In a new report submitted to Rigzone, analysts at BMI, a Fitch Solutions company, have outlined several megatrends for the oil and gas sector through 2050.
Declining demand for oil is one such megatrend, analysts note in the report, adding that global demand for oil and gas will come under increasing pressure, “forcing industry consolidation as it accelerates the energy transition, encouraging increased energy efficiency and widespread fuel switching.” .
“So far, most of the demand destruction has been concentrated in easier-to-reduce industries such as the road transport and power sectors, and has been largely concentrated in developed markets (DMs),” analysts stated in the report.
“However, if the goals of the Paris Agreement are to be achieved, deeper decarbonisation strategies will be required across all sectors and markets globally,” they added.
In the report, IMC analysts noted that, based on their data, DM oil consumption will fall into permanent decline from 2025, while the emerging market (EM) peak will be delayed by at least one decade, “given the greater difficulties faced in changing the energy mix, while meeting rapidly growing consumption”.
“Differences in the underlying energy mix and highly variable economic, demographic and political outlooks will mean that the pace of subsequent declines will vary across regions, with markets peaking at different times,” the analysts said in the report. report
“Over a multi-decade horizon, demand will be most durable in Africa, the Middle East and Central and Eastern Europe, while Western Europe and North America and developed Asia will see the fastest declines,” they added .
Demand trajectories will also vary across the fuel basket, analysts said in the report.
“On-road transportation fuels are most vulnerable to the energy transition as fuel efficiency mandates increase and alternatives such as electric vehicles increase adoption, while aviation and marine fuels, all and which are more difficult to replace, will also suffer steep losses until 2050 as alternatives begin to enter the market over the next decade,” they said.
“In contrast, fuels serving the petrochemical and heavy industry sectors will be more durable as pathways to viable alternatives become less developed,” they added.
Oil supply
Another megatrend outlined in the report is that oil supply will fall as global politics and demand change corporate strategy.
“The long-term hydrocarbon supply outlook is weak given the expectation of lower long-term demand, which will result in persistently low investment in the upstream sector by oil and gas producers as they evolve into integrated energy companies,” the analysts said in the report. .
“This emerging dynamic of lower demand will reduce upstream investment to preserve oil prices and maintain profits by limiting market supply,” they added.
“This transition is primarily driven by changing strategies among upstream companies as they respond to the reduction requirements of high-carbon industries such as oil and gas and the weaker demand outlook in long-term that discourages riskier long-term investments, especially those with high upfront development costs,” they continued.
IMC analysts noted in the report that increasingly stringent environmental regulations and tightening government stances against the fossil fuel sector will continue to threaten future oil and gas projects and accelerate the shift away from investments in hydrocarbons.
“From a financial perspective, we see the recent trend of targeting energy companies with windfall taxes and increasing regulations, thereby discouraging energy companies from committing heavily to future exploration and production,” the analysts said.
“We expect E&P companies to continue to increase capital expenditure allocations for low-carbon efforts (emissions mitigation, carbon credit offsets) at the expense of growth in upstream and downstream projects,” they add.
“Low investment among several producers will lead to a slowdown in production growth, particularly among producers facing an increasing proportion of maturing fields in their upstream project portfolio,” they continued.
“We note that the U.S. will see some maturing of its prolific shale asset base and see production stagnate or decline amid slowing investment in new growth,” the analysts said.
The role of OPEC
The rise of OPEC was another megatrend noted in the report.
“The commitment to transition from fossil fuels to low-emission alternatives will see OPEC’s global market power shift and evolve,” IMC analysts said in the report.
“Oil producers will concentrate more as demand tends to decline and the degree of competition in supply means they focus on efficiency, costs and emissions intensity,” they added.
“Saudi Arabia has redoubled efforts to become the ‘last producer standing’ with its goal of increasing crude production capacity to 13 million barrels per day by 2027, up from its current cap of 12 million barrels per day, as well as increasing crude oil production capacity and gas production by 50 percent by 2030,” they continued.
In the report, IMC analysts stated that many OPEC and OPEC+ producers already own low-cost operations and added that “it follows that OPEC’s share of the supply of oil is about to grow.”
“Coupled with our expectations of falling oil demand, while this would result in a larger share of the market overall, it would be a smaller pie,” the analysts noted.
As for the group’s future policy, IMC analysts noted that OPEC will evolve its strategy away from short-term price regulation to longer-term policy impacts.
“These policy-driven actions are expected to be largely set by the key Gulf Cooperation Council countries that currently control the bulk of oil production,” the analysts said.
“We expect some group tensions to persist and national interests to outweigh OPEC cohesion, but this is only expected from non-core producers,” they added.
“As a result, the composition of the group is likely to continue to change even as control ultimately rests with the current top producers,” they continued.
Analysts also said the group’s approach will see a broader move towards climate adaptation and emissions mitigation rather than a wholesale replacement of fossil fuels.
“This emphasis on technical solutions to climate change (carbon capture, blue hydrogen/ammonia, among others) increases the risk that emissions targets will not be met as limited capital and time are diverted to pursue these oil and gas preservation efforts,” they said.
BP Outlook
In January this year, BP published its Energy Outlook 2023, which the company said considers the recent disruption in global energy supplies and the associated impacts on global prices and explores how this could affect the energy transition to 2050 .
In a segment on the energy outlook on its website, BP describes several “core beliefs” in the report. These include the decline in oil demand compared to the outlook, “driven by falling use in road transport as vehicle fleet efficiency improves and electrification of vehicles accelerates road,” highlights BP.
Still, oil continues to play an important role in the global energy system for the next 15-20 years, the BP site states.
Another core belief is that the global electricity system is decarbonizing, “led by the growing dominance of wind and solar,” explains BP.
“Wind and solar account for all or most of the growth in power generation, aided by continued cost competitiveness and a growing ability to integrate high proportions of these variable energy sources into power systems feed,” the BP site notes.
“The growth of wind and solar requires a significant acceleration in financing and building new capacity,” he adds.
Another key belief is that government support for the energy transition has increased in several countries, according to BP.
“But the scale of the decarbonisation challenge suggests that more support is needed globally, including policies to facilitate faster adoption and adoption of low-carbon energy and infrastructure,” BP says on its site.
To contact the author, please send an email andreas.exarcheas@rigzone.com
