Published on July 18th, 2020 |
by Sponsored Content
July 18th, 2020 by Sponsored Content
By Stella Damstra, ClimateLaunchpad*
Peak oil has been a topic of heated conversation for decades. The traditional definition describes it as the theorized point in time when the maximum rate of extraction of petroleum is reached, after which it enters into terminal decline.
Those predictions were predominantly based on the fact that oil is a non-replenishing resource; there is a limit to how much the world can extract and refine. However, the scenario of total depletion is just one way to reach peak oil. It can also be brought on by the demand side when:
- The cost of oil extraction exceeds the price consumers are willing to pay.
- Demand drops; for example, because energy use become more efficient, from electrification, or during a crisis such as the current pandemic.
- Alternatives become cheaper and more widely spread; the rise of renewables.
The interesting question is: is peak oil already here? Did the COVID-19 crisis and the worldwide economic downturn accelerate things to the point of no return? Or will the world go back to its crude fossil fuel addiction?
The Pandemic Effect
One Financial Times author states that the coronavirus will hasten peak oil. “Peak oil is now a little closer,” says Per Magnus Nysveen, head of analysis at Rystad Energy. “We used to say that peak oil will happen around 2030. Now we say that it could happen in 2027 or 2028.”
The article shows that consumption of crude oil dropped as much as one-third in April. Although demand is recovering somewhat, the common belief is that the effect will be a lasting one. Together with growing environmental concerns among investors, oil producers are expected to hold off on new exploration and drilling projects. Rating agency Moody’s suggests oil demand may not return to 2019 levels until at least 2025, and possibly will never return to pre-COVID-19 levels.
BP expects the pandemic to speed up the energy transition and slashed the value of its assets by $17.5 billion. CEO Bernard Looney in a recent interview even said that he thinks the peak in oil demand may have already passed.
The current plunging demand for oil comes on top of an all-out price war that was already going on. The result is a fossil fuel industry in survival mode, according to analysts in an article by The Guardian. “The oil and gas sector is already a very much unloved sector by investors and in this kind of oil price environment, it becomes low return, high risk and high carbon,” says Valentina Kretzschmar (director of corporate…
Read More: The End Of Fossil Fuels: Is It Here Yet?