'The End of the Oil Era?'... The 'Peak Oil' Debate Ignited by COVID-19

Demand-driven Peak Oil Controversy Intensifies
Peak Oil Accelerated by COVID-19
"Already Passed" vs "Imminent" vs "Still Far Away"

[Asia Economy Reporter Naju-seok] The outbreak of the novel coronavirus disease (COVID-19) has once again sparked debates over 'peak oil'?the point at which oil production reaches its maximum level. Some observers believe that peak oil has already passed or is currently passing, while others argue that it is unlikely to occur before 2030. However, the majority agree that COVID-19, which led to negative oil prices, will undoubtedly have an impact on peak oil.

The peak oil theory has drawn attention as a symbol of structural changes in energy supply and demand. The debate began in the 1950s.

However, the recent peak oil debate differs from past discussions. Previously, the core of the debate was that supply could not keep up with oil consumption. It was predicted that oil production would hit a ceiling due to the absence of new oil fields or limitations caused by wars, leading to a market catastrophe as production peaked. In contrast, recent discussions highlight that the Earth's oil reserves are larger than previously expected, and technological advancements such as shale gas extraction have increased the amount of recoverable oil.

As a result, the recent peak oil debate has shifted to focus on demand. Voices calling for restrictions on the use of carbon-emitting energy sources like oil have grown louder due to climate change and environmental pollution concerns, strengthening arguments for reduced oil consumption. Especially with the COVID-19 pandemic causing a halt in global economic activities and virtually stopping travel, energy companies have become more cautious in developing oil fields. Meanwhile, demand for electric vehicles, which do not require oil, is increasing in response to calls for eco-friendliness. This structural change, where supply decreases due to reduced demand, is accelerating the arrival of peak oil.

The oil industry had already sensed changes in demand before COVID-19. For example, major European oil producers have declared carbon neutrality by 2050, clearly reflecting this shift. The International Energy Agency (IEA) predicted last year that if sustainable energy policies are implemented, global oil consumption could decrease by more than 30% compared to 2018 by 2040, dropping daily oil consumption to around 70 million barrels. However, the IEA also noted that if policy directions do not change, oil demand could increase over the next decade, potentially avoiding peak oil. Foreign Policy (FP) pointed out that long-term oil demand could vary significantly due to small changes in population growth, economic activity, and energy efficiency.

Major energy companies and credit rating agencies tend to believe that peak oil has already passed. Matt Gallagher, CEO of U.S. shale company Parsley Energy, recently analyzed that U.S. oil production peaked due to COVID-19. In an interview with a media outlet, Gallagher said, "I don't think the day will come in my lifetime when the U.S. produces 13 million barrels of oil per day again." He believes that U.S. oil production will not return to pre-COVID-19 levels. He added, "The oil industry is related to mobility and comfort, but COVID-19 has changed people's perspectives on movement, and there will be new innovations related to heating and cooling."

Credit rating agency Moody's offered a similar analysis. Moody's expects the reduction in oil demand caused by COVID-19 to persist for several years. Moody's stated, "Due to sluggish economic growth, decarbonization trends, and the possibility of peak oil, it may take a long time for oil demand to recover," adding, "Oil demand might recover as early as 2025, or it might not recover at all." Bernard Looney, CEO of British oil company BP, also suggested in May that "peak oil may have already passed on the demand side."

Energy consulting firm Rystad Energy has moved forward its peak oil timeline. Rystad's Head of Analysis, Per Magnus Nysveen, said, "The peak oil point has come even closer," predicting that while it was previously expected around 2030, it is now anticipated between 2027 and 2028. Although oil prices are expected to surge between 2023 and 2025, oil producers have reduced investments in oil field development due to COVID-19, making it difficult to immediately increase supply. Subsequently, as electric vehicles gain competitiveness, gasoline and diesel cars are expected to be gradually phased out of the market.

Of course, there are analyses suggesting that peak oil will not occur before 2030. Investment bank Goldman Sachs recently predicted that daily oil demand would exceed 100 million barrels in 2022, recovering to last year's levels, and that peak oil would not be reached before 2030. They expect robust economic growth, demographic characteristics of developing countries, and relatively low oil prices to increase oil demand. Goldman Sachs forecasts that non-OECD countries and petrochemicals will drive oil demand over the next decade.

This content was produced with the assistance of AI translation services.