The pandemic and the climate crisis reduce the consumption of crude in the long term

The pandemic – and its probable accelerating effect on the transition to renewable energy – has led OPEC to lower its long-term forecasts on world oil consumption on Thursday, amidst a great uncertainty.

In its annual report “World Oil Outlook 2020”, the Organization of the Petroleum Exporting Countries (OPEC) predicts that the planet’s demand for crude oil, after recovering from the collapse of 2020, will reach 109.3 million barrels per day (mbd) in 2040. That figure is 1 mbd lower than the estimate a year ago for 2040.

According to these calculations, in the next twenty years demand would increase by 9.6% -almost 10 mbd- compared to 2019 (99.7 mbd), an increase that is equivalent to the gigantic cut in production that OPEC + (OPEC and its allies, including Russia) launched last May to face the collapse in the price of a barrel due to the pandemic.

By 2035 the consumption of “black gold” would have stabilized and by 2045 it would have even started to decline, standing at 109.1 mbd, according to forecasts.

These OPEC estimates contradict the idea of some analysts that the world may have already reached its “oil peak” in the current crisis and that consumption would already be down.

Analysts from the oil group base their calculations on the hypothesis of a return to growth after the pandemic and on a recovery in the most affected sectors, such as aviation, transport and the industrial sector.

Therefore, these figures are fraught with uncertainty due to the doubts that the future raises, although OPEC considers that the pandemic will have a negative effect in the long term.

“Future demand is likely to remain below past projections due to the lingering effects of the COVID-19-related closures and their impact on the global economy and consumer behavior,” the document states.

The outlook is more uncertain than ever, said Secretary General Mohamed Barkindo, presenting the analysis in Vienna and underlining that “the pandemic has turned the market upside down.”

“The impact of the pandemic and the consequent containment efforts precipitated” a serious crisis that hit the oil industry hard until it faced an “existential threat,” with a historic collapse in demand and prices in April 2020, he said. Barkindo.

“To what extent will there be a longer-term impact (of the pandemic) on consumer habits and, therefore, on demand (for oil)?” OPEC raises in the report, considering that this is the “big question” for the markets.

While it is not yet clear when and at what rate the world economy will recover, the coronavirus is expected to “hurt growth rates in almost all countries in the medium term,” he adds.

The various scenarios of the possible evolution of oil demand analyzed -for the first time until 2045- coincide in an increase in energy and oil consumption, but the structure of the energy mix varies depending on the hypotheses.

For example, oil demand could be at 87.7 mbd in 2030, that is, below that of 2020 and much lower than that of 2019, in the case of a broad application of environmental measures, or at 110.8 mbd if there is a lower reduction in pollutant emissions.

“Since some of the massive stimulus programs announced to combat the impact of the COVID-19 pandemic are explicitly designed to direct support for ‘green’, renewable and similar projects, an acceleration of the energy transition is possible”, supports OPEC.

“In the future, the big question hanging over the energy and oil markets is to what extent there will be a longer-term impact on consumer habits and, therefore, on demand,” the organization’s experts highlight. 

In this context, they recall the current “debates” about the impact that an increase in work from home could have, as it reduces travel and can change “consumer behaviour.”

“International travel has been drastically reduced and many wonder if business travel will return to previous levels, even if leisure travel recovers,” they add.

At the same time, despite the decrease in emissions this year due to very low activity, efforts in the fight against climate change “continue on a path that is far from being sufficient to achieve the objectives of the Paris Agreement “, so it is not ruled out that new goals are set.

The report points out that oil demand could fall to 71 mbd in 2045 – 29% less than the forecast of the “baseline scenario” – if stricter energy policies are adopted “in all sectors of the economy.”