The economic fallout from the COVID-19 pandemic and energy transition is suppressing oil demand to such a degree that some energy analysts are questioning whether it will accelerate society’s transition from fossil fuel.
Rystad Energy, an independent research firm in Norway, predicts that oil demand will now peak at 102 million barrels per day in 2028, two years earlier than they predicted before the virus struck with previous estimates of 106 million bpd peak in 2030.
Rystad Energy put the change down to the lasting impact expected of the Covid-19 virus on global oil demand which has driven down daily crude consumption by as much as a third earlier this year, at a time when the rise of electric vehicles and a shift to renewable energy sources were already prompting downward revisions in forecasts for long-term oil demand.
The timing of peak demand has big repercussions for the planet and future of oil producers most especially countries like Nigeria who finds itself in a precarious situation because oil exports account for more than half of its government revenue and 90 percent of its foreign-exchange earnings.
Nigeria’s plight is playing out across the world: from Venezuela to Iraq and Iran, petrostates are grappling with the same bleak future — one where their prized commodity is worth a much less than it was, and where private companies often still want their cut.
Read Also: Benefits of reforming Nigeria’s oil, gas sector go beyond money – Ayuk
Rystad Energy’s modelling is based on the most likely of three scenarios, one that they call the “Governmental Targets Scenario”. In this model, the firm is assuming that the share of oil in various sectors will develop in line with stated government goals to move towards a cleaner carbon future – particularly highlighting the widely planned electrification of transport.
Demand in 2020 is expected to have fallen to 89.3 million bpd, down from 2019’s 99.6 million bpd. Rystad predicts a recovery to pre-virus levels will take until 2023 with an estimated 100.1 million bpd – assuming an ending to regional lockdowns and at least partial recovery of international aviation.
Artyom Tchen, Senior Oil Markets Analyst at Rystad Energy said the slow recovery will permanently affect global oil demand levels, shaving at least 2.5 million bpd off our forecasts made before the coronavirus.
“We have lost at least 2 years of oil demand growth in 2020 and 2021, while before the virus we expected yearly growth of 1 million bpd. The lockdowns will stunt economic recovery in the short-term and in the long-term and the pandemic will also leave behind a legacy of behavioural changes that will also affect oil use,” Tchen said in a note.
In the short-and-medium-term, Rystad also accounts for an indirect impact of Covid-19 on oil demand prompted by individual behavioural changes.
Although some more months will be needed to fully assess how the pandemic has reshaped peoples’ habits and companies’ business models, however, the energy intelligence firm already observed some behavioural headwinds to oil demand recovery from slower rush-hour traffic recovery in summer, an indication that a fraction of commuters will continue working from home even after lockdowns are lifted.
Supplementing the effect of Covid-19 on oil demand, the energy transition is accelerating and also weighs on Rystad’s peak oil demand revision.
All sectors contribute to the transition, but transport (60 per cent of oil demand) will be the ultimate driver of this shift.
“Overall, we do not believe Covid-19 has put peak oil demand behind us, but we do acknowledge the pandemic will greatly alter the peak oil demand reckoning moment, both in terms of timing and volumes. This will help oil substitution gain speed and inevitably take global consumption to lower levels quicker, hand in hand with the energy transition,” Tchen noted.
