OPEC Struggles To Manage “Permanent Demand Destruction”
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The oil industry has been hit hard by a number of things this year that have led to a decrease in demand. The biggest one, of course, is the coronavirus pandemic. People aren’t driving as much these days as they stay close to home. The airline and cruise ship industries have been crushed by the virus, leaving airplanes and ships sitting idle waiting for business to return. Industrial activity has been greatly reduced as well, and don’t forget to factor in the switchover to electric vehicles and renewable energy, too.
Then there is the turmoil within the industry caused by plummeting prices amid wrangling between the members of OPEC about how much oil they each should produce. The upshot of all those factors has some people in oil producing nations wondering whether we are seeing “permanent demand reduction,” according to a report by Reuters.
Reuters interviewed 7 current or former OPEC officials, most of whom asked to remain anonymous. “People are waking up to a new reality and trying to work their heads around it all,” one said, before adding “the possibility exists in the minds of all the key players” that consumption might never fully recover.
One official, who works in energy studies in the oil ministry of a major OPEC member, said shocks to oil demand had in the past led to permanent changes in consumer behavior. He thinks this time is unlikely to be different. “The demand does not return to pre-crisis levels or it takes time for this to happen. The main concern is that oil demand will peak in the next few years due to rapid technological advances, especially in car batteries.”
In 2019, world oil consumption averaged just under 100 million barrels per day. But so far this year, with so many economic sectors affected by the virus, that number has fallen to about 91 million barrels per day. OPEC does not foresee demand rising to 2019 numbers again until 2021 at the earliest.
Producing nations, energy analysts, and oil companies have long tried to work out when the world would reach “peak oil,” the point after which consumption starts permanently falling. OPEC has been scaling back expectations for years. In 2007, it forecast world demand would hit 118 million bpd in 2030. By last year, that forecast had dropped to 108.3 million bpd. Its next report, coming in November, is expected to show another downward revision, an OPEC source says. Consulting group DNV GL believes demand may have actually peaked in 2019.
“Once aviation recovers by the end of 2023, demand will go back to normal — aside from the competition from other sources of energy,” said another OPEC official involved in forecasting. The International Air Transport Association has similar expectations. It says it does not expect air travel to reach 2019 levels until 2023, if then. To some, even those expectations may be too optimistic and may be little more than whistling past the graveyard, hoping against hope that things will return to normal — eventually.
OPEC has weathered many challenges in the past, but now it may have to learn how to live with long term decline. “This trend will put a stress on the cooperation between OPEC members, as well as between OPEC and Russia, as each strives to maintain its market share,” Chakib Khelil, Algeria’s oil minister for a decade and twice OPEC’s president, tells Reuters.
Many nations depend almost entirely on oil revenues to balance their budgets, particularly Russia and Venezuela. “Many challenges are ahead, and we have to adapt,” said one OPEC delegate, who said the group’s handling of past crises proved it was able to respond.
Hasan Qabazard believes OPEC might have a little more time to adjust before demand peaks, but the deadline for the group to adapt is fast approaching. “I don’t think it will go higher than 110 million barrels per day by the 2040s,” he says, noting that the COVID-19 virus may have changed consumer habits for good.
We can only hope. As CleanTechnica noted recently, getting back to normal is the last thing the world needs, if normal means extracting every drop of fossil fuel and burning it to add to the atmospheric pollution that is already choking the environment — and many humans as well. Don’t weep for the oil producing nations. They, more than anyone, have conspired to create the existential crisis posed by a warming planet.
Sickness, shorter lifespans, unequal impact on the poor and communities of color — the focus going forward must be on climate justice, social justice, and racial justice. Anything else is just a self-serving excuse for the wealthy to help themselves to an even bigger slice of the pie than they already have. It’s not fair to blame oil and other fossil fuels for all the world’s ills, but it’s a good place to begin analyzing where we are, how we got here, and what a sustainable path forward looks without carbon emissions.
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