Oil demand growth will slow and supplies will remain abundant in the coming decades, meaning producers in the Middle East, Russia and U.S. continue to gain market share at the expense of higher-cost rivals, said BP Plc.
Demand for oil will expand by an average 0.7 percent a year over the next two decades, little more than half the rate in the preceding 20 years, BP said on Wednesday in its Energy Outlook 2035 report. By the early 2030s, transport will cease to be the main driver of growth, a significant departure from the historical trend.
“We are seeing a shift in the global energy mix,” Bob Dudley, BP’s chief executive officer, said at a briefing in London. “There is a continuous de-carbonization of the fuel mix. Oil demand continues to grow over the next 20 years, but energy efficiency will moderate growth in demand.”
BP’s analysis suggests the dominant oil market trends of the past few years — plentiful supply, competition for market share between the biggest producers and moderate demand growth — will prove to be long-term phenomena. The expansion of electric cars, increasing energy efficiency and more renewables could potentially cause oil demand to peak in the mid 2040s, BP’s Chief Economist Spencer Dale said.
The most important source of growth in oil demand in the 2030s won’t be to cars, trucks or planes, but rather other industries such as plastics and fabrics, Dale said. That would be “quite a change from the past,” he said.
Global oil demand grew at an average annual rate of 1.3 percent from 1995 to 2015, BP said. All of the predicted 0.7 percent a year growth to 2035 will come from emerging economies, with China accounting for half the increase, it said.
The oil slump that started in 2014 has changed the shape and look of the industry. Companies have sought to significantly cut costs so they are able to make a profit with oil at $50 a barrel instead of $100.
Cost management is the top priority for 85 percent of senior oil executives, according to a surveyed published by technical advisor DNV GL Thursday. Sixty-three percent see their current cost-efficiency measures marking a permanent shift toward a leaner way of working, the survey showed.
The world has enough oil reserves that can be extracted with current technologies to be able to meet demand two times over until 2050, Dale said. As demand growth tapers, holders of these resources could potentially change policies, favoring pumping the oil sooner rather than later, he said.
“Over the long run, there seems to be increasing incentive for those producers that hold lots of low-cost oil” to rethink the strategy of rationing production, Dale said. “The view that a barrel not be produced today, but produced tomorrow,” may become less compelling, he said.
The Organization of Petroleum Exporting Countries and 11 other major producers agreed last month to cut production by a combined 1.8 million barrels a day over six months in order to eliminate an oversupply and boost prices.
The world has about 2.6 trillion barrels of technically recoverable oil reserves, with about 1.7 trillion located in the Middle East, North America and the former Soviet Union, BP said in the report. Cumulative oil demand out to 2035 is expected to be around 0.7 trillion barrels, significantly less than recoverable oil in the Middle East alone, Dale said.
BP also predicts:
Global energy demand will increase by about 30 percent to 2035, driven by increasing prosperity in developing countries, partially offset by rapid gains in energy efficiency.
Natural gas consumption will grow faster than either oil or coal, expanding at 1.6 percent a year. Shale gas production will account for two thirds of the increase in supplies, led by growth in the U.S.
Coal demand will peak in the mid-2020s, as China moves toward cleaner, lower-carbon fuels.
Renewables will be the fastest-growing energy source with an average annual expansion of 7.6 percent, resulting in a quadrupling of supply over the next 20 years.
Carbon emissions will increase at less than a third of the rate of the past 20 years, reflecting both gains in energy efficiency and the changing fuel mix.