Despite the push for cleaner fuel, the world’s reliance on oil remains high. But with electric vehicles (EVs) and other renewable energy sources gaining momentum, oil is a commodity that, over time, will gradually become a thing of the past.
The eventual phasing out of oil will take time — up to 50 years or more — and is dependent on a number of factors that continue to influence the industry. Here’s what the industry is seeing today and what it predicts for the future.
Short, Medium and Long-Term Oil Industry Outlooks
After a tumultuous 2020, the short-term outlook for the oil industry is a complex and uncertain one. According to the World Economic Forum, with less demand due to COVID-19, the industry has already experienced challenges that will be difficult to bounce back from anytime soon. The WEF goes on to note that the medium- and long-term outlooks are also uncertain due to ongoing pressures for decarbonization, structural changes in societal habits reducing energy intensity, and abundant energy supply availability. As a result, the industry may need to reinvent itself.
In a recent report by Deloitte, 2021 will bring the oil and gas industry new sets of challenges. To what degree a company will be successful depends on the direction it decides to take and how fast it can pivot. The report cites that, when considered, the following five indicators could be helpful to companies in deciding their strategy and direction over the next decade.
- The company’s stance and commitment of a new administration on clean energy.
- Its ability to make changes in end-use demand patterns and supply structure.
- The company’s commitment to invest in environmentally conscious, socially responsible and more impact-focused ventures.
- Its adoption of new talent strategies to succeed in the future of work.
- Consolidation in a low-priced environment.
With today’s supply and demand, it is difficult to pinpoint exactly what the next five years hold for the oil industry. In Deloitte’s 2021 oil and gas industry outlook, 44% of oil and gas executive respondents expect the market to remain in balance, and 33% expect a high risk of a new supply crunch over the next five years (2020-2025).
The rapid changes in energy demands being made today could cause even more erosion of the oil industry in the next 10 years. For example, the WEF notes that EVs may dominate by the year 2030. One reason is the vast improvements being made in the cost and efficiency of batteries, effectively lowering the cost of EV ownership. It could also put increased pressure on the price of fuel for internal combustion engines and push the target breakeven to below $40 per barrel. In turn, carbon taxes could also increase per barrel prices.
Over the past 10 years the demand for crude oil has increased approximately 15%, while the petrochemical industry, the largest-growing consumer of crude oil, has increased in demand by nearly 50% in 10 years. Looking 30 years into the future, and aggressively assuming a 75% global recycling of plastics, an article published by ETEnergyworld.com predicts that by 2050, we can expect a nearly 14 million barrel-per-day reduction in crude oil demand due to petrochemicals.
With the increased adoption of renewable energy sources, stricter recycling programs and a broader worldwide awareness of global warming prevention efforts, our planet can gradually decrease its dependency on crude oil. And while it won’t happen overnight, the changes we’ll experience over the next 20-30 years will likely be formidable.
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