British multinational oil and gas company BP said the relentless growth of oil demand is over, becoming the first super-major to call the end of an era many thought would last another decade or more. Oil consumption may never return to levels seen before the coronavirus crisis took hold, BP said in a report on Monday.
Even its most bullish scenario sees demand no better than broadly flat for the next two decades as the energy transition shifts the world away from fossil fuels.
BP is making a profound break from orthodoxy. From the bosses of corporate energy giants to ministers from Opec states, senior figures from the industry have insisted that oil consumption will see decades of growth.
Time and again, they have described it as the only commodity that can satisfy the demands of an increasing global population and expanding middle class.
The UK giant is describing a different future, where oil's supremacy is challenged, and ultimately fades. That explains why BP has taken the boldest steps so far among peers to align its business with the goals of the Paris climate accord.
Just six months after taking the top job, Chief Executive Officer Bernard Looney said in August he'd shrink oil and gas output by 40% over the next decade and spend as much as US$5 billion a year building one of the world's largest renewable-power businesses.
That's because he suspects oil use may already have peaked as a result of the pandemic, stricter government policies and changes in consumer behavior. BP's energy outlook shows consumption slumping 50% by 2050 in one scenario, and by almost 80% in another.
In a business-as-usual situation, demand would recover but then flat-line near 100 million barrels a day for the next 20 years. BP isn't the only big oil company adapting its business to the energy transition.
Royal Dutch Shell, Total and others in Europe have announced similar pivots toward cleaner operations as customers, governments and investors increasingly call for change.
BP's report considers three scenarios, which aren't predictions but nevertheless cover a wide range of possible outcomes over the next 30 years and form the basis of the new strategy Looney announced in August.
The Rapid approach sees new policy measures leading to a significant increase in carbon prices.
The Net Zero course reinforces Rapid with big shifts in societal behavior, while the Business-as-usual projection assumes that government policies, technology and social preferences continue to evolve as they have in the recent past.
In the first two scenarios, oil demand falls as a result of the coronavirus, the report shows. It subsequently recovers but never back to pre-Covid levels, according to Spencer Dale, BP's chief economist.
It brings forward the point at which oil demand peaks to 2019.
BP's outlook last year contained a scenario called More Energy, which had oil demand growing steadily to about 130 million barrels a day in 2040. There's no such scenario this time. Demand for oil falls over the next 30 years, BP said in the report.
The scale and pace of this decline is driven by the increasing efficiency and electrification of road transportation.
The pandemic shattered oil consumption this year as countries locked down to prevent infections from spreading. While demand has since improved, and crude prices with it, the public health crisis is still raging in many parts of the world and the outlook remains uncertain in the absence of a vaccine.
The impact, including lasting behavioral changes like increased working from home, will affect economic activity and prosperity in the developing world, and ultimately demand for liquid fuels, according to BP.
That means it won't be able to offset already falling consumption in developed countries. Demand for liquid fuels is seen falling to less than 55 million barrels a day by 2050 in BP's Rapid scenario, and to around 30 million a day in Net Zero.