Peak demand has been on the oil industry’s radar for some time but mainly as a distant event with vague implications. BP tried to change that last month with a bearish long-term forecast for oil demand that said peak demand is either here now or will arrive in the next few years.
The UK oil major has made a cottage industry of its long-term Energy Outlook, which is eagerly awaited by oil and gas companies for its insights about future supply-demand trends. However, the overall response this time from most in the industry was that BP jumped the shark.
It’s true that the Covid-19 pandemic has stunted oil demand — and continues to do so — but to suggest that the market won’t recover to its pre-virus growth trajectory is quite a leap. One only has to look at BP’s new business strategy to see what is more likely driving the forecast.
Along with several of its European peers, BP aspires to “net-zero” carbon emissions by 2050 and plans to shift investment away from its core oil and gas operations to low-carbon and renewable energy projects in the coming years.
Under its plan to become an “integrated energy company,” BP will boost its low-carbon spending to $5 billion annually by 2030 while reducing oil and gas production by at least 1 million barrels of oil equivalent per day from 2019 levels. That represents a 40 percent drop in the company’s upstream oil and gas production over the next decade.
BP’s refining output is targeted to fall from 1.7 million barrels a day to 1.2 million barrels a day over the same period. The company also says it will no longer explore for oil and gas outside of areas where it doesn’t already have operations.
BP is moving from “Big Oil” to “Big Energy” in a short 10-year timeframe.
It’s little wonder BP’s long-term energy demand outlook has shifted so dramatically with ambitions like that.
The “business-as-usual” scenario in the long-term Energy Outlook expects oil demand to rebound from the pandemic but plateau within a few years.
The other two scenarios, which consider more aggressive government policies to tackle climate change, predict global demand will not return to its 2019 levels of 100 million barrels a day. Under various more aggressive decarbonization scenarios, BP sees demand falling by 2050 from its 2019 peak by either 5 million barrels a day, 45 million barrels a day, or 70 million barrels a day. That vast range of…