Oil has ceased to be the "blood" of the global economy

RIA Novosti published an interview with Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, on the prospects of reaching a peak in global oil demand.

— Is oil still the "blood" of the global economy?

— I do not think that oil remains the same "blood" now as it was 20-30 years ago. Its economic and even geopolitical importance has declined markedly in recent years. Of course, it is still a very important, but not the dominant source of energy.

And the new "blood" is probably information technology. If you look at the capitalization, 15-20 years ago many oil companies were the largest on the world stock markets, now only Saudi Aramco and ExxonMobil remain on this list by a large margin. There are simply no other oil and gas companies there. Mostly there are information giants.

— But the world has been trying to abandon oil for decades. Why is it still not working?

— The very idea of abandoning oil originally arose in the 1970s not for environmental reasons, but because of the "oil shocks" that occurred, when, against the background of a sharp jump in prices, there was a periodic shortage of oil on the market.

The historical maximum consumption of oil in the energy sector reached in 1973 – about 50%, since then it has sunk to almost 30%.

In addition, sales of electric vehicles have continued to grow worldwide since the 2000s. This means that oil is gradually beginning to be displaced from its main niche — the motor fuel market. For example, in China in 2022, the share of electric vehicles in sales was 28%, and in 2023 it was already 36%. This dynamic is very significant and looks alarming for oil companies. In other words, the importance of oil in the global energy sector has fallen significantly over the past half century.

— So the peak of oil demand in the world has also been passed?

— There are regions where this has already happened. For example, the OECD countries, where the peak of demand was passed back in 2005. Since then, oil consumption in economically developed countries has fallen by 11%, and, for example, in EU countries — by 20%. This is still an exception to the rule, but it shows what the general trend may be.

— What will happen then – the market collapse?

— Reaching a peak in demand does not mean that oil will stop being consumed or there will be a sharp reduction. Rather, it will be a plateau for several years. After which the decline will follow, but at what rate is an open question. The greatest uncertainty is related to the motor fuel market.

It all depends on the rate of spread of electric vehicles and how quickly petroleum products will be displaced from the marine fuel market. And the fate of jet fuel, perhaps, still looks like the most difficult task in terms of substitution.

— It is publicly stated that energy transfer is necessary for the environment, but who really benefits from it?

— For the last 15 years, the whole world has been targeted on increasing energy self-sufficiency. And it is not by chance that countries that either do not have or do not have enough of their own extraction of fossil energy resources are more willing and fastest to switch to renewable energy sources, electric vehicles.

In addition to energy security, such energy "nationalism" leads to lower imports and an improved trade balance. It also creates production facilities and jobs within the country. That is, there are many interested players.

But decarbonization in any case does not imply a complete abandonment of oil. It is more about reducing demand, for example, by 90%. There will still be some long-distance transportation, difficult areas. Oil will also remain in demand in the industry.

— What does OPEC+ need to do to maintain its position?

— Russia and OPEC+ need to hold their export markets to the last. This will require quite tough and difficult financial competition in terms of costs, but there is no point in storing oil in the ground while there is an opportunity to monetize its reserves. There is nothing unique about this position, it is held by all exporting countries, including the USA and Norway.