• Oil demand is projected to peak in anywhere between 2020 and 2041, although most estimates place this event at the end of the 2030s
• Trillions of dollars of investment is required into the oil industry over the next two decades to keep up with global demand and prevent a supply crisis
• Canada is a leader on environmental, social and governance metrics used by investors and should be a global oil supplier of choice
On January 20th of 2021, the presidential permit for the Keystone XL pipeline was pulled just hours after Joe Biden’s inauguration as the 46th President of the United States.
For a project that began way back in 2008, this might just be the final strike for the pipeline which would have allowed U.S. Gulf Coast (USGC) refineries to source more oil from sustainable and environmentally responsible producers in Canada instead of from other countries who often have weaker performance for environmental, social, and governance (ESG) metrics.
Anti-Canadian oil and gas activists have gleefully welcomed the news, believing that shutting down Keystone XL will somehow reduce future demand for oil and help wean society off of petroleum products once and for all. But reports from reputable intergovernmental organizations and energy research firms tell a much different story, one that projects global oil demand may very well continue to grow through to 2040 and that massive new investments are needed to prevent supply shortages.
Here are several reasons why the world needs more Canadian oil and gas related to demand, and why Canada should be a global supplier of choice for decades to come.
Oil is Not “Dead”
The International Energy Agency’s (IEA) World Energy Outlook 2020 clearly indicates that global demand for oil is not going anywhere anytime soon.
Despite the COVID-19 pandemic affecting the oil market unlike anything else in the past, the world is expected to return to pre-pandemic levels of consumption by 2022-2023, with continued growth for years to come afterwards as seen in Figure 5.7 below:
Figure 5.7 – IEA World Energy Outlook 2020
In the IEA’s Stated Policies Scenario (STEPS):
- Global demand for oil will grow by 5 million barrels per day (bpd) in 2021
- Global oil demand then rises by 0.7 million bpd each year on average through to 2030
- Past 2030, oil demand is projected to increase by 100,000 bpd per year
- Overall demand in advanced economies falls by 5 million bpd between 2019 and 2030
- An increase in oil demand of 9 million bpd in emerging market and developing economics more than make up for the decline elsewhere
- India remains the largest source of growth in oil demand due to the increased use of oil for transport – car ownership in the country is less than one-fifth the global average and is set to increase
- Oil demand in China peaks at around 15 million bpd in 2030
- Parts of Africa and Southeast Asia will also contribute to increasing global demand for oil through to 2030 and beyond
The IEA estimates that global demand for oil will consistently increase each year through to 2040, and has even gone further to list several uncertainties that may increase or reduce overall future demand (more below).
Hence, as long as the world needs oil – and it will, for many, many years – Canada should be a preferred global supplier of choice because of our world-class environmental, social and governance rankings. We should be the “last ones out of the pool.”
Uncertainties Affecting Global Oil Demand
The IEA’s projections listed above are coupled with a disclaimer of sorts – an extensive list of post-pandemic outcomes in major sectors that could result in a decrease or increase for future demand:
Table 5.2 – IEA World Energy Outlook 2020
According to the IEA, the speed and scale of oil demand recovery is progressing much faster for some sectors than expected as a result of the change in how people are consuming products and services. Some of these changes in behaviours – or ‘uncertainties’ if you will – are already playing out in front of our eyes.
For example, the petrochemical and trucking sectors have rebounded rather quickly from the economic recession induced by the COVID-19 pandemic. More people are buying retail goods online while the use of petrochemical products is also increasing, both combining to exceed demand that has been lost in aviation and other sectors.
Figure 5.8 – IEA World Energy Outlook 2020
Eventually, the aviation, restaurant, and other industries responsible for their fair share of global oil demand prior to the COVID-19 pandemic will also return to normalcy, as shown in the charts above.
Important takeaways from Figure 5.8:
- Petroleum feedstocks are projected to account for 60 per cent of total oil demand growth between 2019-2030
- Aviation induced oil demand recovers to 2019 levels in the mid 2020s and continues to grow through to 2030
- Trucking has already recovered to 2019 demand levels and will see gradual growth to 2030
- Passenger vehicle oil demand recovers in early to mid 2020s with slight growth to the end of the decade, then starts to decline slightly in the 2030s
- Shipping and industry oil demand stays nearly stagnant, while buildings decline slightly to 2030
Canada is one of the most transparent and environmentally responsible producers on the planet. Once oil demand does return to pre-pandemic levels, we should be a global supplier of choice if and when consumption continues to grow during the foreseeable future.
Oil Demand Slumps in the Past
If history is indicative of what will happen in the future, we can assume with a reasonable amount of certainty that after COVID-19 passes the world will continue to consume oil like it has in the past – especially in emerging market and developing economies.
Recent figures out of China and India, two nations who are expected to be the largest drivers of future oil demand growth, support this hypothesis as do the aforementioned projections from the IEA and those from S&P Global Platts (discussed in more detail below).
World Oil Supply & Demand, 1971-2019 – IEA
In previous economic recessions, global demand dropped at first but then was followed by rapid growth. As a matter of fact, looking at the chart above you can see that ever since the 1970s any temporary declines in demand were followed by a return to even higher consumption thereafter.
These higher rates of consumption were met with increased investment into upstream oil exploration and development projects. It seems nothing will be different in a post-COVID-19 world, except for the fact that a projected lack of future investment into the oil and gas industry is now putting adequate future supply into question.
More Investment is Needed in Oil Through to 2040 and Beyond
The repercussions of the COVID-19 pandemic are likely to extend forward and create a future supply shock for oil and gas as companies curtail spending on upstream operations. According to a joint report by the International Energy Forum (IEF) and Boston Consulting Group (BCG), insufficient investment into the oil and gas sector in the near future could result in reduced supply and higher prices, leading to greater market volatility while slowing the world’s economic recovery and jeopardizing energy security abroad.
Analysis by the IEF and BCG suggests that investment into the oil and gas industry will have to rise by 25 per cent annually over the next three years to prevent a crisis, and even greater sums will be needed by 2030 to ensure efficient supply exists to meet global demand. The report also highlights agreement between IEA and OPEC that another 27 to 30 million barrels of oil equivalent will be needed by 2022 to close the gap between dropping production levels and output declines in existing fields.
A bombshell report by Rystad Energy has also concluded there is a major need for additional investment into exploration over the next 30 years if the world doesn’t want to run short on oil supplies. To meet cumulative demand through to 2050, Rystad found that at least $3 trillion of capital expenditure will be required to discover and develop at least 313 billion barrels of oil to add to currently producing assets.
Oil Demand & Supply Requirements to 2050 - Rystad Energy
The IEA is in near agreement with figures from the IEF, BCG and Rystad mentioned above, reporting itself that $390 billion in annual investment is still needed in upstream oil projects despite limited growth in oil demand post-2030. Of that investment, about 55 per cent is required to develop new fields, while 45 per cent is required to maintain production from existing reserves.
In total, the IEA estimates that a whopping $12 and $17 trillion of additional investments into the oil and gas industry will be needed by 2040. Meanwhile, by 2050, BP's World Energy Outlook 2020 "BAU" scenario projects up to $20 trillion of investment into upstream oil and gas operations is necessary to maintain adequate supply.
In a world where environmental, social, and governance (ESG) metrics are increasingly being used by investors to make decisions on where to put their money, Canada has an incredible opportunity to attract more capital into one of its most valuable industries. Of the world’s top 15 oil reserve holders, Canada ranks number one on ESG metrics and should be a destination of choice for future investment in the global oil and gas industry.
Peak Oil Projected in 2041
Oil Demand, 2015-2050 – S&P Global Platts
Detractors of the oil and gas sector suggest that peak oil demand may be already here due to the damage the COVID-19 pandemic has done to the global market. Others speculate that it will happen in the mid 2020s.
According to S&P Global Platts Analytics’ Future Energy Outlooks, for oil demand to peak by 2025, the average annual oil demand growth would need to fall by more than 50 per cent. Drastic changes would need to occur to business and consumer behaviour including:
- The near full adoption of working from home
- Widespread electrification of road transportation
- Reshoring of entire supply chains
The likelihood of any of these happening across the globe and within the next decade is slim, especially considering that not all adjustments to oil demand will be negative. S&P suggests that some of the occurrences which are expected to outweigh decreasing demand happening elsewhere include:
- People favouring personal vehicles over public transportation due to fears of virus transmission
- Weaker oil prices make electric vehicles (EVs) less competitive than internal combustion engine vehicles and slow their penetration into the market relative to pre-pandemic forecasts
- Weaker oil prices may also insulate oil demand from competitive threats, including a drive for efficiency improvements
- Low oil prices and the elasticity of demand, which could increase global oil consumption by up to 3.5 million barrels per day
Yes, the impact of COVID-19 on global oil markets has been significant and still has yet to be fully understood. However, vaccine rollouts across the world can lead us to expect oil demand to return to pre-pandemic levels sometime in 2023 as the IEA suggests, with continued growth thereafter through to 2040.
Of the world’s top 20 oil producers, Canada ranks second on social and governance metrics and fourth on the environment. We should be a global supplier of choice for the billions of barrels of additional production from non-existing fields required to supply the world over the next several years.
Shunning Canadian Oil Displaces Production to Elsewhere
Shutting down Canadian pipeline projects like the Keystone XL does nothing to reduce global oil demand or curb the world’s overall reliance on petroleum-based products. All this does is shift crude oil production to nations with much less regard for regulatory transparency, environmental protections, and human rights.
In other words, not one barrel of oil is kept in the ground by opposing and shutting down Canadian oil production.
Figure 7.8 – IEA World Energy Outlook 2020
Take for example figure 7.8 above which projects that over the next two decades, total oil production will increase substantially in the U.S., Saudi Arabia and Iraq, more marginally in Iran, Kuwait and Qatar, and remain nearly stagnant in Canada.
It is unconscionable to support actions that will only help to cede market share to global producers who do not rank as high on Canada on ESG metrics. Doing so only serves to prop up the economies of OPEC nations while leaving Canadian families and our national prosperity in the dust.
Take Action for Canada’s Future!
While projects like Keystone XL that would supply the world with more Canadian oil are delayed to their death, other nations are building countless new pipelines and investing in the upstream exploration and development projects necessary to supply the world with the oil it will need for decades to come.
Canada is losing out on an opportunity to grow oil production and account for more market share on the world stage. This does not only hurt Canadian families and government revenues, but also the global environment.
We invite you to join us online to learn more about Canada's world-class oil and gas industry at Twitter, Instagram and Facebook today! See how you can take part in our growing movement to support Canada's natural resource sectors and the jobs and prosperity that come with. We hope to see you there!
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