The oil industry was hit hard by a collapse in demand triggered by Covid-19, as drivers, commuters and holidaymakers around the world stayed at home.
Partly as a consequence, the chatter among executives, ministers and roughnecks in the field has turned once again to the question of peak oil.
Could the world’s thirst for the so-called black gold have finally reached its summit? Like coal, wood and every other fuel that has preceded it, could oil have started its inevitable decline into obscurity – and if so, how should the industry respond?
Brent crude, the European oil benchmark, has fallen by more than half from almost $70 (£54) at the start of the year, while the US benchmark briefly went negative in a historic plunge as the crisis took hold and demand fell so sharply that storage sites for excess oil started to fill up.
Coronavirus hits fast-forward on oil’s demise
The heads of oil titans such as BP and Shell concede that the virus has accelerated a long-term shift to clean power that was already underway.
Few executives have been more vocal on the issue than Bernard Looney, BP’s chief executive who took over in February at a unique moment in the company’s 111-year history.
Even before the pandemic hit, Looney launched a huge restructuring operation and vowed to leave oil behind with a historic shift into green energy.
Under a new economic reality of a world locked down, sheltering from the virus, Looney has set out an ambitious plan to slash fossil fuel production by 40pc over the next decade and increase its annual investment in renewable and clean technologies to $5bn.
The company will also develop more than 50 gigawatts (GW) of wind and solar farms – equivalent to Britain’s entire renewable capacity.
Such is the seriousness of the situation facing the world’s oil companies, both BP and Shell have announced in recent months that they are writing down the value of their assets by a combined total of nearly $40bn – a clear sign that they believe the golden days of oil are gone.
Has oil demand peaked?
This was underscored in September when BP said something unimaginable just 12 months ago: the world may have already passed the point of peak oil demand.
Oil demand is, of course, not the same thing as oil production. Plenty of oil remains buried in the ground all across the world: Saudi Arabia alone still has around 268bn barrels under its golden deserts.
But according to BP, renewable power is growing faster than any other fuel in history, and oil demand may have peaked in 2019, particularly if governments take a more aggressive stance in pursuit of green energy.
This looks more likely as calls from advocacy groups and the public for world leaders to overhaul global energy systems intensify.
The pandemic has created a window of opportunity, climate activists say, to force through structural changes to the energy sector that could set countries up for a world without fossil fuels.
Already, there are several indications that this is happening. A number of European countries plan to ban petrol and diesel vehicles in the next decade, aircraft manufacturers are searching for ways to fly without jet fuel, and plastic alternatives are growing in popularity.
Much of this change comes amid existing or impending regulations intended to crack down on polluting industries, all of which are key customers of companies such as BP and Shell.
But what happens when Western governments bring in legislation encouraging the move away from oil, when the world may yet require fossil fuels for another 20 years, as the cartel Opec recently predicted?
Billions of people still rely on petroleum byproducts, such as car tyres, paint, hand lotion, and rubbish bags, in their everyday lives.
This opens a window of opportunity for businesses such as national oil behemoth Saudi Aramco, the most valuable company in the world and wholly owned by the kingdom’s royal family.
Not beholden to shareholder pressure or regulatory scrutiny, Saudi Aramco can continue to drill and refine.
But even the likes of Saudi Aramco, Mexico’s state-owned Pemex, and Russia’s Rosneft face their own challenges in the years to come.
Developing countries still thirsty for oil
As oil is phased out and revenues dwindle, so too will the state coffers of dozens of governments.
For cash-strapped countries like Angola, Venezuela, and Algeria, whose budgets rely heavily on oil exports, any further collapse in oil prices driven by falling demand could be devastating.
Developing countries also face a different kind of threat from rising opposition to the oil industry: many rely heavily on oil for energy, and on petroleum products such as plastic too.
To suddenly demand that these countries renounce fossil fuels would be hypocritical, according to some critics, when Western countries have reaped the rewards of the oil business for more than a century.
To this day, nearly half of all Africans still don’t have access to electricity, severely impacting their health and quality of living. For the continent’s economies, a lack of reliable power hurts international competitiveness and productivity, setting African nations back by years.
In India, meanwhile, more than 31m homes do not have access to electricity. Oil, with its relatively low cost and accessibility, is a simple solution.
In 2013, oil demand in developing countries overtook demand in wealthy nations for the first time.
It is a trend that looks set to continue: in the most recent annual outlook on the sector from the International Energy Agency (IEA), the global watchdog projected that with the demand for oil in advanced economies on a declining trend, all of the future increase in demand will come from emerging market economies, led by India.
Rising incomes in developing economies will create greater demand for oil-hungry forms of transportation such as cars and planes, the IEA said.
However, it warned that transport alone would not be enough to sustain the industry. Oil use in passenger cars would peak soon even in the group’s most conservative scenario.
And the longer the disruption from Covid-19 continues, the more some changes that eat into oil consumption will become engrained, such as working from home or avoiding air travel, the IEA said.
All of this means that while the long-term outlook for oil is bearish, and the unbending rise of renewable power will almost certainly bring irreparable change to the industry, the fuel is not dead just yet.
Nonetheless, even Saudi Arabia – a state that has built itself almost exclusively on the back of oil revenues – has acknowledged that it is time to start diversifying.
Sheik Ahmed Zahi Yamani, the longtime Saudi oil minister and a key founder of Opec, reportedly tried to sum up the future of oil many years ago, and the increasingly likely scenario that billions of barrels will simply never leave the ground.
“The stone age came to an end, not for lack of stones,” he said. “And the oil age will end, but not for lack of oil.” Yahoo