The oil sector is facing a significant, possibly structural, shift as global demand for its main product is expected to peak in the coming years. This challenge is evidenced by a lost decade in the stock market for the world's largest oil companies, struggling to convince investors of growth potential. The rapid adoption of electric vehicles, particularly in China, has accelerated this trend, leading many oil majors to concede that their production will likely peak within the next decade. Paul Gooden, head of natural resources at Ninety One, describes it as a "sunset industry," with the debate now focused on how distant that sunset is.
There's a clear divide within the industry on how to respond to this shift. European companies like Shell have begun to pivot, with Shell planning to hold its oil production steady until 2030, while BP, after previously promising cuts, now targets a modest increase. In contrast, U.S. rivals and Middle Eastern state producers remain more optimistic. Even in climate-conscious Norway, the CEO, Anders Opedal, plans to maintain oil production for the next decade, citing its smaller carbon footprint compared to other producers.
Despite the impending peak demand, oil companies emphasize that this doesn't signify the immediate end of oil use. Demand is projected to persist for decades, driven by sectors such as aviation, shipping, petrochemicals, and road transport in emerging markets, especially if climate ambitions are scaled back in favor of energy security and affordability. Shell highlights the need for continued global investment in new oil and gas, currently around $600 million annually, for decades, arguing that existing fields are depleting faster than demand is falling. The company envisions a future beyond peak demand that includes producing oil for chemicals, selling gas, trading power, and developing new ventures in carbon capture, hydrogen, and biofuels.
As organic growth diminishes, mergers and acquisitions are anticipated to increase. Experts suggest that rather than shrinking, these companies will likely consolidate to survive. The overall sentiment indicates a long-term decline for the industry, although the specifics of the timeline and the transition strategies vary significantly among players.
