Demand for oil is expected to be hit hard by COVID-19 – and oil-dependent exporting countries need to fundamentally reorient their economies to respond to this reality.
That was Tuesday’s message from Fatih Birol, executive director of the International Energy Agency, who finally lowered his oil outlook. He warned that demand for oil, thanks to COVID, will be low in the years to come.
But even after the pandemic is (hopefully) gone, the market outlook doesn’t look much better. Demand for oil will eventually flatten – the IEA prefers the word “plateau” to “peak oil” – by the end of the decade, according to the IEA, a prediction similar to a made by OPEC last week.
You will see this change in some obvious parts of the economy. “This reinforces the demand for petroleum for cars which peaks over this decade at demand levels of around 2019, before dropping after 2030,” the IEA said.
This future, coupled with the current decline in oil demand and price volatility, and broad changes in climate policies around the world, means that the world’s petrostats must find other ways to support their economies.
“They need to prepare before it’s too late,” Birol said in an interview with Bloomberg TV on Tuesday.
A weak perspective
In its annual World Energy Outlook, the IEA warned that COVID-19 is now expected to lower global demand for oil at least until 2023, if not later.
“The recovery in oil demand may not be as fast as we or others thought a few months ago, mainly because governments around the world are unable to bring the coronavirus under control,” he said. declared Tuesday Birol.
The crucial factor for oil demand now is the virus – more specifically, when will the global economy return to pre-pandemic levels. And it doesn’t look good.
“The rebound can be slower than we hope to see,” he said. Demand will also not shift to other forms of energy without a change in government policy, Birol said.
But this is not the only headwind. Since the start of the pandemic, the IEA has warned that any economic recovery must include the energy transition to low-carbon sources, including the full range of options, from hydrogen to nuclear.
This change will transform countries that depend on oil and gas revenues – many of which have economies with a “one-to-one” relationship to oil prices, Birol said.
Such diversification requires serious financial means, and he added that there is an element of déjà vu: “we have already seen this film, [diversification] does not occur.
But such dependence is now “risky and dangerous”, he said, and even oil economies, notably Saudi Arabia and Iraq, are increasingly listening to the call, he added. .
It’s not just countries that are at risk. As the pandemic has brought down oil prices again, cities and regions including Houston and Calgary, Canada are also grappling with what their economic future will look like.
The IEA has not set a specific date for “peak oil,” and Birol said the industry does not believe peak oil demand has already passed, predicting that demand will return with the recovery in oil prices. savings. Meanwhile, industry majors love BP have also planned that the demand for oil may in fact never recover, and presented some scenarios where the peak has already passed.
Several major oil and gas companies, including BP, have pledged to meet “net zero” carbon emissions targets by 2050, also indicating a shift away from fossil fuels that has continued even amid the pandemic.
More to read absolutely energy sector coverage of Fortune:
- To meet the net zero emissions targets, China – and the rest of the world – needs these technologies
- BP outlines its vision for a low carbon future. Investors are skeptical
- The oil and gas industry has lost more than 100,000 jobs this year
- After the boom: Canada’s oil capital faces an uncertain future
- There is an ulterior motive to China’s promise of carbon neutrality: Capture the green technology market