There may be no return to “normal” for the oil market in the post-Covid era, although the global economy and oil markets are recovering from the historic collapse in demand caused by COVID-19 pandemic in 2020, according to a new IEA report.
IEA’s latest ‘Oil 2021’ report says the forecast for global oil demand has shifted lower, and demand could peak earlier than previously thought, if a rising focus by governments on clean energy turns into stronger policies and behavioural changes induced by the pandemic become deeply rooted. But in the report’s base case, which reflects current policy settings, oil demand is set to rise to 104 million barrels a day (mb/d) by 2026, up 4% from 2019 levels.
The Covid-19 crisis caused a historic decline in global oil demand – but not necessarily a lasting one. Achieving an orderly transition away from oil is essential to meet climate goals, but it will require major policy changes from governments as well as accelerated behavioural changes. Without that, global oil demand is set to increase every year between now and 2026. For the world’s oil demand to peak anytime soon, significant action is needed immediately to improve fuel efficiency standards, boost electric vehicle sales and curb oil use in the power sector,
…explained Dr Fatih Birol, the IEA’s Executive Director.
Those actions – combined with increased teleworking, greater recycling and reduced business travel – could reduce oil use by as much as 5.6 mb/d by 2026, which would mean that global oil demand never gets back to where it was before the pandemic.
Asia will continue to dominate growth in global oil demand, accounting for 90% of the increase between 2019 and 2026 in the IEA report’s base case.
By contrast, demand in many advanced economies, where vehicle ownership and oil use per capita are much higher, is not expected to return to pre-crisis levels.
On the supply side, the heightened uncertainty over the outlook has created a dilemma for producers.
Investment decisions made today could either bring on too much capacity that is left unused or too little oil to meet demand.
Only a marginal rise in global upstream investment is expected this year after operators spent one-third less in 2020 than planned at the start of the year, according to the report.
No oil and gas company will be unaffected by clean energy transitions, so every part of the industry needs to consider how to respond as momentum builds behind the world’s drive for net-zero emissions. Minimising emissions from their core operations, notably methane, is an urgent priority. In addition, there are technologies vital to energy transitions that can be a match for oil and gas company capabilities, such as carbon capture, low-carbon hydrogen, biofuels and offshore wind. In many cases, these can help decarbonise sectors where emissions are hardest to tackle. It’s encouraging to see some oil and gas companies scaling up their commitments in these areas, but much more needs to be done,
…said Dr Birol.