Big oil era predicted to decline in 30 years

Global oil production can drop to 80% by 2050 if more countries switch to renewable energy sources, BP experts predict

BP has developed three main scenarios for the global transition to renewable energy sources until 2050, following the negative OPEC forecast for oil. The most severe — Net Zero — threatens to reduce oil demand by 80-85% in the next 30 years and complete rejection of oil by 2050. The moderately realistic scenario — Rapid — assumes the displacement of oil from the world energy balance from 30% to 14%, while the conservative one — Business-as-usual — assumes that the previous volumes of oil consumption remain.

BP calculates when life without oil will come

The review of global energy development until 2050 published this week by British oil giant BP suggests that the peak in global oil demand is likely behind us. Analysts believe that the volume of its consumption is likely never to return to the level of 2019.

The review presents three main scenarios for the transformation of the global energy system. Experts proceed from the understanding of the inevitability of a “fundamental restructuring” of the world economy in order to switch to low-carbon technologies (decarbonization). This is expected to cause deep problems for the oil industry.

Which way the industry will go depends largely on what the carbon tax will be.

“Both Rapid and Net Zero assume a significant increase in carbon prices (carbon tax), which by 2050 will reach $250 dollars per tonne of CO2 (in accordance with 2018 prices) in developed countries and $175 dollars in emerging economies," BP experts write in their review.

But if the third scenario is implemented (BAU, or Business-as-usual), then the tax per tonne of CO2 emissions by 2050 will be 65 and 35 dollars, respectively. However, all three scenarios involve a decrease in the share of hydrocarbons (coal, oil, and natural gas) in the global energy system. However, depending on the scenario, its scale varies significantly.

It is important to understand: analysts make an important caveat that “the scenarios are not predictions of what might happen, or what BP would like to happen”. Rather, the described options for the development of oil industry help to show the range of possibilities of the events that will play out over the next 30 years.

Three scenarios

Rapid transition scenario assumes that a number of political measures will be taken leading to a significant increase in the carbon tax. These measures will be supported by targeted industry regulations that will reduce energy's carbon emissions by about 70% by 2050. The share of oil in the global energy balance will be reduced from 30% to 14% — respectively, the volume of daily production will be halved and will amount to 55 million barrels. At the same time, the share of renewable energy in the global energy mix will grow from 5% in 2018 to 45% by 2050.

Net Zero scenario assumes that the same political actions that will be implemented in Rapid will also be supported by significant changes in the behaviour and preferences of society, and this will further reduce the carbon footprint of humanity. Thus, by 2050, global carbon emissions from energy consumption will be reduced by more than 95%. This harsh option involves almost complete rejection of oil, as a result of which the consumption of “black gold” will collapse by 80-85%.

And finally, Business-as-usual scenario assumes that public policies, technologies, and social preferences will continue to evolve in the same way as in the recent past. The demand for oil will remain relatively stable and will decline very slowly — by only 10% over 30 years.

BP analysts suggest that oil demand will fall by more than half — by 55%, and if as many countries as possible comply with the Paris Agreement, it will fall by 80% by 2050.

In part, negative forecasts are beginning to come true. This week, Russian Finance Minister Anton Siluanov said that global oil demand is recovering slowly, which means that the three-year budget (2021-2023) will include the price of oil no higher than $43-44 per barrel.

“The level of our forecast prices will be just next to our estimates of the base oil price. Is it much or little? The base price of oil — it roughly corresponds to the current estimates of experts in the forecast of prices for the future. We do not see any reason to set higher forecasts for oil prices here, since we see that global oil demand is recovering, but not as fast as it could. Therefore, we have laid, I would say, a moderately conservative level of oil prices in the forecast — about $43-44 per barrel," the Russian finance minister said.

What will happen to Russia?

Realnoe Vremya interviewed oil market experts on how the Russian energy industry and economy might react to the implementation of a particular scenario proposed by BP experts. Vasily Tanurkov,the director of the Accounting and Corporate Regulatory Authority (ACRA), cautions against considering these scenarios in the context of only one country:

“It is hardly possible to talk about a scenario for a single country — we are talking about global scenarios that will affect the oil market on a global scale. At the level of individual countries, we can only consider the pace of implementation of certain technologies (primarily electric transport). At the same time, it is obvious that in most oil-producing countries (with the exception of Norway), these rates will not be high in the foreseeable future. And in general, Rapid and even more Net Zero scenarios look like unlikely and opportunistic.

Tanurkov believes that our economy will be affected not by carbon footprint but by European regulation in this area, which may lead to a reduction in the profitability of deliveries to the European market. But keep in mind that in any case, Europe will not be the main driver of oil consumption.

According to the expert, the scenario will be common for all oil-producing countries, while the dynamics of oil production in the countries will depend on the level of oil prices and production costs. It is obvious that if long-term oil prices remain low ($40 or lower), there will be a long-term reduction in production in a number of high-cost countries, while low-cost countries (primarily the middle East and Russia) will increase their market share.

“It would be better if the world stopped burning coal”

Professor Danis Nurgaliev, the director of the Institute of Geology and Petroleum Technologies at the Kazan Federal University, believes that it is too early to be afraid of a global collapse of the oil industry:

“I agree that the world will not return to the previous level of oil consumption, but demand will still recover by 90-95% in the coming years. Today, there is no alternative to oil on the horizon until 2050-2060. Current renewable energy sources cannot meet the huge demand for energy so quickly. A 5% drop in demand on the global market is already quite a big loss.

Nurgaliev sees the problem in another way: oil production in Russia should be competitive on the world market, but we are a little behind here. “In my opinion, today we need to increase attention in this direction. Russia has a lot of oil. There is also a lot of cheap oil that can be extracted easily. Open reserves are prepared for decades to come. But it is necessary not just to stupidly develop production but to make it economical and environmentally friendly. Russia has huge reserves that will be realised and extracted under any scenario conditions. Until 2050-2060, there is nothing to fill the energy sector with except oil," the professor says.

“It would be better if the world stopped burning coal. China gets 60% of its needed energy from coal burning, while in the US it accounts for 20%-25%. The era of black coal ended 100 years ago, but the world's dirtiest fuel continues to be used. It would be better if the world powers switched to gas. Then the planet would be green!

As for the carbon tax, Nurgaliev believes that it is a whim of those countries that do not have large oil reserves:

“This is not yet accepted, but it is being discussed how oil producers will have to pay it. If the carbon tax works, the price of oil will also increase. This will lead to that energy based on renewable sources will get excellent conditions for rapid development. In fact, with the introduction of a carbon tax, the price of oil will automatically rise for all oil-producing countries, and green technologies will have the opportunity to grow. So the world is moving towards “green” energy, of course, it is not profitable for Russia. We just need to adopt more efficient mining technologies to make it cost-effective and environmentally friendly. Shale gas is a colossally inefficient raw material, but it is produced. And our oil is more environmentally friendly and economical.

“Extracting oil in the Arctic is commercial madness”

Mikhail Krutikhin, partner at RusEnergy consulting agency and oil and gas analyst, looks at the prospects for Russian oil critically, since the quality of our oil now leaves much to be desired:

“In my opinion, the most important thing in Russia is to look at the most pessimistic option. According to it, the demand for oil and its production by 2050 will fall by 80-85% from current levels. But long before that time, Russia will lose its export opportunities and become a country that will not be considered in the world oil market. The reason for this is the deterioration of the quality of residual oil reserves. Currently, there is an intensive depletion of oil reserves with low cost, and the remaining hard-to-reach oil will not be able to compete with the oil of other countries.

Krutikhin argues that the best prospects in the oil market remain with Saudi Arabia and its partners in the Persian Gulf because they have large reserves of cheap oil at their disposal. But they are not only there — for example, deep-water projects on the Brazilian shelf show an interesting commercial appeal, compared with hard-to-recover reserves in Russia.

“Production on the Arctic shelf will not save the situation," the expert warns. “It accounts for about 3% of the remaining oil reserves. But natural gas reserves are mostly concentrated here, and it is expensive to extract oil. Drilling one well in the Kara Sea cost Rosneft and ExxonMobil $650 million. Extracting oil in the Arctic is commercial madness. I strongly disagree with what President of the Union of Oil and Gas Producers Gennady Shmal stands for. His speeches at the Tatarstan Oil&Gas and Chemical Forum boiled down to one thing — give us money, and we will discover even more hard-to-recover oil. In short, they are asking for money to open new reserves that will not be developed. This is unprofitable. It won't be useful to anyone. The report of the accounting chamber showed that the State Commission puts on the balance such reserves that it is impossible to put at all.

But Mikhail Krutikhin reminds: Russia has a lot of gas reserves with low production costs, and many fields that are open and ready for development. There are even more of them than can be realised in the foreseeable future. As a gas exporter, Russia will maintain its leading position in the world market for a long time, the expert believes, since Europe will not do without Russian gas. This opinion is shared, by the way, by BP analysts either. According to their data, gas demand will peak in the mid-2030s.

By Luiza Ignatyieva, Lyudmila Gubaeva