Oil demand, prices to fall rapidly this decade with energy transition

May 21, 2021 News

– US$14 trillion in investments hangs in the balance-Wood Mac

Kaieteur News -If the world continues to act decisively to limit global warming to 2 degrees Celsius by 2050, then oil prices as well as demand will take a hard hit before the end of this decade says Wood Mackenzie, one of the industry’s leading consultancy groups.
In its latest contribution to the international discussion on the need for cleaner energy sources, Wood Mac said it has always been known that oil and gas is a risky business. As time progressed, those risks have been tempered by a single tenet – that demand for fossil fuel would continue to rise indefinitely. But that belief, Wood Mac articulated, all but evaporated with the unexpected emergence of the novel coronavirus (COVID-19) last year. And with the renewed efforts to transition to cleaner sources of power, the future does not look promising for the upstream sector said the consultancy group.
Following its latest assessment of the implications in various demand and supply scenarios, Wood Mac said the transition leaves US$14 trillion in oil and gas asset investments hanging in the balance.
With this in mind, Wood Mackenzie’s Vice President, Fraser McKay, said, “The industry now finds itself having to supply oil and gas to a world in which future demand – and price – are highly uncertain. The range of possible outcomes is dizzying. But the world will still need oil and gas supply for decades to come…” While this is the case, McKay said the industry players will need to remain relentless in their push to improve efficiency, drive down costs and deliver projects flawlessly. He stressed that oil and gas companies will also need to send a strong signal to stakeholders that they can be reliable stewards of capital.
In lending his voice to the subject matter, Wood Mackenzie’s Research Director, Angus Rodger, was keen to note that “only exceptional, low-cost projects will work in all demand scenarios” while adding that “inevitably, the cost of capital and the cost of doing business in oil and gas will increase.”
Like McKay, the Research Director agreed that oil and gas companies must improve their environment, social and governance (ESG) credentials. He said that the bond of trust with stakeholders must improve. He said, “For the biggest players, new energies will play an increasing role, but this is a not an option for many industry participants. They will need to cut Scope One and Two emissions to reduce their exposure to increasingly expensive debt.”

The Wood Mac official added as well that investment will shift to gas, ending oil’s long supremacy. He said the industry will have to figure out the conundrum of weaker economics if the giant gas projects the world needs are to happen.

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