BP has called time on the world’s rising demand for fossil fuels after finding that demand for oil may have already reached its peak and faces an unprecedented decades-long decline.
Demand for oil may never fully recover from the impact of the coronavirus pandemic, according to the oil firm, and may begin falling in absolute terms for the first time in modern history.
BP’s influential annual report on the future of energy, published on Monday, says oil will be replaced by clean electricity from windfarms, solar panels and hydropower plants as renewable energy emerges as the fastest-growing energy source on record.
Spencer Dale, BP’s chief economist, said the company’s vision of the world’s energy future had become greener due to a combination of the Covid-19 pandemic and the quickening pace of climate action, which has hastened “peak oil”.
The report in effect sounds a death-knell for the growth of global oil demand after two of the report’s three energy scenarios for the next 30 years found that demand reached a peak in 2019.
In BP’s third scenario, showing a world in which climate action does not accelerate, oil demand plateaus at similar levels seen in 2019 through the 2020s before declining from 2035.
The report has confirmed a chorus of warnings from independent energy economists that the impact of coronavirus will bring forward the start of the oil industry’s terminal decline from the end of the decade.
BP’s chief executive, Bernard Looney, said the findings would help the company to “better understand the changing energy landscape” and would be instrumental in helping it develop its plans to become a net zero energy company by 2050.
He admitted earlier this year that he would “not write off” the possibility that coronavirus had brought forward the global peak in oil demand, and was “more convinced than ever” BP must embrace a low-carbon future.
The report’s central scenario, which aligns with the goals of the Paris climate agreement to keep global temperatures well below 2C above pre-industrialised levels, shows demand for oil tumbling by 55% over the next 30 years. Meanwhile, the report’s greenest scenario, in which the world aims to limit global heating to an increase of 1.5C, oil demand falls 80% by 2050.
The energy transition could be even quicker if global governments choose to spur a green economic recovery from the coronavirus crisis. A boom in economic stimulus packages for low-carbon industries, which is expected by many energy experts, was not taken into account in the report because this outcome is “not inevitable”, according to Dale.
He will present BP’s energy vision to the company’s investors on Monday as part of a three-day event outlining the company’s plan to become a carbon neutral energy company by 2050, which is one of the most ambitious energy transition plans set out by any large oil company.
BP announced plans last month to grow its low-carbon investments eightfold by 2025 and tenfold by 2030, while cutting its fossil-fuel output by 40% from 2019. The company took its first step into the offshore wind industry last week with a $1.1bn (£860m) deal to buy a stake in two projects owned by Equinor of Norway.
The world’s greater reliance on clean energy means renewables could grow from 5% of the world’s energy use today to somewhere between 20% and 60% by 2050, according to the report.
“In all three of these scenarios the share of renewable energy grows more quickly than any energy fuel ever seen in history,” Dale said.
He explained that the coronavirus pandemic was expected to stall economic growth in developing countries that typically spur energy demand, while economically developed countries are putting in place more ambitious climate policies and raising carbon taxes, according to the report.
The shift towards electric vehicles will also take its toll on demand for oil. In all three scenarios the report found that the use of oil in transport would reach a peak in the mid- to late 2020s due to the shift towards electric cars and hydrogen-powered vehicles.
Another factor dragging on the forecasts for oil demand in the coming decades are new measures to limit the production of plastic, which is manufactured using petrochemicals produced from fossil fuels, through more recycling and less single-use plastics.
The effect may be an upending of global energy market dynamics, according to BP. The report expects members of the Opec oil cartel, led by Saudi Arabia, to bear the brunt of the decline in demand while US shale rigs take a greater share of the global oil market over the next decade. It may also usher in an era of more diversity in energy where no one source dominates the energy landscape, and all are forced to compete to maintain a significant share of the market.