Chatham House debate ‘What’s Next for the Oil Industry’

OPEC - oil to dominate out to 2045. The Economist - back to pre-covid by 2023. Chatham House - in all scenarios, boom times over for oil and gas. Wilson Center - industry ‘permanently damaged’ by covid. Hydrogen - the new CCS?

OPEC’s Ayed Al Qahtani sees Global GDP bouncing back in 2021, led by China and India. Oil demand, that contracted by 9% in 2020, is to grow by 6% in 2021, again led by China. All energy sources are needed to match demand out to 2045. Renewables are the fastest growing, but crude will maintain its dominance. Oil and gas will supply over half of the world’s energy needs out to 2045. To keep up, upstream spend needs to average $380 billion/year for a cumulative capex of $3 trillion by 2045. More on this in the OPEC World Oil Outlook 2045.

Cailin Birch of The Economist Intelligence Unit sees a return to a pre-covid situation by 2023. Despite the recent price recovery, supply remains ample. OPEC+ unity needs to stick if prices are to maintain. While the Saudis need cash to fund their megaprojects, Russia can live with $45-ish oil.

For Valerie Marcel (Chatham House) in all scenarios, the boom times are over for oil. Investors are looking for stability and less risk. After the pandemic, many oil sectors will not take-off. Oils are under pressure to find low carbon, easier projects. Emerging producers do not have the infrastructure to handle this. They need to diversify and should avoid taking on debt in the expectation of future revenues that may not materialize. Marcel also stressed the importance of international management of covid in the energy transition. If this is unsuccessful and covid comes back again and again, investment will be difficult, and countries will retrench for survival. With better covid management there will be more opportunity for investment in renewables.

Montserrat Ramiro from the Wilson Center looked at the oil business through the different lenses of the short-term social imperatives of covid and the longer term issue of climate change. Oil is not going to go away any time soon but has the industry has been already been permanently changed by covid. Not all lost demand will return and the climate imperative is driving change and diversification – witness Saudi Arabia’s actions in renewables. Long-distance mobility (i.e. air travel) is an unsolved problem.

Chatham House’s Paul Stevens lightheartedly compared today’s enthusiasm for hydrogen as the new energy savior with an earlier dalliance with carbon capture and sequestration. There followed a ripple of amusement from the panelists. Al Qahtani appeared to agree, comparing the IEA estimate of the cost of CCS ($ zillions) with what we have today (not much!). Ramiro was more optimistic. Incentives drive change. Solar costs are down 90% and wind by 50%. Hydrogen will go the same way. Storage, renewables and other costs are falling. Hydrogen will be significant in helping the oil industry to ‘not die down completely’.

More from Chatham House.

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