Are we approaching the ultimate demise of oil, or will 2020 be a mere blip that can be easily absorbed?
As might be expected, the short-term demand outlook for crude oil is dour. The International Energy Agency (IEA) has revised down the near-term global demand outlook by 0.4M b/d in Q320, 1.2M b/d in Q420 and 0.7M mb/d in Q121. Demand is expected to decrease by 8.8M b/d in 2020 and to rise by 5.8M b/d in 2021. The IEA expects vaccines are unlikely to significantly boost demand until well into next year.
Looking ahead, the IEA has explored pathways to reach lower global emissions and the impact on crude oil demand. The IEA’s executive director, Dr Fatih Birol, doubts that the last of peak oil has been seen: “The era of global oil demand growth will come to an end in the next decade,” he said. But he added: “Without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.”
The IEA has modelled how net zero emissions by 2050 could be achieved, but the solution is radical. To attain about a 40% reduction in emissions by 2030 will require, says the IEA, that low-emissions sources provide nearly 75% of global electricity generation – up from less than 40% in 2019 – and that more than 50% of passenger cars sold worldwide in 2030 are electric, up from 2.5% in 2019. Electrification, innovation, behaviour changes and massive efficiency gains will all have to play important roles if net zero emission is to be achieved globally by 2050.
OPEC has a different view of both the short-term and long-term outlook for crude oil. It believes the action taken by the 23 OPEC and non-OPEC oil-producing countries in the Declaration of Cooperation, in response to the market challenges, has led to the largest and longest oil production adjustments. In OPEC’s opinion, this has helped restore market stability since the second quarter of 2020 and provide a platform for recovery.
“Global primary energy demand is forecast to continue growing in the medium and long term”
Despite the large drop in 2020, global primary energy demand is forecast by OPEC to continue growing in the medium and long term, increasing by a significant 25% in the period to 2045 and is projected to increase from nearly 100 mb/d in 2019 to around 109 mb/d in 2045. The OPEC assessment favours tanker seaborne trade; projecting crude oil and condensate flows between the Middle East and Asia-Pacific will remain the most important oil trade link, with volumes increasing from around 15 mb/d in 2019 to nearly 20 mb/d in 2045.
Clarkson Research Services (CRS) notes that the short-term impact on seaborne crude trade is a decline by 6.6% in full year 2020 (about 4% in tonne-miles), while seaborne products trade is projected to decline by 7.7% (about 8% in tonne-miles). But there is one metric that offers long-term hope for tankers and all shipping sectors – CRS reports that the average haul growth of seaborne trade is set to continue.
Average haul across the whole of the global fleet is set to increase by 0.7% in 2020, to 5,050 nautical miles. This will be the fifth consecutive year of increase. The good news for the tanker industry is that the distances crude oil is being transported continues to grow. The bad news is that somehow this demand must be replaced with non-hydrocarbon energy sources if global GHG targets are to be met.