OPEC sees oil plateauing in demand in 15-25 years but retaining energy dominance

Accelerated momentum behind energy transition will take but a small bite out of oil, with liquid fuels remaining the largest source of energy over the coming decades, OPEC said Sept. 28, casting doubt on the ability of renewables to reach significant scale.

The organization predicted that long-term global oil demand will rise almost 20% from a pandemic stricken 90.6 million b/d in 2020 to 108.2 million b/d in 2045, from which it will remain largely flat.

The growth will be frontloaded in the first five years, when oil demand will rise 2.6 million b/d annually to 103.6 million b/d in 2025, surpassing pre-pandemic levels, before slowing to 600,000 b/d from 2025-2030 and then 300,000 b/d from 2030-2035.

The figures are contained in OPEC's latest annual World Oil Outlook, the bloc's long-term energy market roadmap, and come as world leaders are preparing to gather in November for the UN Climate Change Conference, or COP26, in Glasgow, Scotland, where western countries say they will continue to press for aggressive decarbonization targets.

"There are still considerable doubts as to whether all these ambitious climate-mitigation commitments will be met in the proposed time frame," OPEC said in its report, adding that renewables, while fast growing, will comprise just 10% of the global energy mix by 2045.

That compares with 28% for oil, which is marginally down from 30% in 2020, according to the forecast.

OPEC Secretary General Mohammad Barkindo said the report illustrates how critical the oil industry will be to future economic development and in addressing energy poverty in poorer nations, which he warned that COP26 participants should not ignore.

"We need to embrace and engage all energy stakeholders to ensure we have an equitable energy transition," he said. "Given the great importance of energy in our daily lives, it is something we have to get right."

Still, the latest estimates indicate a growing acknowledgment of the increasing pace of clean energy policy announcements and technological advancements.

The 2045 forecast is down almost 1 million b/d from last year's World Oil Outlook, which predicted a demand peak of 109.3 million b/d in 2040 before declining to 109.1 million b/d in 2045.

Two years ago, the report estimated 2040 demand would reach 110.6 million b/d.

"Developments during the past year have made it clear that there are a number of uncertainties related to the main factors affecting future oil demand," the report stated.

S&P Global Platts Analytics expects global oil demand to peak in 2038 at 114.6 million b/d.

OPEC+ production cuts

In the immediate term, the outlook may guide OPEC and its allies, including Russia, as they continue to unwind their historic production cuts implemented during the worst of the pandemic-induced price crash in 2020.

The current pact calls on the 23-country OPEC+ group to ease the cuts by 400,000 b/d every month through the end of 2022, when it is hoped that the oil market will have fully rebounded from the pandemic.

However, the World Oil Outlook said that aviation, the industry hardest hit by COVID-19, may not see a full recovery until 2024.

Oil prices are already ahead of the curve, hitting three-year highs in recent days, despite still significant questions surrounding the trajectory of coronavirus infections. The coalition is scheduled to meet Oct. 4 to decide on November quotas, with an eye on how to manage 2022 production volumes.

The World Oil Outlook forecast that non-OPEC liquids production will rise from 62.9 million b/d in 2020 to a peak of around 71 million b/d around 2030 and then decline to 65.5 million b/d in 2045, essentially level with pre-pandemic 2019 levels.

US tight oil production will peak around 15.2 million b/d in the late 2020s, with total US liquids maxing out at around 20.5 million b/d, the forecast stated.

As a result, OPEC's market share should rise from 33% in 2020 to 39% in 2045, according to the report.

To meet market needs, some $11.8 trillion in oil-related investments will be required through 2045, mostly in the US upstream, OPEC said.