Professor Paul Stevens
Right, let’s make a start. Welcome to a virtual Chatham House. Given the tendency of Zoom to bring in participants from all over the world, I think the Australian greeting of ‘good day’ is probably the most appropriate one, since that covers most bases. The topic we’re going to talk about today is the future for – what’s next for oil: the future of oil? And it’s very appropriate, because it is, at the moment, interesting times as far as oil is concerned. You have the energy transition underway and you have the COVID pandemic and a whole bunch of other factors going on.
Today we have four speakers, or panellists, rather: Dr Ayed Al-Qahtani, Cailin Birch, Valérie Marcel and Montserrat Ramiro, who are each going to talk for about five minutes and then we’ll throw it open to discussion and debate. If you want to ask a question, you can use the ‘Q&A’ function on your machine. So, without further ado, let me open the proceedings and ask Dr Al-Qahtani to make his initial presentation.
Dr Ayed S. Al-Qahtani
Thank you very much, Professor Stevens. Good afternoon and good day, good morning to some of you, and I wish you, on behalf of all my colleagues who are attending here this session with me, from the Secretariat’s perspective, as well, as the Secretariat, we wish you a very happy, healthy and prosperous 2021. I haven’t met a lot of you for a long time, due to this pandemic, but we hope it clears out very soon. Thank you, Professor Stevens, and thank you to the – your colleagues at the Chatham House for kindly inviting us to be part of this very key session on What’s Next for the Oil Industry?
Today I will be extracting a lot of the content from the flagship publications of OPEC, namely the Monthly Oil Market Report, which many of you have probably read the last release, January 14th. I will take a few messages and share them with you to set the stage for the discussion for the rest of the session. I will also extract some of the messages on the medium to long-term, from the World Oil Outlook that we have released last year, a flag – another flagship publication by the Secretariat.
I’m joined today by many of my colleagues at the Secretariat, two of which are Dr Abderrezak Benyoucef, and he heads the Energy Industry – or Energy Studies Department, and Mr Behrooz Baikalizadeh, he Heads the Petroleum Studies, covering for the short-term. I hope that we will be able to entertain their interjections later on in the discussion. Next slide, please.
Ladies and gentlemen, in the latest monthly Oil Market Report release, we estimated the global GDP to have contracted by around 4.1% last year. We expect it to rebound, reversing into a growth of 4.4% this year. This economic growth will be led by the non-OECD countries, and mainly India and China, which we see at the chart, growing at 6.8 and 6.9% respectively, resulting in an un-OECD growth of around 5.1%.
Now, to fuel this economic growth; next slide please; we expect the global oil demand to have contracted by a staggering 9.8% last year. We hope that it will see a significant growth of 5.9% this year. The recovery in this oil demand is expected to be led by the OECD Americas, mainly in the transportation sector. China and India will both contribute significantly to this rebound. China is expected to regain north of $1 million per day, year-on-year growth, after the – this pandemic, while India will contribute north of 600 KBD.
Now, to meet this demand, next slide please, we have estimated, in our latest monthly Oil Market Report, that the non-OPEC liquid production is expected to grow this year by around 800,000 barrels per day. This compares to the severe contraction that we’ve seen in last year, 2020, of 2.5, most of which was in OECD America and Europe-Asia region, led by Russia and the US. This year, we expect the growth to be predominantly in US, Canada, Brazil and a few other regions and mainly a recovery from the production contraction that we’ve seen last year, as opposed to new projects. Now, this is in the short-term, the remaining three slides will be only longer-term. In this slide, we expect the global private energy demands to continue growing, rising by a significant 25% between the years 2019 and 2045. The latest WHO publication we had, we extended the time horizon from 2040 to 2045, to capture many of the effects, some of which the – Professor Stevens have already indicated, to the pandemic impact on the markets in the longer-term, but also, the impact of the tightening policies, and we will elaborate more on that in the energy transition discussion.
Now, this energy demand growth would be propelled by many factors, and most important of which is the expected more than doubling of the global GDP and the 20% increase in the population. I will try to skip on – in the numbers, and we can discuss them later, but these are the main messages. Middle East and Africa are expected to be big or rather a scale of growth, whether it’s population or the energy demand going forward. Central to our projections, a few parameters that characterises the World Health outlook of OPEC latest release is the rising [inaudible – 09:16], as well as the expanding middleclass. Of course, we’ve assumed progressive evolutionary, as opposed to revolutionary, developments in energy-related policies, as well as the technology devolvement and deployment.
Central to our forecasts, latest ones, are – is the fact that all forms of energy will be needed. Indeed, no single size would fit all. We will definitely need to deploy a diverse portfolio of energy options to fulfil this significant energy demand growth. When we translate this growth into a million barrels of oil equivalent per day, we are talking about north of 75 million barrels of oil equivalent. This is not to consider the natural depletion of the hydrocarbon, let’s say, the oil parts of it.
Looking into the energy demand in 2045 by fuel type, we see the renewable energy growing. The – back slide, please. Yes, so, we’re still talking about the energy components here. So, we see the renewable energy to be the fastest growing fuel. Also, the natural gas will be, also, the fastest fuel in absolute values, renewables in percentage terms. We see the crude oil remaining or maintaining its dominance and prominence in the energy mix, with north of 28% of the energy mix by 2045 and this will, indeed, be needed to provide a stable foundation for the global energy need by 2045. Oil and gas will still constitute north of, or more than half of the energy needs by 2045 and, again, this is the general consensus, not as only at OPEC, but most of our reputed organisations and the reporting agencies and forecasters around the world.
Now, next slide, here we focus on the oil component of the mix. Being OPEC, what else could we do better? The demand for global oil is expected to increase by almost ten million barrels per day between now and 2045. This is up from the current level, which suffers the contraction that we’ve seen from last year’s, north of 100 million. Now, the non-OECD is expected to be the engine behind the entire growth going forward. We expect the non-OECD region to contribute north of 22.5 million barrels per day growth between now and 2045. This will be eroded away with the OECD contraction of 13. The net is about three million barrels of oil per day, between now and 2045. India and China will be leading this growth, and this is very much the same message that we have shared with the world, from previous World Oil Outlook.
From sectoral perspectives, and we see from chart here that transportation, as well as petrochemicals, will remain to be the main engines behind the oil growth going forward. Petrochemicals will contribute almost four million barrels, while the road transport will contribute around six million barrels per day of that growth.
And looking further into the oil [inaudible – 13:00], which is expected to reach around 47 million barrels per day by 2045, it remains to be in the driver’s seat, that is more than 43% of the oil demand, by 2045, and non-OECD countries will be the centre of growth going forward, mainly China, India and South Asia, and Middle East…
Professor Paul Stevens
Ayed, can I ask you to wind up now, because you…?
Dr Ayed S. Al-Qahtani
Oh, of course. So, this takes us to almost the last slide that I have here, relating to investment. Of course, investments have suffered a hammer blow last year, due to the COVID, but going forward, we expect the world to require north of $12 trillion worth of investment only in the oil upstream, midstream and downstream. Stable investment, I’m sure you would agree with me, is pivotal to securing a stable economic and secure energy supplies. We, later on, probably, will talk, Professor Stevens, about the climate change. Here, we would like to affirm that OPEC and members of OPEC, they remain committed to the Paris Agreement. Many of our member countries have signed to the agreement and they are working on diversifying their energy p0rtfolios and securing their investments required for the energy secured for tomorrow.
On the Social Development Goals, unfortunately, the COVID-19 has added the new layer of vulnerability with – for more than 800 million people who have no access to electricity. And in our worldwide outlook, as well as the – everything that we do here at OPEC, we pay special attention to climate-related issues, as well as SDGs and the United Nation Goals, and these have been covered very much in the overall outlook that we have received.
I will save more of these messages to the discussions that we will have later on, Professor Stevens, but I thought of sharing our views, projections, on the short, medium and long-term to set the discussion for the rest of the years. Thank you.
Professor Paul Stevens
Thank you very much, indeed, Ayed. Our next speaker is Cailin Birch. Cailin, the floor is yours.
Cailin Birch
Great, thanks, Professor Stevens, and thanks all, and thank you, Dr Al-Qahtani, for that great backdrop, giving us the long-term outlook for where this industry is headed, after an already very bumpy time. I’ll perhaps look at slightly more near to medium-term. We – yeah, you have a five-year forecast period, which in a way is a nice comfortable period for us to look, where we have a little bit more certainty, but the factors that are driving our price and economic forecasts.
And I think the overwhelming theme for me, looking ahead to 2021, is that it feels almost, at the moment, like we’re starting to see the end of the tunnel, at least for the oil industry, after a very dismal part of 2020, in the sense that we now have Brent Crude prices above $55 a barrel and the promise, at least, of the rollout of COVID-19 vaccines and what that could mean for the return for normal private consumption and, eventually, travel plans, kind of, lifting oil demand. But, actually, I would hate to say, being, kind of, a permanent pessimistic forecaster, not wanting to paint myself into a corner, but on the whole, we think there are still a lot of very troubling trends, very difficult obstacles, I’ll say, to get over, in terms of reaching a more stable position, and certainly for the economies that are oil reliant, or at least oil comforted, if we could say, looking to get into a more stable footing in the, again, the near to medium-term. So, not only is it the recovery from the coronavirus pandemic, which is still very much underway and not achieved. It’s the, kind – simultaneous move towards the energy transition, towards a lower carbon economy, that will pose a second obstacle. And then, let’s say, a wild card factor is the change of government in the United States and what that could mean for geopolitical relations and the US role in energy policy, and certainly, with regard to its policy on climate and what that means for the energy transition, as well. So, lots of moving pieces yet to incorporate in 2021, even though 2020 felt like that was, kind of, peak uncertainty for us.
Very quickly to, kind of, walk through some of the assumptions we have in place for our oil outlook over the next five years. I’d say it’s not terribly different, really, from what you just outlined, Dr Al-Qahtani, and, effectively, it’s that we see global oil demand returning to pre-coronavirus, so 2019 levels, only by 2023. Again, a modest recovery in 2021, picking up again in 2022 and really only getting back once the travel industry and those transport and other particularly hard-hit industries take several years to get back on more solid footing, find investment and recover their consumer demand.
Now, that, obviously, poses a lot of challenges, certainly given that, yes, we do see a, kind of, a relatively strong recovery in prices earlier this year, and that is perhaps comforting markets. But, at the same time, we still do see ample supply that is being held offline in – as part of a strategy by the part of the broader OPEC Plus alliance to keep oil prices balanced. So, that, in effect, will probably continue to work against, a bit, the market enthusiasm that we see now with the oil recovery, starting to appear on the horizon.
So, what does that mean in the next few years, is that OPEC Plus unity is going to continue to be required. The current agreement that was agreed last April is due to remain in place, at least until the first quarter of 2022, but again, with this medium-term gradual recovery, OPEC Plus, kind of, remarkable show of unity that we saw last year and, really, over the course of the last three years, we view as continuing to be essential to maintain the recovery in oil prices.
Now, with OPEC Plus needing, effectively, to stay together, if all those conditions play out as we expect, that’s going to be another challenge, yeah, for the region. And we’ve already seen, in recent months, strains starting to emerge, both between OPEC and their non-OPEC partners, notably Russia, but also within the traditional OPEC alliance, in terms of what their goals, from market developments are. Knowing, of course, that the economic structure in Saudi Arabia, versus the UAE, versus a country like Iraq, and then, again, to Russia, is very different. As a quick view of what we think, kind of, the ideal price balance would be for various actors within the group, Saudi, of course, needs prices higher to fund their very ambitious economic development and diversification plan. They have an extremely low production cost, but a very high budget requirement to make sure investment is flowing in, and necessary measures to get the economy in a position to survey and thrive in the energy transition that we’re all going through.
Russia, as a counter example, has a $42 per barrel budget breakeven balance. Anything above $40 a barrel, the cash goes into Russia’s sovereign wealth fund and it can be used for investment or to build up a cash buffer. Recently, we’ve seen that building up as a cash buffer. That’s likely to be perhaps as a way to protect Russia against future US sanctions under the Biden administration, yet another geopolitical factor to consider there. So, Russia, rather than restraining production even further and boosting prices higher, again, over $42 a barrel, they don’t necessarily need it. They need to have volume production at its max, to make sure that investment, job creation, exports and all other real economic activity, let’s say, sures up overall GDP.
So, Russia and Saudi already heading into the next, kind of, difficult few years, need very different things out of the market and have, I think, very different ideas of what the unique price balance would be. And then, again, even within OPEC, lots of different considerations, but we can leave that aside for the discussion. But the, kind of, top line for me is that OPEC Plus will preserve that unity, probably into the medium-term, out of a necessity to continue to balance the market, with the US already looking to start bringing more supply online. We’ve seen in recent weeks and months is that continuing balance act is not going to go anywhere any time soon and that will create additional pressures, we believe, within these existing alliances, OPEC and OPEC Plus, more broadly. That means we’ll continue to see lots of – kind of, an interesting few years ahead.
Not a lot of time to touch on this, but I’ll just throw it out so we can come back to it later, is the potential shift under a Biden administration towards Iran and what that could mean for the oil market. As of the moment, we’re not terribly optimistic we’ll see big changes in any direction. We have just a couple of months for the US and Iran to reach some sort of agreement towards the stated goal of reviving the JCPOA, but we have Iran celebrating Nowruz in March, that then signals the start of the presidential campaign, and Iran has presidential elections in June, during which we think hardliners stand, potentially, a good chance of taking power. So, not a hugely optimistic, but a very accelerated timeline in Iran and yet another wildcard factor to consider for 2021 and onward.
Professor Paul Stevens
Okay, thanks very much, indeed. Next, we’ll go to Valérie.
Dr Valérie Marcel
Thanks, all. So, I want to go back a bit in time, when COVID first, sort of, shut down public life across most countries. At that time, the New Producers Group started weekly webinars, and the New Producers Group is a network of 30 emerging oil and gas countries, a peer-to-peer network. So, these webinars brought together about 600 officials over these months, from multiple agencies, 30 countries that were emerging and also established oil producers, and they all wanted to make sense of what was happening, what it meant, how long the crisis would last and what impact it would have on those countries and their oil sector.
So, you know, of course, the COVID crisis coincided with the oil market crash, so it was a dual crisis that emerging producers felt – for which they felt the pain very acutely. It was a crisis for them at an individual level, because they felt the health crisis at an organisational level, a sector level, country level. And I wrote about this series in my recent briefing paper, “Fostering Resilience in Emerging Oil Producers.”
So, during the series, we reviewed what the impact was of this dual crisis, and the number one impact that emerging producers felt was, really, delays to workplans, delays to final investment decisions. That affected 80% of our group in April, by April already. Lower licensing interests, leading to delayed or cancelled licensing rounds, legal issues. The majority of the group reporting that companies were seeking to change contract terms, invoking force majeure, and really, only hotspots, like Guyana or Suriname, were spared these kind of impacts.
We – across the group, I think, communications is also a very – you know, a big issue, needing to communicate with the public, across government, with the agency staff, and so, we discussed a lot of risk management approaches to handle these impacts. But then, we turned our attention to thinking about, well, what happens after the crisis, what’s the new normal, what does it look like? And we relied on scenarios to help us, sort of, imagine where things could go. And the scenarios are really about thinking what is the impact of the – this dual crisis on the energy transition? And so, one scenario was regional dominoes, the other global co-operation, and policy is really at the heart of – it’s the factor that makes the great – that has the greatest impact, I think, on the pace and the course of the transition. The policy signals matter, because it’s about how you deal with the health crisis, to what degree you co-operate internationally on the health crisis and on rebuilding economies, and that has an impact on the transition.
But in all scenarios, it was pretty clear that boomtime was over for oil. We highlighted the pressure, during our discussions, that oil companies were under from investors to push for decarbonisation, to show faster and more stable returns, to lower risk, and this meant that this – and this means that a lot of emerging oil and gas producer sectors are just not going to take off. One issue I think illustrates very well the kinds of challenges that emerging sectors, or emerging oil and gas sectors face in this transition, is that as oil companies are increasingly under pressure to find low carbon, easier projects, they need to prevent flaring of associated gas. They have to have projects that would capture the gas and use it productively, but emerging producers don’t have the infrastructure that would be needed to capture it, transform it and market it. So, that is really something that makes their – that impedes their sector, is that process.
So, I think the conclusion I had in the report was really that emerging producers, broadly, need to rethink what the sector could – can bring their economies, what its prospects are. They need to diversify, echoing Cailin’s point on much more established producers, as well, and they need to not take on debt on the basis of expectations of future revenues, that the sector may not have.
Professor Paul Stevens
Thank you, that was brilliant. Four minutes 55 seconds, bang on time, I’m impressed. Okay, Montserrat, it’s your turn. You’re on mute at the moment.
Montserrat Ramiro
No, yeah, I’m alright. Well, I’d like to go a little bit more general than what you’ve all touched on, ‘cause I think it’s important to understand the oil industry, in terms of what we are living now, as is – as a global society. I think there’s two social imperatives that are very important. One, short-term, is obviously COVID and this brought about a lot of – it, sort of, sped up the rate of change for the oil and – oil industry, but then, there’s the long-term imperative, which is, of course, climate. And if we don’t look at the oil industry through tho – through that looking glass, it’s very difficult to understand it, not only in the moment, but – because, obviously, the oil industry is not going to go away any time soon, but it will, and I think it has been changed forever after COVID.
As Valérie was mentioning, I think for new producers, it’s very important to not lose track that this is not something temporary, that it was already happening at a, perhaps, very slow pace, and it has sped up to a speed that won’t be able to return back to what was going on before. So, I think the – we need to understand that the long-term imperative of climate has driven technological change, which is crucial to renewable integration and energy transition, and it also has brought about what economic development in producing countries looks like. And that is why, probably, we’re seeing a lot of diversification, in terms of the oil industry, for example, Saudi Arabia is looking renewable integration solar, and it will continue to do that, because it’s – there is no going back to what we knew before. Of course, there will be a very important contribution for mobility that we need to look at and how that would – for long distance mobility, what the real technological capabilities are, and that will influence a lot of what the refining industry expects or can look into. And – but, of course, this has been – this was a trend that it was already happening, and it won’t go back, and I think that, mostly, the impact on power storage and mobil – and electric mobility is going to be crucial to what the oil industry outlook is in the more long-term view.
And as I was listening to Valérie and what the smaller, or – yeah, the smaller producers, have to look into in terms of flaring and all that, which is, basically, technological and operational development in the industry, it might not be worth their while to invest in it, given that there is this trend that is economic, in terms of energy transition. So, I believe the oil industry will continue to be important to most oil producing economies, but it won’t be the sole pillar of them, as it used to be. I think prices are very tricky and they can be misleading, in terms of whether or not the industry is recovering, because it is very short-sighted, and this – the energy transition is just going to be – I believe, because of COVID and because of many public policy actions that will come about, for example, the Biden administration and so forth, I think this is going to be crucial for many developed economies. So, I think that’s how – that’s my perspective on the oil industry.
Professor Paul Stevens
Okay, thank you very much, indeed. We now can throw it open to discussion, and I’m going to kick off and I’m going to ask each of the panellists the same question and see what the responses look like. And the question is this, we’ve mentioned the energy transition, and I’m curious to know your view on whether the pandemic will speed up that transition or slow it down. And the logic of it slowing it down is that governments get distracted away from the drivers of the, sort of, climate change issues and carbon emissions and start to focus on trying to rescue their economies. The reason that it might speed it up is because, in some ways, the old Washington consensus is dead and people no longer expect markets to sort everything out and are increasingly looking to governments to sort out problems, and one has to say climate change is probably the biggest problem we face. So, well, I’ll take you in the same order you started, to Dr Qahtani, I’ll start with you, is the COVID pandemic going to speed up or slow down the transition?
Dr Ayed S. Al-Qahtani
That’s a very good question, Professor Stevens. It’s – all matters and all is relevance to the evolution of the global energy mix going forward, and COVID, amongst many others, most important of which is the government policies. And we’ve talked about the various policies that we register around the world, whether it’s the EU Green Deal, similar to it is the US, the carbon neutrality, or Zero Emission by 2050, the Chinese 2060 carbon, the neutrality, and so on and so forth, most of which we have all incorporated these assumptions into our WHO assumption, but all is relevant to discussions.
Yes, the pandemic has structurally impacted the markets, not only in the short and medium-term, but also in the long-term, and that was – it is very visible, even – it’s one of the contrasting point, one of the changes, major changes, between the WHO of 2020 and the WHO of 2019, in which we have reduced the – a fundamental structural long-term impact of the COVID in oil demands, north of a million barrels of growth. So, yes, it’s costing us some demand growth, it is contributing to accelerating the evolution in all the global macroeconomic, social, as well as energy landscapes, going forward. So, yes, policy is relevant, the – whatever events, be it as major as COVID, or probably as minor as an election in one of the key regions, we – fundamental to our forecasts and our projections, is the assumptions of this policy evolution, as well as everything that we have registered year-on-year.
And if you allow me just, very quickly, to elaborate on the comment made by my colleague, Cailin here, on the OPEC Plus contribution and sustainability in the short-term, just wanted to remind us of the magnificent success that OPEC Plus has made, since its inauguration in January 17, over the last four years, which is not immediate anymore. It’s way beyond one year. We’ve seen OPEC demonstrating a conformity north of 128%. That is January 17, through March of 2020, and north of 113 for non-OPEC, this year north of 100% for OPEC and 95 for non-OPEC. They’ve managed liquidating a tremendous amount of overstocks that destabilise the market. They’ve literally saved the day over the last four years. I don’t see them unwavering going forward. We’ve talked of the financing needs of Saudi Arabia and Russia. I need to comment on this very quickly, that we, sometimes, we get overtaken by the debt to GDP and what is the price that needs to balance the budget? I think this is fundamentally a wrong analysis to start with, because we know that governments can operate with debts to GDP ratios up to 100%. We’ve seen it in the OECD countries. We’re talking about G20 in those economies the size of Saudi Arabia and Russia, with 20 to 30% debt to GDP. So, the analysis is fundamentally wrong. I just wanted to elaborate on the OPEC.
Professor Paul Stevens
Yeah.
Dr Ayed S. Al-Qahtani
There’s…
Professor Paul Stevens
I’d just like to point out…
Dr Ayed S. Al-Qahtani
This has been a very…
Professor Paul Stevens
…that the last figures I saw for December was that OPEC Plus compliance was only 75%, and now that Saudi Arabia has resumed its swing role, I anticipate that a lot of the OPEC Plus people will say, “What the hell, we’ll increase ours and Saudi Arabia can pay the price.” That’s another discussion. Cailin, energy transition, speeding or slowing?
Cailin Birch
In short, I’d say I’d expect it to speed up the transition, and that’s not what I would normally expect out of such a severe economic crisis. If we think about recessions, country or global recessions writ large, in that sort of a situation, a more traditional crisis, if you will, looking back, for example, the 2008/2009 Global Financial Crisis, you’d expect to find any government looking for the shortest path to economic growth that they can find out of the crisis. And that would certainly imply more of a reliance on whatever industry and whatever means that industry has of supplying itself with the means to get back on track.
But we have a few very, kind of, unique distinguishing factors of this crisis, that I think won’t necessarily lead to that, kind of, say, surge, and why we have this gradual return to the overall level of oil demand, and it’s that we’re seeing an entirely, really, demand side crisis at the moment and we haven’t seen any of that really coupled with severe financial sector concerns, or even, kind of, a mass write-down of assets. We have investment capital more or less preserved in the major economies, where we see, kind of, driving R&D growth. Not a lot of demand for it now, but as sectors get back on track, we haven’t seen, necessarily, the, kind of, scarring effects on investment potential that we would have seen, again, under a more ‘traditional economic crisis’. And then, again, we’ve seen the doubling down by the majority of world governments across the development sphere on – for their climate goals and recognising this as a trampoline event, potentially, to get forward to continue energy goals.
So, for one of many reasons, I would expect this crisis to play out slightly different than a, kind of, a more traditional one.
Professor Paul Stevens
Okay, thank you. Valérie, speeding or slowing?
Dr Valérie Marcel
Well, that was the focus of a large part of our webinars that we had in that Fostering Resilience series, and we used those scenarios to think through the impact on what – the impact of COVID on investment in oil, versus gas, versus renewables. So, in the regional dominoes scenario, there’s poor COVID management, so one country might do well in COVID management, another doesn’t, so, it comes around to bite you again, and has a bad imp – you know, a very negative impact on the economy, ‘cause you just can’t get out of it. And so, investment is difficult for all sources of energy in that scenario, and there would be, like, a tendency to, sort of, try to save legacy industries. As Cailin said, you know, anything you can do to have the economy recover, so, I think that would be a more difficult, sort of, you know, retrenchment survival strategy approach.
The co-operation scenario is one where there’s better COVID management and it would hasten the pace of the transition, we concluded, because there would be more of a concerted – sort of, a confidence in a co-operative concerted policy on climate change, so greater climate change commitment. Those would be policy signals that would support gas invement. It would also support, of course, renewables. And it seemed like in either scenario, renewables did relatively better than the others, because electricity demand isn’t so affected by COVID, in contrast to transport, really being hit so hard, having a hard knock – a bad knock-on effect for oil demand.
And I think it’s – and what’s interesting is that at this stage, I’m not so clear if we’re heading towards one scenario or the other. You know, there are some signs of improving policy choices ahead, with the Biden administration, but it’s not so clear that there is going to be international management of COVID.
Professor Paul Stevens
Okay. Montserrat, what do you think, slower or speeder?
Montserrat Ramiro
It will speed it up, mainly because it’s a demand side crisis and mostly, as well, because the transport sector has been so affected. And then, you have this short-term versus long-term incentives for, for example, OPEC Plus countries, where you know that the overall trend is towards a low-price scenario, or universe, and where you know that the industry is going to end up in a low-price scenario. So, what – the incentive is to produce more in shorter-term and, also, that will take you out, somewhat, of the short-term crisis of COVID, but, of course – and that will drive prices down even more in the, sort of, medium-term. So, I think all the signals are there for the – for COVID to speed up energy transition and lower oil price realm.
Professor Paul Stevens
Okay, thanks. Let’s open now to Q&A. I’ve got a number of interesting questions here. There was quite a few questions relating to the potential role for hydrogen. Hydrogen was, sort of, moved up the agenda now, in the same way that CCS moved up the agenda about ten or 15 years ago, when every conference I went to was all about CCS and then it disappeared, it’s come back a little bit this year, and now, hydrogen is the, sort of, the new saviour of what’s going to happen. Any thoughts on this? Dr Ayed, can I ask you, I mean, to what extent did you put hydrogen into your long-term forecasts?
Dr Ayed S. Al-Qahtani
It is one of the many things that we’ve considered in the bundle of fuels that we will require, going forward. I just want to maybe give a feel of the big challenge that we are confronted with, going forward. The – a 25% increase in the population, doubling the world economy. If we want to double the world economy, we would need every single PTO under the sun. So, try to produce it as environmentally responsible as possible, but this doesn’t eliminate that there is a significant challenge, going forward. Sometimes, people, they forget the size of the global energy system. When we talk about north of a billion vehicles and trying to see what we can – how many EVs can we have and how many hydrogen driven vehicles, and how much can we produce out of things, going forward, we will have to replace big chunk of this global energy system, and it’s not an easy job, given the challenges that we’re going through. We’re trying to survive through this pandemic with enormous stimulus packages that are expected to boost production, bring growth back, at least get the world back on its feet again, and it will take a couple of years to do that. Yes, we are very – I agree with my colleague, who was talking about 2022/23, to see the pre-pandemic energy demand going back, but the challenge going forward is tremendous. We will need all kinds of fossil fuels. This is a very bold conclusion that we continue to withdraw out of our World Oil Outlooks, going forward. We will need hydrogen; we will need solar. Yes, we are cognisant of all these very ambitious targets: zero neutrality, zero emissions by 2050/60. Tremendous, fabulous plans going forward, but it all comes at a cost.
Professor Stevens, you talked about CCS and IEA outlook saying that we would need north of 1,000 plans to handle a significant portion, and how many do we have today, and what – at what cost? People keep ignoring the cost, which is central to what we build on.
Professor Paul Stevens
Precisely, I completely agree with you. Any other views on hydrogen from any of the other panellists? I’ll move onto the next.
Montserrat Ramiro
Yes, if I may. I think an important – of course, we should never forget costs, but because of the incentives to drive technological change, we have seen, for example, solar photovoltaic modules costs fell, sort of, 91% in the past decade, wind turbine costs fell somewhat 50% in the past decade and the same thing will happen to hydrogen. It used to be a very nice idea about storing power and – but it – but everyone would have told you, “Well, it’s a materials problem. We are not there, in terms of what it will cost. It’s not cost effective,” etc., etc. But those are the kind of challenges that the long-term social imperative will drive costs down. There is nothing – of course, if we think that these things will, sort of, play down gradually, there is no way we could think that most of the car fleet or transport will go from internal combustion to EVs, and I understand that. But the drive to change is such that we will most definitely see costs falling even more, and of course, I don’t know – I don’t have a precise number of when that will be, but we can only infer by the numbers we’ve seen in renewables, for example, or even storage, lithium-ion batteries have also fell, the costs have fell dramatically.
So, I think it will – it – going back to your speed question, is just the speed is increasing and the cycles that we are used to are so much shorter than what we have seen in history. So, my only point would be hydrogen will be significant, because it is such a big possibility to continue to fight, in terms of climate change and have the oil industry not dying down completely, because, well – yeah.
Professor Paul Stevens
Let me – there’s – I’ve got a good question here from Frederica Piazza, and she says, “Isn’t there a risk that we’ll see a two-tier approach in the oil industry, between OECD and non-OECD? And I think this is quite an interesting issue, because we’re talking about the energy tran – the global energy transition as though it’s going to be the same and history shows that it certainly will not all be the same. But this distinction between OECD and non-OECD, just how important do you think it is? Cailin, do you have any thoughts on that?
Cailin Birch
Yeah, that’s a really interesting question. I think – I mean, it’s always useful to think in these distinctions and one thing that – well, I would say, it’s useful to think of the distinctions, but I think we can all agree, most likely, or please tell me if not, that we’re all moving in the same direction. It might be a slightly different pace, but I think there is a lot of consensus on, you know, the fact that all energies will be included in the mix, we’ll gradually see a move away from fossil fuels to a greater inclusion, in terms of the overall percentage of renewables, and they may be hydrogen or other. And I’m not sure yet that the pace of that acceleration is useful enough to say that we’re seeing entirely different trends. Now, it’s early to say that and we may see something entirely different develop in the next few years, again, depending on a number of factors, including investment. But, certainly, one thing that we’d highlight, coming out of COVID, is that already, in terms of overall energy demand, and I won’t just say oil, but overall energy consumption and where growth in that area is coming, is that we’ll certainly see a beginning of a divergent in terms of the pace of energy consumption in the non-OECD world.
Now, that’s a trend that was already happening. We’d observed it in oil and in other areas, but we certainly expect that to be magnified. And that’s partially because of some leading emerging economies, like China, for example, if we can even properly call it an emerging economy still, is already performing extremely well coming out of the crisis, showing, kind of, marginal, but still positive growth in 2020, and leaping ahead. Now, that’s leading to new sources, again, of energy consumption and we’d expect that trend to, kind of, anchor itself again in the next few years as the OECD world recovers much more slowly and with more economic scarring as a result of this. So, the pace in terms of overall consumption, is notable, but I’d say the direction is still the same.
Professor Paul Stevens
Valérie, any thoughts on this, the, sort of, OECD versus non-OECD? I sometimes worry that I live in a European bubble and the – in that European bubble, everybody is obsessed by climate change, but if you look outside that bubble, there are other issues that people are concerned about.
Dr Valérie Marcel
Yeah, I really welcome these kind of questions, ‘cause it forces us to burst the bubble and see what’s happening. So, I mean, I – and it’s complicated to answer, because the OE – the non-OECD world is, of course, is not a monolith, but I mean, on the one hand, you’d think the non-OECD world would have good reasons to, you know, sort of, to consume more carbon intensive energy, let’s say, to continue polluting, for energy access in cities, to – for transport, for growth, for jobs, a lot of factors that would push toward, you know, them, those countries as a bloc, not following in the same path as the OECD. But on the other hand, there is also, in a lot of the poor non-OECD countries, there is a lot of clean air issues and health issues related to biomass use. There’s rural energy access, which will not be solved with fossil fuels, necessarily, I think renewables will have a really strong future in that. They also, broadly, suffer climate impact that will change the kind of pressures that consumers in those countries will put on their governments. I mean, of course, we saw that in China with clean air and that had a significant impact on the policy outlook.
But then, also, I think for those that are – that have, you know, a potential, sort of, ambitions in R&D, participating in the decarbonised economy, in the low carbon economy, is a huge opportunity that I think a lot of economies in emerging economies won’t want to miss out on, so, I think that could push towards it.
Professor Paul Stevens
Yeah, I’ve got a very good – sorry, Mon – do you want to give…?
Montserrat Ramiro
I have something. I would – just as Valérie was saying, non-developed, or non-OECD countries, of course, they’re not all the same, but they do, or mostly feel, or have impacts of, climate change more directly, and so, it cannot be just assumed that they have no preference on battling climate change over just continuing consuming fossil fuels, ‘cause I think that dichotomy is not there, I just don’t see it, be – mostly because of technology costs, they’re so much lower now than they used to. So, it’s not the dichotomy between renewable integration or growth, ‘cause I just don’t see it there, and there’s huge potential for employment in a greener economy, or at least as it’s not so trivial.
Professor Paul Stevens
Yeah, okay. I’ve got a very interesting question here from David Simmons and it links into the issue of the role of policy and he says, “How can the oil and gas sector improve its public face over the next few years? Should it develop and promote its own energy transition plan?” Any thoughts on that one? Yeah, Ayed.
Dr Ayed S. Al-Qahtani
Yeah, if I may take a quick stab at that, Paul, but after maybe comment on the OECD versus non-OECD. I think it’s worth elabor – you know, maybe alluding that our forecast over the next 25 years, CD – non-OECD, as we know it as a category, or as a bundle of countries, today changing, going forward, India and China alone would be 40% of the global economy. The OECD will shrink from 44% of the global economy, to – down to around 30. Along with that structural change in the economy, I wanted to remind us with the population growth. So, population growth, economic growth, as well as the energy demand going forward, is outside the OECD region, for the most part, as we know it today. I don’t think – I don’t know if the acronym OECD will still be politically valid then, or will we see another political/economic congregation emerging out of these – probably the change of the ranks of demand, the economic growth, and so on and so forth.
Just wanted to maybe say that most of the world countries, they share the same page. The climate change is on top of their agendas, the availability of technology, the availability of finance, but the access remains to be different. A lot of countries, they don’t have access to, probably, the technology or the finance and, therefore, their national priorities, although they share the same pains and agony, they may not be able to afford it. They agree on the Social Development Goals on the climate change, but when it comes to ability to execute, everybody’s different. Now…
Professor Paul Stevens
Go on.
Dr Ayed S. Al-Qahtani
…if you are talking about the national oil companies and how could they emerge oil and gas? Oil and gas would definitely be needed and it’s – it still will constitute north of 50% of the global energy mix, no matter what – how hard we try. We will need oil and gas going forward, to fuel this economic growth north of $160/170 trillion to materialise, we will have to burn the BTUs to do that. And the challenge is how could you provide and cater the economic growth, but be environmentally responsible of it, cognisant of everybody’s constraints when it comes to energy access, poverty, financing, technology, and so on and so forth?
Professor Paul Stevens
Okay, I was going to pick something up then. I’ll tell you what, we’ve only got about three or four minutes left, and I’ll ask each one of you, very quickly, if you have any final thoughts and remarks. Cailin, I’ll start with you. You’re mute.
Cailin Birch
I knew I was going to do that at some point. Somebody in every meeting has to, I’m sorry…
Professor Paul Stevens
Story of my life.
Cailin Birch
…it was me.
Professor Paul Stevens
Go on.
Cailin Birch
I would say probably overriding thoughts for me is that we certainly are at a pivotal point for the oil market. That fits in, both with the energy transition, but to a number of other factors. We didn’t discuss the US that much, so, maybe what I’ll say, kind of, in parting remarks, is, kind of, where the US is heading in all of this. So, we’ve seen a, certainly only a policy side, a big shift and a commanding shift towards, kind of, pro-climate friendly policies, in a way that we haven’t seen in the past. But at the same time, I’d also caution that to know that the rest of the world will be looking at US policy with a, probably, a rightly sceptical gaze in the next four years. Political division is as deep as ever it’s been in the last couple of years, and while Biden won a record number of votes to win the election, so did Donald Trump, and that, kind of, deepening political polarisation in the United States is going to be, again, a rightly concerning factor for those working with the US on major initiatives, be they COVID, be they energy transition, but especially, yeah, energy factors and things like this that are going to be not just for the next couple of years, but long-lasting. So, yet another, kind of, source of uncertainty and why we need to stay nimble in the next few years.
Professor Paul Stevens
Valérie, very quickly, if you wouldn’t mind?
Dr Valérie Marcel
Yeah, just to pick up on that theme of whether oil companies can reinvent themselves, I mean, I think it – I think that there’ll be hard pressed, you know, and I think more and more of the staff in these companies, in-between meetings, talked very frankly about the difficulty they have of squaring how they feel about where the world should go when the companies that – what the company – what they have to say for their company, I suppose. Whereas I think it’s really interesting, just to pick up in response to one of the questions in the ‘Chat’, was I think national oil companies can reinvent themselves, or they can evolve more easily, because they’re, essentially, energy providers to their countries, first and fir – and foremost.
Professor Paul Stevens
Yeah. Montserrat, very briefly, last comment, thought?
Montserrat Ramiro
Well, I think energy companies are hard pressed to reinvent themselves and they will have to if they are to survive. I think energy transition is obviously here to say. The speed might be up to discussion, but there is no way we can continue to think that we can go about our lives in the same way that we have done so in the past. Climate change is real, it has real impact on people’s lives, and so, we need to change how we see, and the oil industry needs to change how they see themselves.
Professor Paul Stevens
Yeah. Ayed, you can have the last word.
Dr Ayed S. Al-Qahtani
I would hate to have the last word. I would’ve left it to you and to your colleagues. I’m sure you’re much wiser and smarter than me. But if I had anything in mind, Professor Stevens, it’s the cost of things. Everything’s got a cost, unfortunately. You know, for us to cater economic growth going forward, we will have to pay for it. To stabilise the market now, somebody has to cough up that cost, be it a cut of production, be it an effort, a relentless effort that could drag on for years, just to stabilise the market, and probably we secure the supply to fuel the economic growth when it materialised, going forward. Yes, we will make it out of the slump that we, unfortunately, found ourselves into. The COVID-19 was nobody’s mistake, but we have to, you know, maybe mitigate the impacts and ramificat – deal with the ramifications, going forward. But there is a cost to balance market, there is a cost to cater growth, there is a cost to take care of the environment, and as long as we are sensible and very, very neutral and objective, and probably transparent about that cost to everybody, I think the better we can do as a team, moving to the next phase.
Professor Paul Stevens
Re – I’m going to stop us now. I’m reminded of the definition of an Economist, who suddenly “knows the cost of everything and the value of nothing.” But that was probably Oscar Wilde, actually, although he wasn’t referring to Economists. I have to draw it to a – now. We could’ve gone on for hours on this topic. I’d like to thank the speakers very much indeed and also thank everybody for their questions. So, at that point, I will say goodbye to everybody. Stay safe.
Dr Ayed S. Al-Qahtani
Thank you very much. Thank you.
Montserrat Ramiro
Thank you.
Dr Ayed S. Al-Qahtani
Yeah, bye, bye.
Cailin Birch
Thank you.
