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Oil will be ‘number one energy source for decades’, says Opec

The Opec oil cartel has issued a reminder that crude will continue to be the world’s leading source of energy for decades, driven by less-wealthy countries seeking higher economic growth and improved standards of living.

Opec's bullish pronouncement comes as nations prepare to gather for the COP26 climate summit in Glasgow to discuss ways in which the world's population can continue to limit the negative effects of climate change, with the primary goal of limiting temperature rises to 1.5C above pre-industrial levels.

In its annual 'World Oil Outlook' (WOO) report, Opec acknowledged that increasing the number of electric vehicles on the world's roads and the push for alternative and renewable energy will indeed usher in an era of declining demand for oil in rich countries.

However, the report also noted that the long-term energy needs of expanding economies in other parts of world will still leave oil as the world’s number one source of energy until at least the year 2045.

The long-term report was released against the background of sharply higher oil and gas prices. The price of Brent crude hit a three-year high of over $80 per barrel yesterday (Tuesday, 29 September), while the US oil benchmark rose to $75.92, also a three-year high.

Hurricane Ida slammed into a critical port that serves as the primary support hub for the Gulf of Mexico’s deepwater offshore oil and gas industry in the US. At the same time, Opec has increased production slowly after deep cuts in 2020 during the depths of the pandemic.

“What is clear in this year’s WOO is that energy and oil demand have picked up significantly in 2021, after the massive drop in 2020, and continued expansion is forecast for the longer-term,” the report said.

“Global primary energy demand is expected to increase by 28 per cent in the period between 2020 and 2045, with all energies required, driven by an expected doubling in size of the global economy and the addition of around 1.7 billion people worldwide by 2045.”

Only coal will see less use, while other sources of energy will see increasing demand, though the share will shift to include a bigger proportion for renewables, nuclear and natural gas, according to the group.

The 340-page report sketches out a future of declining demand for oil in wealthier countries that belong to the 38-member Organisation for Economic Development and Cooperation, as efforts to fight climate change take hold in the form of renewables and alternative fuels in cars, airplanes and ships.

It forecasts that the world’s vehicle fleet would grow by 1.1 billion to 2.6 billion by the end of the report’s time frame in 2045 and that 500 million of those would be electric powered - 20 per cent of all vehicles.

However, growing populations and expanding middle classes in the rest of the world - notably including China and India - will mean increased demand for oil between 2020 and 2045, although much of that increase will take place in the earlier part of that period, the report produced by Opec’s secretariat in Vienna said.

The report predicts that oil will satisfy 28.1 per cent of the world’s energy demand by 2045, down from 30 per cent in 2020 but ahead of natural gas at 24.4 per cent and coal at 17.4 per cent. Hydroelectric, nuclear and biomass energy sources and other renewables such as wind and solar will make up the rest of the global energy mix.

A key reason cited for declining energy use in more developed countries of the world was demography: shrinking and aging populations that usher in lower economic growth.

The report noted that growing awareness of the need to accelerate actions to address climate change have resulted in ambitious new policy intentions to reach net-zero emissions by 2050. The European Union, the United States, Japan, the UK, Canada and Brazil have all proposed roadmaps to meet these new goals.

The Opec report, however, noted drily that “considerable doubts as to whether all these ambitious climate-mitigation commitments will be met in the proposed timeframe”.

For example, the European Union in July spelled out its 'Fit for 55' package, in which the 27-country bloc vowed to reduce emissions by 55 per cent from 1990 levels by 2030. Opec said that the plan “remains exactly that for the time being: a plan, which still needs to be negotiated and agreed by all EU member states, leaving ample scope for exceptions and watering-down”.

The UK will host the 26th UN climate change conference from October 31-November 12 in Glasgow, where national leaders will seek ways to reduce the emission of greenhouse gases and limit the rise in global temperatures.

Opec's latest statements paint a more optimistic future for oil than BP, which in its own annual report issued in September 2020 stated that global oil demand had passed peak forever and that the fossil fuel industry now faces an inevitable slow decline over the coming decades.

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