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Global oil demand has passed peak forever, BP report says

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Oil will be replaced by clean electricity, a report from BP says, as the Covid-19 pandemic impacted and has almost certainly permanently changed demand.

In its annual report about the future of energy, published today, BP has written that the worldwide demand for oil may have peaked and that the fossil fuel industry now faces an inevitable slow decline over the coming decades.

The report states that the impact of the coronavirus pandemic has been such that demand may now start to fall in absolute terms for the first time in modern history. This, coupled with a societal shift to "build back greener", as per the UK government's new mantra, will place greater emphasis on cleaner, renewable sources of energy, such as wind, solar and hydropower. Renewable energy has consistently set, broken and set again new records for use by countries worldwide over the last decade.

BP's report suggests that demand for oil reached its peak in 2019. Only a few months later, as the coronavirus pandemic hit in early 2020, this demand collapsed to such an extent that the value of the price of oil dropped to a negative dollar value per barrel.

Predicting oil demand for the next 30 years, the report posited three scenarios for global energy use: two out of the three indicated that oil has already peaked.

The report’s leading scenario, aligned with the goals of the Paris Agreement to keep global temperatures below 2°C above pre-industrialised levels, shows the demand for oil falling by 55 per cent over the next 30 years. The report’s second, greenest scenario, in which the world aims to limit global heating to an increase of 1.5°C, sees oil demand falling by up to 80 per cent by 2050.

BP’s 'best-case' third scenario for oil - predicated on climate action not accelerating, which does require a certain suspension of disbelief - sees oil demand plateauing at 2019 levels throughout the next decade, before inevitably trailing off into decline from 2035.

All three scenarios indicate oil to be in decline; the questions appear to be merely how soon and how quickly.

“In all three of these scenarios the share of renewable energy grows more quickly than any energy fuel ever seen in history,” said Spencer Dale, BP’s chief economist.

Dale said the company’s vision of the world’s energy future was now greener, precipitated by Covid-19 and the accelerating pace of climate action, a combination which has hastened “peak oil”.

Bernard Looney, BP’s chief executive, said the findings would help the company to “better understand the changing energy landscape” and would help to shape its plans for becoming a net-zero energy company by 2050.

Earlier this year, Looney said that he would “not write off” the possibility that coronavirus might signal the terminal demise of oil demand, saying that he was “more convinced than ever” that BP must embrace a low-carbon future.

Dale is due to present BP's energy vision, based on the findings of the new report, to investors this week during a three-day event at which he will detail the company's ambition to become a carbon-neutral energy company by 2050.

In pursuit of this, BP announced plans in August to grow its low-carbon investments eightfold by 2025 and tenfold by 2030, whilst simultaneously cutting its fossil fuel output by 40 per cent from 2019. Last week, the oil company made its first investment in the offshore wind industry, paying $1.1bn (£860m) for a stake in two projects owned by Equinor of Norway - an indication of its commitment to spending $5bn a year over the next decade to create one of the world's largest renewable energy businesses.

BP's report suggests that the part played by renewables in the world's energy mix could increase from around 5 per cent today to anything between 20 per cent and 60 per cent by 2050, although concerns still linger over the ability of renewables alone to fulfil energy demands.

Economic advisors have increasingly begun steering investors away from companies overly reliant on a fossil fuel business model, as they are now often perceived as representing a poor long-term investment, based on various data projections. The economic realities are that investors' money is increasingly moving in the direction of companies and projects that have pledged a low-carbon future, as governments and major corporations worldwide adopt greener policies and impose new carbon taxes.

Dale said that BP believes the decline in growth, as a result of the pandemic and the world's consequent focus on future climate concerns, will fall hardest on emerging economies such as India, Brazil and countries in Africa, which have all been key drivers of the growth in oil and other energy demands in recent years.

People travelling less, especially flying, will impact energy demand, BP said. The push towards uptake of electric vehicles alone will have a significant impact on the demand for oil (albeit this being a drive that will also result in a drain on the world's rare earth minerals for batteries). "The scale and pace of this decline is driven by the increasing efficiency and electrification of road transportation," the report states. Limits on the production of plastics will also negatively affect oil demand, as global levels of their petroleum-based manufacture decreases.

However, while demand for oil and other fossil fuels such as coal are shrinking in some markets, in other areas of the world it is still increasing, with China in particular using significant amounts of oil and coal in new power stations. There is also the question of production for a number of heavy industries - such as steel - and high-precision electronics having largely moved overseas, particularly to China, so while energy demand decreases in certain territories, it is sustained, and even increased, in others. At the same time, China has the world's highest adoption rate of electric vehicles amongst its population.

However, the overarching trend, the BP report concludes, is that globally, long-term, oil may have inexorably passed peak demand.

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