KMJF: Peak Oil had already passed

https://www.bloomberg.com/graphics/2020-peak-oil-era-is-suddenly-upon-us/?sref=qpbhckVU

A year ago, if anyone in the petroleum business had suggested that the moment of Peak Oil had already passed, they would have been laughed right off the drilling rig. Then 2020 happened.

Planes stopped flying. Office workers stayed home. “Zooming with the grandkids” replaced driving to see family. A year of global hunkering yielded the sharpest drop in oil consumption since Henry Ford cobbled together the first Model T. At its worst, global demand dropped by a staggering 29 million barrels a day.

As a once-in-a-century pandemic played out, British oil giant BP Plc in September made an extraordinary call: Humanity’s thirst for oil may never again return to prior levels. That would make 2019 the high-water mark in oil history.

BP wasn’t the only one sounding an alarm. While none of the prominent forecasters were quite as bearish, predictions for peak oil started popping up everywhere. Even OPEC, the unflappably bullish cartel of major oil exporters, suddenly acknowledged an end in sight—albeit still two decades away. Taken together these forecasts mark an emerging view that this year’s drop in oil demand isn’t just another crash-and-grow event as seen throughout history. Covid-19 has accelerated long-term trends that are transforming where our energy comes from. Some of those changes will be permanent.

It’s often difficult to recognize civilization-sized shifts in behavior until after they’ve occurred. Until the pandemic none of the major oil forecasters had seen an imminent demand peak. The debate won’t end now, especially with signs that the pandemic will ease in 2021. But if we look back from here and see the oil peak clearly in the past, what follows will be the evidence of how the energy future snuck up on us.

The peak no one saw coming

Energy analysts usually present multiple scenarios. The gap between each forecast comes down to differing assumptions about government policies, economic conditions and consumer preferences for things such as new electric cars and solar panels. A business-as-usual scenario assumes little impact from policy shifts or new technology.

Most analysts had only predicted declining demand for oil in improbably green scenarios that could only be achieved with far stronger global climate policies. What made BP’s 2020 forecast unique is that peak oil now snuck into its business-as-usual baseline. If technologies and pollution rules improve, the dropoff in demand would be even more swift.

Note: Oil demand is shown in exajoules of energy, a unit of measure adopted by BP for analyzing energy demand.
Sources: Carbon Brief , BP 2020 Outlook, International Energy Agency

The prospect of a 2019 peak went largely overlooked when BP released its highly regarded Energy Outlook in September. Pinpointing it was made more difficult by the fact that the company hadn’t yet included the latest real-world energy data from 2019.

The chart above updates the outlook with BP’s own oil figures for last year. It also presents estimates using BP’s calculations in exajoules—a more precise measure of energy consumption than a barrels-per-day figure. Without those changes, BP’s scenario suggested oil demand might plateau for the next decade before declining once and for all. BP didn’t respond to requests for comment.

A shakeup in oil accounting

Like any forecast, only time will tell if peak oil demand happened already or won’t come until 2040. That inescapable uncertainty is less important than the newfound agreement that a turning point is here.

The list of energy analysts who now foresee a peak in oil demand keeps growing. It includes Norway’s state-owned oil company Equinor (peaking around 2027-28), Norwegian energy researcher Rystad Energy (2028), French oil major Total SA (2030), consulting firm McKinsey (2033), clean-energy research group BloombergNEF (2035), and energy-industry advisors Wood Mackenzie (2035). The exporting nations of OPEC put the peak in 2040 while acknowledging that its new forecast might still prove too optimistic for oil.

Notable exceptions include the International Energy Agency, which sees demand “plateauing” but not quite peaking, and the U.S. Energy Information Agency. Both of these agencies advise governments on policy.

Note: No 2019 forecast available for BloombergNEF.
Sources: Rystad Energy, Wood Mackenzie, BloombergNEF, OPEC

Fatih Birol, who leads the IEA, said oil demand can only come down with stronger government policies promoting electric cars and regulating petrochemicals. Even though a peak isn’t guaranteed, he told Bloomberg, “the value of oil is going down” and oil-dependent economies “have to prepare themselves before it’s too late.”

The year that lasts a generation

Oil prices rose this November, boosted by positive data from coronavirus vaccine trials and recovering demand in Asia. The sooner an effective vaccine can be deployed, the sooner the world can return to some picture of normalcy. But what will that look like?

“We’re not going back to the same economy,” U.S. Federal Reserve Chairman Jerome Powell cautioned in mid-November. “We’re recovering, but to a different economy.” That new economy means people will continue working more from home, traveling less, and staying in to binge on digital programming. About two thirds of Covid’s impact on oil demand will be from setbacks to the global economy, according to BP’s estimates, and one third will be from permanent changes in behavior.

Note: Impacts are measured against BP’s “Rapid” scenario for oil demand.
Source: BP Energy Outlook 2020

The gap between BP’s predictions for declining demand and the more bullish forecasts of OPEC and IEA can’t be explained by economic outlooks or remote work. Instead, it comes down to different readings of another shift clearly visible this year: drivers switching to battery-powered cars and trucks. Transportation slurps up more than half of the world’s crude, and three quarters of that goes specifically to wheels on the road. Forecasts for electric vehicles end up shaping the outlook for oil.

Electric cars didn’t brake for Covid

For the first nine months of 2020, car sales cratered. Every major automaker was affected—with the notable exception of Tesla. The electric automaker sold more cars than ever before. Even as the rest of the economy stood frozen, Tesla posted its longest stretch of profitable quarters and ended the year with inclusion in the S&P 500 stock index.

A closer look at the data shows it wasn’t just a Tesla story. Electric vehicles in general managed to thrive even as sales of traditional cars broke down. Both Volkswagen and Daimler saw record-setting declines in total sales, even while sales at their EV divisions doubled.

Note: Sales volumes compare the first three quarters of 2020 with same period in 2019. R-N-M refers to the Renault-Nissan-Mitsubishi Motors alliance.
Sources: Bloomberg Intelligence, BloomergNEF, Company filings

For backers of electric cars, 2020 was a gut check. It could have been disastrous. Some of the most important EV models to date were launched smack in the middle of the pandemic, including Tesla’s Model Y sport utility vehicle in February and VW’s ID.3 hatchback in September. If consumers rejected them, it could have set back EV investment by years. They did not.

At a time when the world turned upside down, sales of electric cars defied gravity.

No comeback for fossil-fuel cars

During the lockdowns of 2020, city skies cleared of pollution. Bike sales took off. Ethanol intended to be used as a gasoline additive instead made it into hand sanitizer. In many places the faltering economy wasn’t a reason to eliminate environmental regulations—it became a moment to double down.

The divided fortunes of internal combustion engines (ICE) and electric drivetrains was first noticed in 2018, a year when EVs bucked the trend of slowing auto sales. Some analysts started to wonder if fossil-fuel vehicles might never return to sales levels of 2017. Back then the idea of Peak ICE was just a theory. The pandemic made it real.

Note: Global passenger vehicle sales.
Source: BloombergNEF New Energy Outlook 2020

For peak oil to stick, it will require gradually supplanting more than one billion vehicles in the world. It also means batteries will have to prove themselves in challenging new markets such as freight trucks, which account for more than 15% of oil use, and gas-guzzling pickup trucks, which in 2020 surpassed car sales in the U.S. for the first time.

Batteries for everything on the road

Automakers are working on 35 new all-electric vehicles to be released next year, according to a tally by BNEF. In 2020, Tesla broke ground on a factory in Austin, Texas, to build pickup trucks and big rigs. Well-funded EV startups Rivian and Lucid Motors put the finishing touches on their make-or-break vehicles. Volkswagen sold the first cars on its new modular platform underpinning dozens of future electric models. Chinese automakers prepared for debuts in new Western markets: BYD’s Tang EV600, Geely’s Polestar 2, Xpeng’s P7.

Here are some of the most hotly anticipated models getting ready to hit the streets in 2021.

KMJF

Monday, December 7, 2020

Peak Oil had already passed

The peak no one saw coming

Sneak Oil Peak

A shakeup in oil accounting

Revising Down

The year that lasts a generation

The Pandemic’s Blow to Oil Isn’t Going Away

Electric cars didn’t brake for Covid

Electric Vehicles Defy the Covid Slump

No comeback for fossil-fuel cars

The Internal Combustion Engine Is History

Batteries for everything on the road

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