Oil sustainable – essential to economy, embedded in everyday life, building block to industrial advancements

Energy markets are awakening to climate risks. The debate around the energy transition has shifted from whether one will occur to when it will happen and what it will look like.

Sustainability risks have come under heavy investor scrutiny. “In the near future — and sooner than most anticipate — there will be a significant reallocation of capital,” Larry Fink, CEO of BlackRock, the world’s largest asset manager, said in January.

And yet global energy demand continues to grow. Oil remains essential to the economy and is becoming further embedded into everyday life through petrochemical products, despite the rapid acceleration in the public’s ambitions around climate policy.

While oil demand might peak in the next decade, it will continue to meet a significant share of total energy demand for decades to come.

“The challenge for the industry going forward is to find a way to recognize what might happen if you no longer need oil as a fuel, but you increasingly need it as a building block,” said Madhav Acharya, technology-to-market adviser for the US Department of Energy’s independent Advanced Research Projects Agency - Energy. “All of the molecules in oil end up in products all around us. How oil is perceived has to change. The industry has to come to terms with that shift as well.”

S&P Global Platts Analytics expects global oil demand to rise to about 114 million b/d by 2030 or just around 1% a year, slowing from a recent high growth rate of 1.9% in 2017. Efficiency, technology and regulatory changes will drive that slowdown over the next decade.

Future of refining

Oil refiners will see slower demand growth for gasoline and diesel as a result of changing consumer habits, electric vehicle adoption, increased biofuel blending and other factors. But oil will be challenging to displace in aviation and shipping.

As investor concern builds around future decarbonization of transportation fuels and stranded asset risk from standalone oil refineries, refiners like India’s Nayara Energy show the sector’s increasing shift toward petrochemical demand.

Under a rapid energy transition scenario, sharply lower rates of demand growth for oil products derived from crude in the late 2020s and 2030s could trigger a profound rationalization in the global refining system, with winners and losers in a characteristic “survival-ofthe-fittest” race.

But even in this rather gloomy scenario, do not be tempted to write off the refining industry. The sector has proved to be particularly resilient in the past four decades, by shutting off inefficient units in unprofitable markets and investing in new opportunities and markets.