The idea that crude oil could reach three-digit price levels may sound ludicrous at a time when weak demand in the midst of a pandemic has oil stuck in the $ 50 range. it is static, and many expect vaccines to increase demand before the end of this year. In fact, some are warning of an impending oil deficit. And Big Oil is reducing exploration activities.
Reuters reported this week, citing data from Rystad Energy, that new onshore and offshore lease acquisitions by the world’s top five oil companies have fallen to the lowest value in at least five years in 2020. Of course, much of this decline was caused by the pandemic , but it is also the pandemic that is driving a potentially permanent change in the Big Oil agenda.
BP decimated its oil and gas exploration team, another Reuters report, citing company sources, also revealed this week. From more than 700 years ago, there were now less than 100 people on this team, with the rest laid off or transferred to low-carbon power divisions – BP’s top priority for the future.
“The winds have been very cold in the exploration team since Looney’s arrival. This is happening incredibly fast, ”said Reuters quoting an employee from the exploration team.
Perhaps the reduction in exploration activities is entirely justified by the change in the priorities of BP and its peers. Big Oil is all about renewable energy, EV charging and energy storage now. All European supermajors have some plan or other for a long-term reduction in oil production. BP predicts a cut of 1 million bpd by 2030, for example. Related: The surprising rise and fall of a shale superstar
The shift in the priorities of European supermajors is largely driven by the European drive for an energy transition that aims to dethrone oil – and later gas – from its first place as sources of energy in favor of solar and wind energy. Asian economies also have ambitious plans in this direction, which should have helped motivate Big Oil. However, there is a small chance that they have overestimated the pace of the energy transition.
A German think tank recently rejoiced in Europe’s latest achievement in the transition: renewable energy was responsible for a larger portion of Europe’s power generation than fossil fuels for the first time. With 38%, wind, solar and hydroelectric power outnumber oil, coal and gas by one percentage point.
And yet, it may be fair to mention the general drop in energy demand that the pandemic caused last year, which may have played a role in changing the energy supply situation in Europe. We saw evidence of this very recently: earlier this month, a typical cold winter in Europe pushed natural gas prices to peak levels for several years with the decline in wind power generation. Generally, solar energy does not reach its best during winter.
In relation to oil, practically all banks and energy consultants foresee a resumption of demand as soon as a sufficient number of people are vaccinated for the rest of their lives to begin to return to normal. The strong demand for oil is still part of the normal should be revealing: the energy transition will not happen as fast as many might expect, including some Big Oil supermajors.
Forecasts of rising oil demand have given rise to warnings of a possible deficit later this year. This may or may not happen, but such warnings indicate the possibility that Big Oil, with its rapid spill of new oil and gas exploration, is just putting the cart before the horse in the whole issue of the energy transition. Even with the EU’s intentions to discourage investments in oil and gas production globally.
By Irina Slav for Oilprice.com
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