Has oil started a slow decline?

What if Covid-19 dealt a fatal blow to the global black gold addiction? Before the health crisis, the world demand for oil seemed to know no limits. In 2019, the planet crossed the 100 million barrels consumed per day mark. Since then, demand has continued to grow, driven by the colossal needs of China, petrochemicals and air traffic. But the health crisis and containment measures have brought this trend to a halt in spectacular fashion.

In April 2020, demand fell by 30%, a first in history. The black gold crisis has precipitated the price of a barrel to very low levels: the barrel of Brent, which refers to the world level, fell to less than 20 dollars. US oil has even experienced negative price episodes. This summer, several analysts were confident of a gradual recovery in demand, believing that oil prices were gradually going resume their pre-crisis trajectory.

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But oil seems to have entered a downward spiral, as its model is pitching on all sides. First, the drop in prices has led companies to cut back heavily on their investments. However, without new projects, the current fields will decline tendentially. Some regions are already suffering from it, and foremost the United States.

Existential question

The model of American shale oil has enabled the United States to cross the 13 million barrels per day produced in early 2020, and become the world’s largest producer ahead of Russia and Saudi Arabia. But to support this growth, we must permanently invest colossal sums to continue drilling. Since the health crisis, around twenty companies specializing in American shale have already gone bankrupt. The problem is that according to the projections of the International Energy Agency, it is precisely the growth of this production of American shale oil that could meet the demand in the next ten years.

According to analyzes by British group BP, black gold has already peaked in demand and will never rise to its 2019 levels., like Total, estimate that this peak will only be reached in ten years. Before the crisis, many analysts considered this prospect to be relatively distant; around 2040.

But the pandemic seems to have precipitated things. The rise of teleworking and the lasting limitation of air travel are likely to transform habits and, consequently, to reduce the demand for fuel. Likewise, massive plans to support the electrification of the automotive sector are likely to accelerate the switch to electric vehicles and energy efficiency.

This question is existential for producing countries and oil companies. If demand is no longer growing, does it still make sense to invest in drilling new wells that will produce for more than twenty years? Especially in a market where prices will remain volatile for a long time.

Reduced investments

“We are near a tipping point. There are several factors pushing in this direction, including on the supply side “, analysis Patrice Geoffron, of the Center for Geopolitics of Energy and Raw Materials at Paris-Dauphine University. Faced with falling prices, large producers have already significantly reduced their investments in the exploration and production of hydrocarbons.

All the more so since the data from the specialist firm Rystad Energy, analyzed by the French think tank The Shift Project, showed that a certain number of large producer countries, such as Russia, Algeria or Angola, are experiencing an inevitable decline. of their production. However, the drastic drop in oil prices makes it unlikely that major investments will resume in the coming months to develop projects at competitive prices.

At the same time, the big European companies, like BP, the Anglo-Dutch Shell, the French Total or the Italian ENI are starting to invest heavily in renewable energies – even if this shift constitutes for the moment a minimal part of their portfolio. . American companies continue to believe hard as iron in black gold.

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Should we deduce from this that oil will disappear in the next twenty years? “There will still be oil in 2050”, answers the boss of Total, Patrick Pouyanné, who presented, Thursday October 1, the group’s energy scenarios. According to the trajectories drawn by Total, the planet would still consume between 40 and 85 million barrels per day in 2050. Not quite the end of the reign of the barrel. But the start of a long decline.

The October 29 and 30, 2020, the Nouvelle-Aquitaine region, in partnership with The world, organizes two days of debates, conferences, pitches and workshops at the Espace Encan, in La Rochelle. Scientists, experts and entrepreneurs will discuss four main themes: agroecology, the ocean, energy and health. The Economist Julia Cagé, the Chairman and CEO of Thalès, Patrice Caine, and the philosopher and psychoanalyst Cynthia Fleury will be the guests of honor of this edition, which will have as a common thread innovation for better living.

The conference “The Age of Oil and Beyond? »Will be held on October 30, 2020, at 9.45 a.m.. Will intervene Yves Marignac, director of Wise-Paris, Jean-Philippe Hermine, director of environmental planning and strategy for the Renault group, and Matthieu Auzanneau, director of The Shift Project.

Program and registration: here

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