Writing oil's death certificate is premature, but what will its kingdom become?

Whether oil demand expands robustly to 2050 or peaks soon is a contest waged across geographies and sectors. Reuters

Opec held its biennial seminar last week at Vienna’s Hofburg Palace. It is an icon of the late Austro-Hungarian empire, a scientific and cultural ferment that was often unfairly caricatured as a dinosaur, living in the past and doomed to collapse. Giants such as Freud, Einstein, Klimt and Mahler rubbed shoulders. In a grim portent, the pre-fame Hitler, Stalin, Trotsky and Tito were all present in the city simultaneously in 1913.

The oil exporters’ latest long-term energy outlook was released on Thursday. Is it, too, the last gasp of a dying imperium? Or an optimistic step towards a new future?

Speaking to The National at the Hofburg, Opec secretary general Haitham Al Ghais said the organisation’s critics were “writing Opec’s death certificate – again". Indeed, its demise has been repeatedly, and wrongly, predicted.

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Opec's World Oil Outlook 2050 is a useful counterpoint to the International Energy Agency’s World Energy Outlook, which came out in October. The industrialised countries’ organisation has for some time been much more aggressive in its forecasts for climate action and energy transition, and more sceptical on oil demand, than the oil exporters’ group.

Like Kaiser Franz glowering from the Hofburg at his rival Napoleon, Opec has grown increasingly irritated at what it sees as the politicisation of its Paris-based counterpart.

The IEA’s publication came out, of course, before the second election of Donald Trump as US President, and the zeitgeist has changed since then.

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Low-carbon energy is under attack, and promoting oil, gas and coal is at the top of the White House’s agenda. European politicians worry about high energy bills, industrial uncompetitiveness and the rise of the far right, opposed to “net zero” carbon policies.

Tariff turmoil and hostility to international co-operation threaten collective action on climate change. A previously unthinkable war involving Israel, the US and Iran has passed off without serious energy consequences, so far. Opec’s schadenfreude at its critics’ discomfiture is understandable.

Its latest outlook revises up long-term oil demand by 2.8 million barrels per day by 2050, to 122.9 million bpd. It sees a gradual slowing of demand growth after 2030, but no peak, in sharp contrast to both the IEA, and its own long-term projections from 2020, 2021 and 2022.

Those earlier views were perhaps clouded by the pandemic and then the impact of Russia’s invasion of Ukraine. Perhaps counter-intuitively, Opec has cut its forecasts for the next few years, chipping off up to 1.7 million bpd, mostly on worries over the Chinese economy.

It projects 111.6 million bpd of demand in 2029, up from 2024’s 103.7 million bpd. Still, an average annual gain of nearly 1.6 million bpd over five years would be very robust by historic standards. Since 1980, it has happened only twice: in 2012-2017 and 2002-2007.

But the IEA’s medium-term outlook foresees a peak in oil demand by 2029, at 105.6 million bpd, with annual growth averaging just 0.5 million bpd over this five-year period. That is consistent with the last five years, but otherwise also a historical rarity, occurring around the global financial crisis, and in the early 1980s recession and oil shock hangover.

Opec quite reasonably observes that, “many initial net-zero policies promoted unrealistic timelines or had little regard for energy security, affordability or feasibility”. In its view, out to 2050, oil retains its market share; renewables grow, but essentially replace coal.

Whether oil demand expands robustly to 2050 or peaks soon is a contest waged across geographies and sectors. In Opec’s view, oil wins in developing Asia, Africa, Latin America and the Middle East, gaining 25.3 million bpd by mid-century; China is basically a draw, with 1.7 million bpd of expansion to 2030 but stasis thereafter. This basically assumes that emerging economies follow a similar development path to their East Asian counterparts of the 1960s to the 2000s, and that rapid population and economic growth outstrip adoption of non-oil energy sources.

But petroleum does not do too badly in the developed countries either in Opec’s view – consumption drops only 8.5 million bpd, less than 20 per cent, despite maturing and ageing economies, tightening climate policies, and rising electric vehicle use.

In sectors, too, oil wins almost across the board, losing only a little ground in power generation, while it continues rising in road, sea and air travel, petrochemicals, industry and home and commercial use.

This is, frankly, a little hard to believe. Yes, there are few good alternatives today to oil in ships, planes and petrochemicals: it’s a fair argument that, in the absence of strong climate policy, demand here will keep climbing. But to satisfy these forecasts, petroleum would have to keep growing in nearly all of its traditional uses, without much prospect of discovering any new ones. Meanwhile, renewable and nuclear electricity have not just oil’s existing domains, but new kingdoms to conquer, such as data centres and air taxis.

Given that Saudi Arabia itself plans to phase out its 1 million bpd of daily oil burn in power plants by 2030, it seems implausible that global use in power generation would fall only 0.5 million bpd by 2050. In industry and homes, natural gas and electrification are cleaner, more flexible and increasingly cheaper options.

Road transport is the key question. Opec thinks that electric vehicles will constitute only 28 per cent of the global fleet even by 2050. Almost none of today’s cars will still be on the road by then. Battery and plug-in hybrids make up about 19 per cent of world sales currently, 26 per cent of European sales, and almost 53 per cent of those in China. New petrol and diesel car sales will be phased out in the UK and EU between 2030 and 2035, and China too will probably effectively ban them by then.

The death certificate for oil written by the IEA seems indeed premature.

But the oil exporters’ organisation may find itself ruling over a patchwork of fading territories, where oil is a tired legacy or a last resort. Or, it may extend its reach over areas of growth, in India, in Africa, on the seas and in the skies. A lot has to go in Opec’s favour if the zenith of its empire of oil is to outlast mid-century.