Energy Majors Say Oil is Here to Stay
While several international energy organisations and leading sectoral experts expect the global oil demand to begin decreasing by the end of the decade, some oil majors expect oil demand to remain high for decades to come.
ExxonMobil and Aramco are just some of the companies that have said they will continue pumping crude in anticipation of the continued high demand for fossil fuels into the next decade and beyond.
In its 2023 World Energy Outlook, the International Energy Agency (IEA) predicts that the global demand for oil and gas will peak at the end of the decade as governments worldwide invest in increasing their renewable energy capacity and more consumers take up electric vehicles (EVs). The outlook was based on existing government policies worldwide. The Executive Director of the IEA, Fatih Birol, stated, “The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us.”
After 2030, according to the IEA, demand for coal is expected to begin declining steeply. Meanwhile, gas and oil use will stay near peak levels for the next two decades. The agency has called on governments and energy companies worldwide to stop investing in new oil and gas activities and instead invest in renewable energy and clean tech to support an accelerated shift away from fossil fuels. It believes that if this is done, it could drive a steeper decline in oil and gas demand in the coming decades.
However, in August, the U.S. oil major ExxonMobil forecast that it expects oil and gas to contribute over half the world’s energy mix in 2050, at around 67 percent, even with increased global efforts to accelerate a green transition. At present, fossil fuels account for around 80 percent of the global energy mix, according to the IEA. Exxon’s forecast predicts that while the global oil demand will plateau from the end of this decade, it will remain at over 100 million bpd until at least 2050.
While Exxon agrees that the demand for oil to make gasoline will decline over the next quarter of a century, as EV uptake increases sharply, the oil used in the manufacturing, chemical production and heavy transportation industries will remain high. Exxon predicts that oil demand will remain at around 85 million bpd through 2050 even if all the new cars sold worldwide by 2035 are electric. Contrary to recommendations by the IEA, Exxon suggested that investments in new fossil fuel projects must keep pace with global demand. The oil major warned that if this does not happen, the world will experience a supply shock that will drive up prices and lead to an economic crisis.
The British oil major BP expects oil demand could peak by as early as 2025, but the global demand will remain high through 2035. The company’s 2024 Energy Outlook predicts that the global oil demand will fall very gradually, from around 100 million bpd at present to 97.8 million bpd in 2035. BP highlights the divide between the developed and developing world, as many high-income nations push for a green transition, increasing their renewable energy capacity, while several low-income states undergo industrialisation, which will drive up demand for fossil fuels. While the IEA is calling for a shift in investment priorities and greater support for increasing the green energy capacity of the developing world, in reality, the gap is growing as “the wealthy developed world, which is getting less wealthy as it directs ever-growing cash flows to the transition, and the poor developing world, which is getting wealthier because it is consuming more and more hydrocarbon energy.”
Both Exxon and BP believe, similarly to the IEA, that oil demand will soon peak. However, they are both pessimistic about just how much this demand will fall in the coming decades. This has led Exxon to call for greater investment in oil production to meet this high demand. This is a sentiment that has been repeatedly emphasised by the CEO of Saudi’s Aramco, Amin Nasser, who believes that IEA pressure to defund oil and gas is risky. Nasser said in March that the energy transition is failing and called the idea of phasing out oil and natural gas a “fantasy” as demand continues to rise in emerging economies.
We are at a crossroads, with the continued funding of new fossil fuel projects leading to sustained demand, and the shift to green, supported by public and private investment in the development of renewable energy capacity in both the developed and developing world, reducing the global demand for fossil fuels. The latter would require a major shift in investment plans, as well as high levels of financial support for low-income countries, which is not currently happening at the speed needed to achieve the Paris Agreement climate goals. If no such change occurs in the next few years, companies such as Exxon and Aramco are likely to continue to invest heavily in oil and gas, which could result in a vicious supply and demand cycle, as well as delay a global green transition.