Anyone counting on fuel costs staying low for much longer should beware, at least according to Saudi Arabian Oil CEO Amin Nasser, who disputes the idea that the world has hit “peak demand” for oil.
Few leaders have their finger on the pulse of global energy markets like Nasser. The Kingdom’s national oil giant, also known as Saudi Aramco, is the world’s biggest company, pulling in annual revenue of around $500 billion, or almost twice as much as ExxonMobil.
Oil prices have been rising gradually since OPEC and other big producers, including Russia, agreed to cut output in December—though they haven’t exactly rallied either. At around $56 per barrel, benchmark Brent crude is still around half as expensive as it was just before prices collapsed in 2014. Oil companies are still hurting, while just about everyone else benefits from lower transport costs, particularly airlines and logistics companies.
Some market watchers expect a resurgent U.S. shale market to offset OPEC production cuts and limit any prices gains, though Nasser isn’t so sure. “I think we are getting close to a re-balancing between supply and demand,” he told a gathering at Columbia University in New York.
Although individual shale projects can quickly produce relatively small amounts of oil, Nasser said as much as 20 million barrels per day is needed over the next five years to meet rising global demand and offset natural field decline at legacy assets. Making matters worse, he said, the cancellation or deferral of many large oil projects will create a production hole later down the track.
“While the short-term market points to a surplus of oil, the supply required in coming years is falling behind,” he said. “Also, I think it would be imprudent to assume that major oil producers will simply make the massive investment needed to bridge all these gaps.”
The increasing role of renewable energy sources, such as solar and wind power, in the world’s energy mix, combined with the rise of electric cars, has caused many market watchers to ponder if the world’s demand for oil will never quite recover. Nasser rejects this notion, arguing oil will still be needed in large volumes for the foreseeable future.
“Our belief is that peak demand is not in sight,” he said. “We believe that the hydrocarbons, and oil in particular, will be part of the energy mix for decades to come.”
Nasser acknowledged that renewables are now more popular, but they still only account for under a quarter of global electricity production, while coal still generates up to 80% of electricity in developing countries, such as China and India. Electric cars, meanwhile, at around 1.2 million units, make up only a very small fraction of the close to 1.2 billion vehicles in existence, he said.
The International Energy Agency expects there to be 150 million electric cars by 2014, though Nasser said it’s also forecasting total car production to grow to 2 billion.
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