Macroeconomics and global trends
Global trends and their impact on strategy implementation
In 2020, the balance between liquid fuels supply and demand experienced two different phases primarily driven by the global COVID-19 pandemic, its impact on the economy and coordinated action by OPEC+.
From January to May 2020, demand for oil was declining faster than oil production. Oil prices fell due to a significant build-up of inventories, but rebounded in the second half of 2020 driven by a recovery in oil consumption, production cuts under the OPEC+ agreement and lower crude oil production in the US.
According to the preliminary estimates by the US Energy Information Administration (EIA) dated 12 January 2021, in 2020 global consumption of crude oil and liquid fuels was down by 9 million bbl per day from 2019 – the largest annual decline since 1980, according to EIA.
On average in 2020, Dated Brent oil prices traded at USD 41.84 per bbl, down 34.8% year-on-year, reflecting the impact of the pandemic on the global economy and oil demand due to lockdown restrictions. Measures to reduce production under the OPEC+ agreement and the market’s focus on vaccination campaigns across countries have supported oil prices in late 2020 and early 2021.
Global energy demand will continue to grow in the long term due to improved living standards in developing economies. However, the market expects a significant change in the structure of energy demand due to the weakening role of hydrocarbons as they are phased out by renewables. Nevertheless, oil and gas will continue to play an important role for decades to come, accounting for 20–50% in energy demand by 2050, depending on the scenario according to the estimates by British Petroleum (BP) in its Energy Outlook (2020 Edition).
- Carbon emissions from energy use in the Rapid Scenario fall by around 70% by 2050. This fall in emissions is in line with scenarios which are consistent with limiting the rise in global temperatures by 2100 to well below 2 °C above preindustrial levels.
- The Net Zero Scenario (Net Zero) assumes significant shifts in societal behaviour and preferences, which further accelerate the reduction in carbon emissions. Global carbon emissions fall by over 95% by 2050, broadly in line with a range of scenarios which are consistent with limiting temperature rises to 1.5 °C.
- The Business-as-usual Scenario (BAU) assumes that carbon emissions peak in the mid-2020s, with emissions in 2050 less than 10% below the 2018 level.
The growth in global energy demand in all three scenarios is entirely driven by developing economies, reflecting their increasing prosperity and improved energy access while energy consumption is expected to fall in the developed world. According to BP’s Energy Outlook, emerging economies are expected to account for around 70% of energy demand by 2050 in all three scenarios, up from 58% in 2018.
Demand for gas is supported by the developing economies of Asia (China, India, other Asian countries). Gas is positioned as a fuel to be used during the transition to renewables. At a virtual meeting of the UN General Assembly in September 2020, China announced its plans to achieve carbon neutrality before 2060 while lowering carbon emissions within a fixed timeline, which is expected to catalyse the country’s transition from coal to natural gas. According to Bloomberg, coal use accounted for 57.7% of China’s total energy consumption from 71.6% in 2009 while the proportion of natural gas increased from 3.5% to 8.1%.
According to OPEC’s World Oil Outlook 2045, petrochemicals will be the largest source of incremental demand for oil in the forecast period. Demand is expected to grow by 3.7 million bbl per day from 13.7 million bbl per day in 2019 to 17.3 million bbl per day forecast for 2045, according to OPEC's estimates. Most of this incremental demand is expected to come from Asia and OPEC countries. Petrochemicals will be primarily supported by consumer demand for plastics and textile reflecting the rising income in developing economies.
The COVID-19 pandemic of 2020 has hastened the use of sensors, the Internet of Things and cloud computing to support remote monitoring of oil wells and refineries. According to Bloomberg, many companies have found an answer in digital twins. These interactive 3D simulations of oil platforms and plants allow engineers to gain virtual access to equipment from home. Computing technology, big data, clouds and machine learning streamline asset performance and remote operations.
In September 2015, the leaders of 193 countries approved an ambitious comprehensive programme, Transforming Our World: the 2030 Agenda for Sustainable Development, which included the United Nations Sustainable Development Goals. According to Bloomberg, some 26 countries have announced net-zero goals for early 2021.
Climate action affects investment strategies. According to Bloomberg, net inflows to ESG ETFs totalled USD 76.8 bln in 2020 compared to USD 3.3 bln in 2015. Embracing ESG, oil majors have already announced ambitious plans to cut emissions and invest in alternative energy.