Power Transition Lags Behind, Oil Demand Stays: Trade Gamers

Oil rigs on platforms in Gaoyu Lake in east China’s Jiangsu Province, Friday, September 17, 2021.

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Oil and gas will remain the leading energy sources for decades to come due to a sluggish energy transition, key industry players said at the Energy Asia conference held in Malaysia’s capital Kuala Lumpur this week.

“We believe the biggest lesson to emerge from this conference is that oil and gas will be needed in the coming decades,” said John Hess, CEO of US oil company Hess Corporation.

“The energy transition will take much longer, it will cost much more money and it will require new technologies that don’t even exist today,” he continued.

When it comes to clean energy, the world needs to invest $4 trillion annually — and it’s far from the case, Hess said.

According to the International Energy Agency, global investment in clean energy will increase to $1.7 trillion in 2023.

The demand forecasts for [India] are so big that we are forced to build new refineries.

AS Sahney

Managing Director of Indian Oil Corporation

Hess said oil and gas are key to the world’s economic competitiveness and an affordable and secure energy transition.

The oil market will be more constructive in the second half of the year, boosting production to 1.2 million barrels per day in 2027, he predicted. He pointed out that the biggest challenge in the world is underinvestment in the industry.

“The world is facing a structural deficit in energy supply, in oil and gas, in clean energy,” he said.

Likewise, in the opening speech of the conference, the Secretary General of OPEC predicted that global oil demand would increase to 110 million barrels per day by 2045. The growth is due to rapid urbanization over the next few years, Haitham Al Ghais said.

Hess Corp. CEO John Hess speaks during the Energy Asia Summit in Kuala Lumpur, Malaysia.

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In an email exchange on Tuesday, the largest US oil producer ExxonMobil reiterated the same.

The company expects oil to remain the primary source of energy for at least two decades due to its important role in commercial transportation and chemical industries.

“Liquids are projected to remain the world’s leading energy source into 2050, even as demand growth slows beyond 2025,” Erin McGrath, ExxonMobil’s senior advisor for public and government affairs, told CNBC.

“Overall, demand for liquids is expected to increase by about 15 million barrels per day through 2050. Almost all of the growth will come from the emerging markets of Asia, Africa, the Middle East and Latin America.”

main driver?

Asia will continue to drive demand for oil and gas as the region’s growth is expected to overtake the US and Europe by the end of the year.

“This is the region where energy demand will grow, and there will be more,” Dan Yergin, vice chairman of S&P Global, said at the energy conference. He said the population of Southeast Asia alone is 50% larger than that of the European Union.

China, India, Korea, Japan and Vietnam have been driving the growth of LNG markets over the past year, according to the chairman of the French petroleum energy company Total Energies called.

“The demand is in Asia. The demand is here, there’s 5 billion people moving their population, [asking] for a better way of life. And this is where we need to look to the future,” said Patrick Pouyanne, CEO of TotalEnergies.

One of India’s largest oil companies has also increased its refining capacity for oil.

“We’re probably one of the few companies, one of the few countries, that will increase their refining capacity by 20% over the next three to four years,” Indian Oil Corporation’s AS Sahney said at a separate panel discussion.

“It shows our faith [the] “Continuation of the fuel supply,” said the managing director, acknowledging that the energy transition will last.

“But at the same time, the demand forecasts for the country are such that we are forced to build new refineries,” he continued.

According to the IEA, India is projected to see the largest increase in energy demand of any country – demand is projected to increase by more than 3% when it becomes the world’s most populous country by 2025.

Saudi Arabia’s state-owned oil giant, Aramco, is also hoping China and India will fuel oil demand growth of more than 2 million barrels a day for at least the rest of this year.

Once the global economy as a whole begins to recover, the supply-demand balance in the industry could tighten, CEO Amin Nasser said during his speech at the summit.

Oil demand an “old story”

Commodity trading firm Vitol is less optimistic, forecasting that demand for crude oil will peak in 2030 — two years later than the IEA forecast.

“We peaked around 2030 and saw a gradual decline through 2040… And then.” [a] “The decline then ramps up rapidly as the electric vehicle fleet and energy transition take over,” Vitol CEO Russell Hardy said during a panel discussion.

While the industry should expect good fundamentals over the next few months, sustained oil production in Russia and sluggish Chinese growth make it difficult to predict where prices will go.

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“The supply side in particular is a bit overdone [in] “Russia, where due to the difficulties in getting oil on the market, due to the sanctions, large amounts of production losses were expected,” Hardy said.

“Due to the current global economic malaise, China’s recovery is faltering,” he continued, noting that China’s oil demand is not as strong as expected.

He noted that Europe and the US have a one and a half million barrels per day lower demand today compared to 2019 as more consumers in Europe and Asia switch to renewable energy sources.

“So the demand is ancient history.”