End of Big Oil? Research firm predicts oil could collapse to $10 in accelerated energy transition scenario

Article content

CALGARY – Oil producers could face a potentially catastrophic Brent oil price of US$10 per barrel if countries around the world move to limit global warming to 2 degrees Celsius, according to a new study from Wood Mackenzie.

The study released Thursday represents one of the most aggressive forecasts of falling oil demand published by a major energy consultancy. It predicts that global oil demand will begin to fall as early as 2023 in a scenario where countries adopt accelerated energy transition plans.

Under this scenario, oil demand would drop from 100 million barrels per day currently to about 35 million bpd by 2050, which is roughly 70 per cent below today’s levels. As a result, Wood Mackenzie predicts the global Brent oil benchmark may drop to an average between US$10 per barrel and US$18 per barrel by 2050.

“If we move to keep global warming to the 2-degree C limit set by the Paris Agreement, the energy matrix will change — and change profoundly,” Ann-Louise Hittle, vice-president Macro Oils at Wood Mackenzie, said in a release, adding the accelerated energy transition is “not our best-case forecast.”

Article content

“Even so, the oil and gas industry cannot afford to be complacent. The risks associated with robust climate-change policy and rapidly changing technology are too great,” Hittle said.

The forecast notes that international oil companies and national oil companies will be “severely challenged,” and will face asset impairments, bankruptcy and restructurings on a scale far greater than that of 2020.

“Our scenario would see the end of Big Oil and the rise of Big Energy,” Hittle said in her note. “Financially strong integrated companies step up their investment plans to supplement dwindling upstream revenue with new cash flow from renewables, hydrogen and CCS (carbon capture storage).”

The oil and gas industry cannot afford to be complacent

Ann-Louise Hittle, vice-president Macro Oils at Wood Mackenzie

But Wood Mackenzie says that grim scenario would depend on a number of drivers to come together.

The study assumes that all sectors of the economy will rapidly electrify and the power generation sector will decarbonize through more renewables being added to the grid and the switch from coal to natural gas.

It also assumes a big ramp up in carbon capture and storage projects to a total global capacity of 5 billion tonnes of CO2 storage per year as well as a big increase in hydrogen production to 380 million tonnes by 2050.

In the automotive sector, that means that 80 per cent of all new vehicles sold in 2050 are electric and that even ships and long-haul trucks are powered by hydrogen.

Article content

It also assumes that petrochemical demand is dampened by “far higher rates of recycling.”

Mercifully for the oil and gas industry, the report predicts natural gas demand “holds firm” and the commodity “plays a central role in the transition” and global gas demand doesn’t begin to ease until 2040.

“The price outlook in our global gas model under (the accelerated energy transition) is far more upbeat,” the report notes, forecasting that Henry Hub gas prices should trade between US$3 per thousand cubic feet and US$4 per mcf, while liquefied natural gas prices could jump to US$8 to US$9 per million British thermal units by 2040.

Financial Post

• Email: [email protected] | Twitter: geoffreymorgan

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below: