During a panel discussion in which I participated recently with three energy experts, the moderator asked us if we agreed with the recent projection by British oil giant BP that oil demand may have already peaked during 2019. Everyone on the panel answered with a firm “no.”
From my own perspective, I gave that answer in large part because all of the dozens of previous “peak oil” predictions – whether from the supply side or the more recent demand side reasoning – have turned out to be entirely wrong, often in hilarious fashion. From an historical perspective, it just seems like the safer position to take.
That’s not to downplay the position assumed by BP, whose internal expertise is undeniable. But it’s key to note that much of the media coverage the company’s findings have received portrays BP’s position as being far more absolute than it really is. The company’s position on “peak oil” is in fact highly-qualified.
As a part of its recently-released Global Energy Outlook study, the company ran three scenarios based on differing assumptions regarding how rapidly governments around the world would attempt to move to adopt emissions-reducing policies and subsidize renewables. The cases were labeled “Rapid” (the most aggressive assumptions), “Net-Zero” (assuming most governments would adopt ‘net-zero by 2050’ policies) and “Business as Usual”, in which progression would continue on the slower path seen to date.
In a COVID-19 hampered world in which governments across the globe are teetering on the brink of insolvency, the “Business as Usual” scenario certainly appears to be most likely to persist for the time being, given the multi-trillion dollar costs involved in the other two cases. Under that scenario, BP in fact projects that global demand will not only recover to pre-COVID levels seen late last year, but continue to grow through the year 2030.
Past 2030, BP projects that demand would then begin to slowly decline, but only by 10% by 2050. So, does BP in fact predict that we have reached “peak oil” demand? Not really, no.
But of course, noting all of that doesn’t really make for the sexy headlines that attract clicks on articles.
I’ve written so many pieces debunking various “peak oil” claims over the past 8 years that it’s hard to know what more to say about it now.
There is no question that the oil and gas industry is currently in a depression, the deepest one it has suffered since the mid-1980s. That depression is likely to linger for awhile, especially when one considers that the OPEC+ nations currently have about 8 million barrels of oil per day of spare capacity sitting on the sidelines. That spare capacity, which can be rapidly turned on by national oil companies, will be the first to fill any voids created by recovering demand.
That reality in turn means that the U.S. shale industry is going to be especially hard hit over the next few years as demand slowly recovers. In an excellent op/ed this week, Dan Yergin said that “As a result of a drastic cutback in investment, shale output will go in reverse and decline. When growth returns, it will be at a slower pace.”
Yet, the growth will return because, as Yergin further states, “shale is now established as a formidable resource. The shale revolution has transformed the world oil market and is changing concepts of energy security.”
Supply-side “peak oil” theory was always wrong in the past because its proponents invariably underestimated the enormity of yet-to-be-discovered resource that lay beneath the ground in various parts of the world. In more recent years, Demand-side “peak oil” theory has always managed to overestimate the ability of renewable energy sources and electric vehicles to displace fossil fuels.
BP, in its 2020 Global Energy Outlook, did not really predict that the world has already reached “peak oil” demand. But if the company had in fact done so, it would almost certainly have turned out to be wrong.