Times are tough for oil and gas companies. Not only are their margins thinning, oil prices fluctuating and demand stagnating, but they are also part of the one of the most widely demonised industries in the world. On top of that, some analysts are predicting an imminent (and permanent) industry slowdown.
Even before the pandemic decimated global oil demand, the phrase “peak oil” had started to float around. Once we hit that, it’s all downhill from there.
Understandably, most oil and gas CEOs are not fond of the concept, but is it time to acknowledge that demand for oil is simply not going to rebound to 2019 levels? British Petroleum seems to think so. In its annual energy outlook, BP outlined three potential futures for the oil and gas sector and the most optimistic scenario still predicted that oil demand would remain “broadly flat” in the next 20 years as the world transitions to lower-carbon energy.
But nobody seems to be in agreement. Analysts have wildly different viewpoints on the timeline for peak oil demand and the pace of the energy transition. For example, a 2020 report by McKinsey states that “under most scenarios, oil and gas will remain a multi-trillion-dollar market for decades.” Others have predicted peak oil in 10 years, some in 30. There simply isn’t a consensus.
A new market landscape
Billions of people still suffer from energy poverty, and for them oil and gas is an affordable lifeline to a higher standard of living. We don’t know how long it will take for renewable and alternative sources of energy to become affordable and accessible enough to cater to these groups and, more broadly, to effectively power the world without interruption.
Regardless of these uncertainties, climate change is still happening – and the energy transition still needs to happen. So, oil and gas companies have to adapt to the new market landscape and pivot their business models.
The stakes for companies like BP are quite different than for national oil companies (NOCs) in our region. As government-owned entities, NOCs play an undeniably vital role in GCC economies, and each extracts the natural resources of its own nation. That also means that the owners of those oil companies are more heavily invested in the future of their country and the safety of their people.
As a result, we are starting to see a shift in strategy. NOCs are investing in downstream – the part of the industry that turns oil and gas into other products – which would help keep them in business if renewables become major sources of energy. It would also give them a degree of protection against low oil prices.
Companies like Saudi Aramco and ADNOC are also investing in carbon capture technology, which will help remove emissions from the atmosphere and potentially use the carbon to create other products or to help increase oil production.
Being part of the solution
Oil and gas isn’t going to disappear – and most people don’t even realise the thousand different ways they are using oil and gas products every day other than power generation. Still, all oil and gas companies are feeling the pressure of this ongoing global shift, and despite generally negative perceptions of the oil and gas industry, NOCs are not really trying to deny it. All members of OPEC openly accept that climate change is real, acknowledge the impact of the oil and gas industry, and are taking steps to be part of the solution.
No one can give an easy, definite answer about the end of oil demand – but it is pretty easy to pick up on the start of a major transformation in the industry. If oil and gas companies want to be a part of the future and remain relevant, they have to continue the trend towards a cleaner industry with a more sustainable, diversified revenue streams.
Much like the 2014 oil price crash and recent market shocks, the energy transition is an opportunity in disguise – transform and reap the benefits, or perish.
Carla Sertin, editor-in-chief, Oil & Gas Middle East
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