An interesting read in the Financial Times explored the estimated premature ‘peak oil’ as a result of the current COVID-19 crisis.
As it is well known, due to the current pandemic, oil prices have declined as much as 1/3 at the peak of the virus in April. This resulted in travel bans, restrictions and lockdowns, with the industry recognising that the impact of the virus may continue to have serious effects on the market for years to come. Following this, an influential research firm has dropped its estimation of potential oil production by an amount that exceeds the reserves of Saudi Arabia.
Rystad Energy published an annual report which estimated the recoverable barrels of crude had dropped from 282bn barrels to 1.9tn barrels since 2019. As our consumption of oil changes, oil companies are more likely to abandon exploration.
The head of analysis at Rystad Energy, Magnus Nysveen, suggested that ‘“peak oil” is now a litter closer’, estimating that “peak oil” may occur as soon as 2027 or 2028 instead of the original estimation of 2030.
Magnus Nyveen stated that the decline in crude priced will cause drilling activity to drop in the near term, leading to a spike in 2023 and 2025. The fall in demand combined with the rise in environmental consciousness amongst investors, and the battel against electric vehicles and combustion engines coming head to head, oil producers may be discouraged from pouring money into projects and abandon exploration plans.
However, once “peak oil” passes, there is still a likelihood that there will be a demand for crude for a significant time period. Even as the use of crude shifts, petrochemicals will still be used from packing to shoes. To quote Mr Nysveen “ there will still be oil demand for 100 years to come”.