CALGARY — Long-term demand for oil is becoming increasingly uncertain as new technologies threaten the future role of fossil fuels, several prominent energy industry executives said Thursday.
The rising relevance of electric vehicles, along with drastically reduced costs for wind and solar-powered sources of energy, has caused some to ponder whether oil demand could begin to shrivel in the next ten to 15 years.
“I think it’s a real risk that we have to look at,” Robert Johnston, the CEO of Eurasia Group, said at an industry event in Calgary.
For years Canada’s oil producers were almost exclusively focused on growth, as roaring Chinese demand sent prices well above the US$100 threshold. But stubbornly low oil prices since the middle of 2014 have spurred a drastic rethink in Canada’s embattled oilpatch, where heavy oil producers are fighting to remain among the industry’s lowest-cost operators. Canadian companies overseeing high-cost developments now have to contend with the possibility of a market that is no longer growing.
“‘Peak demand’ is not the right term,” Johnston said. “But the implications of demand plateauing would be very significant for high-cost producers.”
Oilsands players have in turn begun to tout their recent progress in lowering costs and carbon emissions levels, either by trimming their overheads or implementing new technologies.
“I believe fundamentally that oil and oilsands can absolutely be a part of a low carbon economy. That’s a technological question.”
Cenovus and other oilsands operators have for years been experimenting with new technologies like solvents, which are injected underground along with steam to help break up reservoirs of bitumen.
He said it was “absolutely inevitable” that the world begins to move toward a lower carbon economy through policy measures like carbon taxes or cap-and-trade programs.
Market observers are torn over the direction of oil demand in coming years. Many see demand continuing to grow despite a rapid shift toward renewable energy sources, as rising populations in countries like India, Nigeria and Ethiopia offset carbon reduction efforts in the Western world.
Until recently, The International Energy Agency had maintained that oil demand would grow steadily until 2040. However, last week the agency said it was preparing to review its demand outlook following announcements by India and China to incentivize electric vehicle adoption.
The potential threat of electric vehicles, however, has created a divergence of opinions on the future of transportation, which accounts for roughly half of the world’s oil consumption.
Demand uncertainty comes as oil markets remain in a constant state of volatility, as U.S. shale producers continue to defy the expectations by pumping higher volumes of crude.
“We are in the midst of an oil market experiment,” said Sarah Ladislaw, a senior fellow at the Center for Strategic & International Studies told the audience.
Others see the demand peak coming much later. Jeffrey Harris, the founder of Global Reserve Group LLC, points out that only about one million vehicles on the road today are currently electric vehicles or hybrid vehicles, out of a total of roughly one billion. That total number is expected to grow as the populations of developing nations rise.
“It’s probably not for 10-plus years before we’ll even begin to see a meaningful dent in gasoline consumption,” he said at the event.
Even so, the pace of innovation in electric vehicles, the flow of capital into U.S. shale basins and economic activity in developing countries remain an open question.
“The only thing I’m confident in is that prices will remain volatile.”