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Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

The debate about emissions reduction and the path forward for oil companies moved to a whole new level since the International Energy Agency (IEA) dropped last month the bombshell report suggesting no new investment in oil and gas would be needed if the world is to reach net-zero emissions by 2050.

Environmentalists and activist shareholders intensified pressure on large public oil firms to align their businesses with a net-zero scenario, while some of the international majors acknowledged they have a part to play in the energy transition.

But the leaders of the OPEC+ group, Saudi Arabia and Russia, will continue to invest in oil and gas because, they say, the world will still need those resources for decades, despite the growing push against fossil fuels and investment in new supply.

Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies’ Patrick Pouyanné say.

While international oil majors were somewhat more contained in their views on the IEA report—those that commented on it anyway—Saudi Arabia and Russia didn’t beat around the bush and said outright that the suggestion of no new oil and gas investments ever is “unrealistic,” “simplistic,” and taken out of a “La La Land” script.

BP’s chief executive Bernard Looney wrote that forecasts of much lower investments in oil and gas were “in many ways consistent with our approach – to reduce our oil and gas production by 40% in the next decade.” Eni’s CEO Claudio Descalzi commented on Looney’s post that “We are now at a historic turning point, where each of us needs to play an active role.”

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Is An Oil Supply Crunch Inevitable?

Is An Oil Supply Crunch Inevitable?


Global oil demand will peak by 2040, according to a new report, although oil supply shortages could emerge before then.

The International Energy Agency (IEA) published its highly-anticipated World Energy Outlook 2018 on Tuesday, one of the most important energy forecasting reports published each year. In this year’s Outlook, the IEA noted that global oil demand is set to rise by 1 million barrels per day (mb/d) each year through 2025, before slowing dramatically to 0.25 mb/d thereafter.

Electric vehicles are already making inroads in the transportation sector, and that is expected to accelerate in the years ahead. By the mid-2020s, the IEA says that oil demand peaks in the market for passenger vehicles, even as vehicle sales rise by 80 percent through 2040. The agency sees 300 million EVs on the roads by 2040, which should displace about 3.3 million barrels of oil demand.

Still, demand continues to grow and doesn’t peak until 2040, which, at this point, is a pretty conservative estimate in the universe of peak demand forecasts.

The reason for this is that the IEA believes that other sectors start to take on a growing importance in driving oil demand. Everyone thinks of cars and trucks as the main source of oil demand, but over the next two decades, petrochemicals, aviation and heavy trucking account for the lion’s share of demand growth. Here are a few key figures in the IEA’s main forecast:

• Petrochemicals see 5 mb/d of demand growth, the largest of any sector.

• Heavy trucks account for 4 mb/d of demand growth through 2040, even though vehicle and logistical efficiencies avoid nearly 5.5 mb/d of additional demand growth.

• Developing economies see more than 5 mb/d of demand growth for passenger vehicles, but that is just about entirely offset by declining demand (largely due to EVs) in advanced economies.

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