A very recent multidisciplinary study of the Boston Consulting Group is developed in three forecast scenarios on the future of the oil market. In all, the peak in demand for crude oil could already be reached between 2025 and 2030 contrary to what most analysts currently predict. The presentation of this report offers a good opportunity to return to this theme following the published analyses in 2015 e in 2016. The beginning of the study leaves no doubts: “For decades, the world has become accustomed to a constant growth in the demand for crude oil, while the number of cars, planes and ships has increased. But now two factors throw doubts about the certainty that demand will continue to grow indefinitely: progress in the field of energy efficiency and the increasing possibilities of replacing black gold with other sources.”
While other ghosts roamed Europe (as a well-known German economist wrote), from the time of the first oil crises the United States is haunted by the specter of "peak oil": peak oil demand. In 1956 the geophysicist Marion King Hubbert built a model of the evolution over time of the production of any physically limited resource, such as fossil fuel sources. The model materializes in the so-called Hubbert Curve: a graph that represents the production of a resource over time and which appears as a characteristic bell curve.
When a certain resource is discovered and it becomes important for some application, its exploitation slowly increases during the pioneering phase in which new rich areas of the substance are discovered and increasingly effective ways to obtain it. Subsequently, the curve grows faster and faster while an increasingly extensive chain is created for the extraction, transformation, marketing and use of the resource. At a certain point the curve reaches a maximum that makes the most naive investors happy. After that, production collapses because the places where it can be obtained easily are running out and more and more expensive techniques are needed to scrape together what is still left. With the decrease in volumes, all the chains go into crisis and all the investors who had not jumped off the bandwagon in time are destined for large losses. This generalized crisis leads to the withdrawal of the resource from trade and to the bankruptcy of industries that have not converted in the meantime.
The theory was developed precisely to predict the evolution of the coal, oil and gas market, but it perfectly predicted (albeit a posteriori) various other phenomena such as the evolution and subsequent collapse of the American bison meat trade during the conquest of the West or of whale oil used for lighting in the 800th century. Even bison and whales, like fossil fuels, are – indeed, were – limited resources. As a premise, BCG analysts give how “an almost certainty” is demand for oil will collapse if the price of a barrel returns above $100, but this is a rather remote opportunity that has already been widely discussed. We can therefore put it aside and analyze the three hypothesized scenarios. The first of the scenarios considered foresees a revolution in the trucking sector led by Tesla, General Motors and Volkswagen. All three of these companies plan to launch affordable electric cars on the mass consumer market and feel they can trigger a paradigm shift in the industry.
The replacement of fossil fuel cars with electric ones can only take place if the price of individual batteries drops below $100 per kWh, but it will be essential that these are rechargeable much more quickly and withstand a much higher number of charge cycles and download. In these hypotheses, it is expected that in 2040 90% of the cars on the road will be electric in technologically advanced countries while for emerging ones it will be necessary to wait for 2050. This simulation predicts that peak oil will be reached between 2025 and 2030 and then suffer a drop of 13% (compared to the reference) already in 2040. But let's not forget that this scenario can be followed only if the research and development of more efficient batteries will have led to at least one breakthrough technology in the field of electrical energy storage.
The second scenario assumes global economic growth of 3% per annum in real terms and technological advances in the energy efficiency sector promoted by a combination of government incentives and penalties. These could consist of more efficient internal combustion engines, lighter materials and more effective techniques for the production of motor vehicles, for example with the use of 3D printers to create engines and cockpits with material savings unthinkable with traditional production technologies. Other contributions could come from lighter structural materials, electronics for optimal engine control according to the required performance, but also autonomous driving technologies capable of optimizing fuel consumption. Under these assumptions, the average consumption of motor vehicles should drop to 4,3 liters per 100 km (half the current average values) in rich countries and 6,3 liters per 100 km in emerging ones. Thus, there would be a peak in 2026 to arrive at a drop in oil demand that will already reach 21% in 2040.
The third scenario imagines that the cost of gas falls below $1 for every 60 kWh produced (corresponding to the price at the beginning of the boom in shale gas production and about half the current one). This would give a strong incentive to replace liquid fuel means of transport with gas means of transport but, above all, it would guide the conversion of industrial electricity production from coal-fired plants to gas-fired ones. Furthermore, the petrochemical industry would be redesigned to make major chemicals starting from ethane (a by-product of natural gas extraction) rather than naphtha of petroleum origin. In addition, if the price of oil exceeds $60 a barrel, even heavy transport by road and by ship would quickly switch to gas. The combined effect of these effects would cause the peak to be reached in 2025 and therefore a plateau that would drop by only 8% by 2040, again with respect to the reference case.
Each scenario foresees the achievement of the peak, but if more than one of these occur simultaneously, the actual drop in demand for hydrocarbons would become an increasingly concrete probability. This it does not mean that oil will disappear overnight, only that it will face a slow decline: Even if all three of these scenarios were to occur, 2040 million barrels of oil per day would still be needed in 80 compared to the 92 million that are consumed today. If the decline were evenly distributed across all energy companies, it would mean that in 2040 Eni would still have to produce 1,6 million barrels a day to meet a demand that it satisfies today thanks to the daily production of 1,8 million barrels .
However, energy companies will have to consider these possible scenarios. It's worth it because even if they turn out to be unrealistic, it certainly won't mean that peak oil will never be reached but only that it will come a little later. Because of this, every company has to question its business model to adapt to changes in the scenario, maximize the competitiveness of its resources and infrastructures to improve its efficiency through better managerial tools, technologies and digital solutions.
Already in the medium term it will pay off to diversify one's portfolio by favoring gas over oil and coal because the former will remain in an expanding market when the other two fossils will have already passed the infamous peak and will be in full decline. Diversifying your portfolio will above all mean investing more and more intensely already today in the energies of tomorrow: renewables now have ample room for improvement and those who today have invested more in the research and development of new green energy sources will find themselves in a competitive advantage over the others tomorrow.
These analyzes completely ignore the environmental aspects. But the mitigation of climate change will become a driving force behind the relaunch not only of the more responsible energy companies but also of those more refractory to environmental problems due to (indeed: "thanks to"!) ever more intense actions that governments will exercise in favor of environmental protection driven in turn by public pressure which keeps them in power. These phenomena will probably cause profound transformations to which the hydrocarbon industry, “characterized by slow evolutions”, but also governments and investors, must know how to prepare; bearing in mind that various market trends combine to determine the increasingly concrete prospect of a drop in oil demand. Looking at our home, Eni is investing heavily in both renewables and environmental protection and this - in addition to doing good for the climate - will be able to offer Italy and its national airline a future competitive advantage.
From Eniday.
