Halting new investments in fossil fuels is “wrongheaded” despite global commitments to transition to greener energy, the head of the Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday, as he warned that oil demand will continue to accelerate in the coming years as economies bounce back from the COVID-19 pandemic.
OPEC sees oil demand returning to pre-pandemic levels next year and continuing to surge by 1.7 million barrels per day (bpd) in 2023.
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Presenting the cartel’s annual World Oil Outlook at OPEC headquarters in Vienna, Secretary General Mohammad Barkindo warned that funds are critical to keeping up with surging demand.
“If the necessary investments are not met, it could have not only implications as viewed in current gas developments in Europe and elsewhere around the world, [but] leave long-term scars, not only for producers but consumers as well,” Barkindo said.
This year’s oil outflow shows that investments of $11.8 trillion will be required between now and 2045 in the upstream, midstream and downstream sectors, he said. Oil will retain its number one position in the global energy mix, providing 28 percent of global energy needs by 2045.
After the huge 9.3 million bpd drop in global oil demand last year when the coronavirus pandemic crushed global business activity, oil markets are regaining their mojo as economies recover.
Brent crude, the global benchmark, surged past $80 a barrel on Tuesday – its highest level in three years.
But those sharp increases in energy prices are rippling through the global economy, leading to higher costs for producers that are often then passed on to consumers.
And Barkindo cautioned there are plenty of strains and conflicts related to energy, affordability, energy security, and reducing emissions that demand attention from policymakers.
“Focusing only on one of these issues while ignoring the others can lead to unintended consequences, such as market distortions and price volatility that we witness today. This has been evident in recent weeks, and more so in recent days,” he said.
OPEC sees oil demand in 2026 exceeding 2020 levels by 14 million bpd – with less developed economies driving the lion’s share of that gain.
But the long-term oil outlook calls for a sharp slowdown, with total demand reaching 104.4 million bpd by 2026, and climbing to only 108 million bpd by 2045.
Gas will see the largest growth, driven in part by higher urbanisation rates, industrial demand, and its competitiveness over coal as a cleaner alternative for power generation.
Coal is the only energy source for which OPEC is forecasting a decline in demand.
By sector, transportation leads the way for oil demand, followed by aviation and petrochemicals, Barkindo said.
While travel and mobility restrictions due to the pandemic hit the transportation sector hard, the long-term picture remains optimistic. There is huge potential for an expansion in passenger and commercial vehicle fleets, especially in developing countries.
“In the long term, [with] robust GDP [gross domestic product] growth in developing countries, expanding populations, and a larger middle class, I expect it to lead to an increase in [the] number of flights,” Barkindo said.
Turning to electric vehicles, he said the number of such cars on the road is set to approach 500 million by 2045, representing almost 20 percent of the global fleet by then. Natural gas vehicles are also expected to expand by over 80 million by 2045.
Internal combustion engine vehicles, however, are forecast to retain the largest market share at over 76 percent by 2045. Oil demand in the road transportation sector is expected to stay at around a level of 4 to 6 million bpd after 2025, the OPEC chief said.
On the supply side, non-OPEC liquid supply is set to continue to lead the recovery, he said. Non-OPEC liquid, meaning that produced from countries outside of the OPEC alliance, is predicted to expand by 7.5 million bpd from its 2020 low, to 70.4 million bpd in 2026. That will be driven by United States shale oil and barrels from Brazil, Russia, Guyana, Canada and Kazakhstan.
Non-OPEC liquids are set to peak in the late 2020s, in line with US shale oil, then slowly decline to 65.5 million bpd by 2045.
There are a handful of sources predicted to lead non-OPEC growth in the long term, such as Brazil, Guyana, Canada and Russia, while others – such as the US, Norway and China – are expected to witness a decline.
OPEC liquids are expected to recover to pre-pandemic levels around 2025 and rise strongly thereafter. OPEC liquids are slated to reach a level of nearly 43 million bpd in 2045, in terms of market share. This implies an increase from 33 percent in 2020 to 39 percent by 2045.
Addressing climate change and the energy transition
The United Nations Climate Change Conference (the 26th Conference of Parties, also known as COP26) is set to take place next month, and governments will be tasked with the monumental feat of curbing greenhouse gas emissions.
They have their work cut out for them. Demand for energy will continue to rise significantly in the coming years as the global population explodes and economies expand.
And while wind and solar energy will see by far the highest growth in the next few years, questions around evolving policies and technologies mean that the long-term energy outlook remains uncertain, Barkindo said.
The OPEC chief stressed that it is vital to tackle both climate change and energy poverty within the context of United Nations Sustainable Development Goals (SDGs), particularly goal number seven on energy, known as SDG7. The UN met on energy poverty on Friday.
Barkindo said that OPEC fully supports the multilateral approach to addressing climate change and the energy transition, noting the organisation was directly involved in the evolution of the United Nations Framework Convention on Climate Change, namely the Kyoto Protocol and the Paris Agreement.
“There is no doubt,” he said, “that the oil and gas industry can foster its resources and expertise and help unlock our carbon-free future through its role as a powerful innovator in developing cleaner and more efficient technological solutions to help reduce emissions.”