Oil cos will stop investing when decline in demand for fossil fuels is real

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OIL companies will continue to invest in oil and gas until demand actually starts declining, which may take another 20 years from now. This is because investments in green energy such as solar and wind do not give international oil companies double returns on their investments, unlike fossil fuels with more than 16 percent. This is the message of the European international oil companies, which were keen on green energy with the push from their shareholders.

However, they are forced to wait due to the absence of real fast replacements, while giving some dividends to its owners. The same is applicable to the US oil companies that are still investing and searching for federal land and permits to continue their mission of relying on fossil fuels – their bread and butter of money-making machinery. All oil companies are reading from the same page. There are good dividends and profits for the shareholders in this business. Therefore, we will maintain the business as usual until we witness a real decline from all over for fossil fuels. We know that just a few countries have huge reserves, so why should let them enjoy the pie alone, and use our know-how and technology.

Yes, oil demand will peak but perhaps not now, perhaps in another five years, reaching about 106 million barrels per day by 2030 or earlier. On the other hand, the International Energy Agency (IEA) states that growth in oil demand is slow or will halt after its peak on the basis of a possible decline in the transportation sector because of electric vehicles hitting the roads. However, the decline is not coming soon, with less oil available in the market due to the production cuts by OPEC without any impact on the prices. The market is so far not facing any scarcity of oil. Nothing seems to be clear in terms of predicting the future trends. The Chinese economy is still not recovering, and there are mixed messages with no sense of clarity.

However, it will grow to the extent of causing perhaps shortage of supply. At the same time, Saudi Aramco is heavily investing in China in its oil and refining, as well as in its petrochemicals, which will push the oil company to increase its production capacity to 13 million barrels of oil. The message is clear – We need to have the biggest share in the second oil consumers in the world, as well as the second world economy. If we have to choose a partner, we should pick the two biggest. The anticipation of higher oil prices is not forthcoming so far, as Russia is still producing the maximum it can.

Fresh oils are hitting the market from OPEC+, and from Brazil, Canada and USA, causing oil prices to stay at the $70 level, which is not acceptable to OPEC+. However, with oil still pouring into the market, OPEC+ cuts are not impacting the oil markets. Maybe before the end of the year, we will witness some improvements and a more disciplined organization.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]

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