Wide of the mark: experts disagree with OPEC's forecast of the end of the oil era

Daria Voznesenskaya

Among the reasons for the slowdown in oil consumption, OPEC names the climate change policy, the transport crisis, as well as a small increase in population. The recovery in oil demand will come at the expense of developing countries, according to the organization. India may become the largest oil exporter by 2045.

As for Russia, according to OPEC estimates, in 2020 demand will fall to 3.2 million barrels per day, and then gradually begin to grow, reaching 3.7 million barrels per day by 2024.

Economic analyst, oil and gas market specialist Mikhail Krutikhin is sure that OPEC's forecast is too optimistic. In his opinion, the reduction in oil will come earlier and more intensively than the organization predicts.

“All OPEC forecasts, as the history of this organization shows, are incorrect and are usually made in favor of the oil producing countries. Therefore, we can be sure that this forecast, like all the previous ones, is overstated in the expectations of oil demand”, - he said.

Krutikhin also doubts the version that demand will increase at the expense of developing countries. He believes that demand will not grow as fast as OPEC suggests. “We see that the transition, for example, to electromotive vehicles is very active just in countries where there is a very large market for internal combustion engines - China and India. It is also not taken into account that the transition will be carried out not only at the expense of Tesla-type cars, but also this transition to very small vehicles - the so-called tuk-tuks, bicycles, mopeds, scooters and so on. They are already abandoning gasoline and switching to primitive batteries", - Krutikhin explained.

In Russia, according to the expert, the demand for oil will remain the same, as the country is in economic stagnation. “Our economy is not growing, we are not switching to electric vehicles. And petrochemistry, as we had not developed, will remain in the medium term for 10-15 years”, - Krutikhin said.

At the same time, Konstantin Simonov, founder and director of the National Energy Security Fund, believes that there will still be some increase in oil consumption in Russia, including due to the active development of petrochemistry. He also recalled that Russia has not yet reached the "ceiling" in the field of motorization of the country, despite the fact that the development of electric vehicles and gas engine fuel is rather weak.

“I am not very worried about the domestic Russian market. Our main threat is still the problem of exporting crude oil. This is due to the fact that oil production is growing quite sensitively for us. In this regard, competition in the global market is obvious. This is a serious problem for us”, - says Simonov.

However, he agrees with his colleague in assessing the OPEC forecast. “You have to understand that all forecasts in the field of energy in the last 10 years have not come true. That OPEC, that the International Energy Agency... They are constantly hitting the sky, trying to catch the current trend. Besides, forecasting for the next five years is pretty silly. OPEC needs to learn to forecast at least a month in advance”, - Simonov emphasized.

The expert believes that the peak of world oil consumption has not yet been passed. The centers of consumption of raw materials have simply changed - now they have moved towards South-East Asia. According to Simonov, China and India will increase their oil consumption, and from 2022 a small increase will be seen due to this growth. But the expert disagrees that global oil consumption will grow by 9% by 2040, as OPEC predicts. He believes that this figure is too high.

“I've heard about the end of the oil era for 20 years. But, nevertheless, for at least two years in a row to reduce oil consumption - this has not happened over the past 30 years. Therefore, it is definitely too early to bury oil”, - added the founder and director of the National Energy Security Fund.

But at the same time, Simonov admits that the “green” trend is quite obvious. In general, he agrees that developed countries will reduce oil consumption. “But I'm not ready to agree with the numbers. Because all OPEC forecasts end up in milk”, - he said.

“Nevertheless, the trend is clear. Europe, the USA, especially in the fuel segment, will reduce oil consumption. But at the same time, China, India and other Asian countries will increase their oil consumption, including in the form of fuel. In this regard, the balance is now, of course, ridiculous, because neither aviation nor transport has recovered. Recovery is likely to be difficult and lengthy. Most likely, from the point of view of the formed supply overhang, it will take another year and a half or two to remove this overhang. Again, we do not know the depth of the second wave, whether there will be severe restrictions”, - says Simonov.

Rustam Tankayev, a member of the Committee for Energy Strategy and Development of the Fuel and Energy Complex of the Chamber of Commerce and Industry of the Russian Federation, leading expert of the Union of Oil and Gas Producers of Russia, also drew attention to the pandemic. Tightening quarantine measures, he said, will immediately affect the reduction in oil consumption, as both air and road transport between countries will decrease. In addition, industrial production will suffer, where there can be no removal. Therefore, either you will have to reduce production volumes, or take risks - then the number of cases will increase. It is very difficult to say which option will be adopted.

“There is a second wave of coronavirus. In Russia, its appearance is due to the fact that quarantine measures were weakened against the background of the development of a vaccine. But the US is in the most vulnerable position now, and it is the most powerful economy in the world. Accordingly, a slight decline in industrial production is inevitable there. How many barrels of oil will not be in demand in this situation, no one can say. Therefore, the forecast for a million barrels per day is sucked from the finger and taken from the ceiling. The fact that there will be a decline is absolutely unambiguous, but some figures cannot be calculated. So this is pure speculation”, - the expert said.

The outlook for developing countries is also, so to say, sucked from the finger, says Tankayev. “No one can truly explain the processes that are happening now, because they are illogical”, - he said.

“Everything that concerns OPEC and OPEC +, including Russia, Saudi Arabia and other parties to the agreement, is now dictated by completely different incentives. If in the first half of the year the main thing was that it was necessary to balance supply and demand, now there is a war for market shares. During the late summer and early autumn, there was a period when consumption began to grow, respectively, the shares of the oil market, which the participants in the OPEC + agreement seized, changed depending on whether they increased production or not, how the supply changed, etc. the motive was not the balancing of supply and demand, but the struggle for market shares. Now this struggle has demolished all other considerations of the participants in the OPEC + agreement. Therefore, one cannot expect that they will take reasonable steps”, - explained Tankayev.

He believes that Russia could not fully manifest its potential, which the coronavirus crisis gave, due to the "destruction of the oil and gas industry" by the economic bloc of the country's government. At the same time, Russia still not only retained its share in the oil market, but also increased it.

Vyacheslav Mishchenko, an independent expert on the oil and gas market, also recalled the "green" charter, which was adopted by the European Union at the end of last year. There, according to him, strategies are clearly spelled out - by 2050 the EU countries will become a climate neutral region. That is, they will not affect the climate due to the fact that they will have zero emissions, including transport.

“We are now living in an era of energy transition, when natural gas is the fuel of the transition period. Russia is one of the key participants in this process, since it supplies natural gas, including to the countries of the European Union. But given this "green" agenda of the European Union, the role of gas will gradually decrease. In this regard, the question arises of what to do with this fuel. If we do not restructure and take some steps, for example, we develop energy on alternative fuels, then, in principle, the only way out of all this is to develop trade relations with those countries where demand will increase. And these are just developing countries. But Africa itself is rich in deposits, so whether Africa will buy raw materials already produced from Russia or will it develop its own deposits is also a big question. Then the oil companies have a choice - either to participate in the development of these fields in developing countries, or to build some kind of trade chains to sell oil and gas”, - Mishchenko said.

According to the energy strategy of Russia, the country should move from a raw material model of the energy industry to an innovative, technical one. “That is, we must export, for example, by 2035 not only raw materials, but also technologies and technological competencies. This model is called a modernization breakthrough, as far as I remember. But how much all this is feasible is a big question”, - the expert emphasized.

Mishchenko believes that, based on the OPEC forecast, oil prices will remain low, as demand will decline. According to the expert, in the next 5-10 years, prices will be in the range of $ 40-50 per barrel. “Most likely, you should not expect any leaps, unless some problems arise - it gets colder or cataclysm comes. We are unlikely to see $ 100 per barrel”, - he concluded.

Let us recall that the "Green Pact for Europe", which provides for a change in the development model of the European continent towards greater harmony with the environment, was adopted in December 2019. “I am convinced that our old model of economic growth, based on fossil energy and environmental pollution, is completely outdated,” said then European Commission President Ursula von der Leyen.

The Green Pact provides a roadmap for Europe to become the first climate neutral continent by 2050, while stimulating the economy, improving the quality of life for people, caring for nature and ensuring social harmony. In this regard, the EU is a pioneer.