Oil demand expected to peak no later than end of 2020s
According to various scenarios, global oil demand is likely to peak until the end of this decade. Thus, key oil producers should hurry up to capitalise on their oil reserves while demand is still high.
Several large oil-producing nations including Russia plan to boost their production capacity in the near future, as they are determined to make the most of their oil resources while they can, says Oilprice.com. BP’s worst-case scenario assumes that the peak oil demand has already arrived, while in the best-case scenario, it will come in 2030. Equinor expects oil demand to peak in 2027-2028, and Rystad Energy sees demand peaking in five years.
In any case, key oil producers have very little time to make the most of their oil reserves before demand starts to decline steadily. Moreover, if multiple countries boost their production capacity, competition in the oil market will inevitably become even more acute than it is now. Russia, which is one of the three biggest oil exporters in the world, is positioned rather favourable. While the country has enough oil to keep producing at current rates at least until 2080, it is also less dependent on oil export revenues compared to its Middle Eastern competitors. With oil and gas revenues still accounting for 30% of GDP, Russia is slowly but surely moving towards diversification. Nonetheless, the state is pouring billions into the development of new oil reserves in Eastern Siberia to replace depleting fields in Western Siberia.
According to the Russian Ministry of Energy, the country has no plans to boost current production rates significantly. The ministry sees the current production rate rising from 10,3 million bpd to 11,1 million bpd by 2029 before beginning to decline. In 2019, the daily production rate amounted to record 11,3 million bpd. Nonetheless, the government aims at “monetisation of current reserves and resources”, stated Chairman of the Committee on Energy of the State Duma Pavel Zavalny last month. “Everything that can be produced should be produced while there is still demand to sell it,” he said.
As for demand, Russia has mixed luck with export destinations. While its biggest buyer, China, is good for future oil asset monetisation plans, the second-biggest client, Europe, is set to consistently reduce its oil purchases under the EU’s energy transition scheme. To compensate for this decline, Russia will need to find new buyers, and India is an obvious candidate. However, here and in the rest of emerging Asia, Russia will have to compete with its OPEC partners and the United States.
On the other hand, even if peak oil demand comes in ten years or earlier, it does not mean that consumption will then fall off a cliff, notes Oilprice.com adding that gradual decline will give forward-looking producers plenty of time to adjust by boosting their non-oil sectors.