zero scenario.

DNV GL projects a 6 percent drop in total energy demand for the transportation sector between 2019 and 2050.

For BP, in its scenarios with a sharp shift to alternative energy, the demand for liquid fuels “never fully recovers from the fall caused by COVID-19.”

Liquid fuel consumption falls to 30 million barrels a day in 2050 from 120 million barrels a day in 2020, in BP’s net-zero scenario.

“More than 3 percent of the world’s energy is consumed by civilian aircrafts,” DNV said. “The industry is expected to take several years to recover from the severe COVID-19 setbacks – but, over time, increased prosperity will see annual air trips more than doubling by 2050 compared with 2018. That is, however, 15 percent less growth than we expected a year ago. Despite strong passenger – and cargo – growth ahead, fuel use will increase by only 9 percent by mid-century.”

DNV GL projects oil use in North America declining by more than two-thirds from the mid-2020s on.

The widespread disruption of global economies by the pandemic could also lead to reconfiguration of how national economies operate, which in turn will impact energy consumption, BP said.

“The disruptions associated with COVID-19 may lead to a process of deglobalization, as countries seek to increase their resilience by becoming less dependent on imported goods and services, and companies reshore certain activities and move supply chains closer to home,” according to the BP analysis, “One manifestation of these trends is that concerns about energy security may increase, particularly in countries which are highly dependent on energy imports.”

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