Too early to wave goodbye to oil

There is no doubt about it: While the Covid-19 crisis may be over in the near future, the climate change threat will not. The world cannot afford to reduce its ambition to achieve the Paris Agreement goals. Although governments need to make every effort to get people back to work, and businesses back to profitability, climate change remains a threat that needs to be tackled (preferably with better global co-ordination than we have seen in efforts to tackle the Corona virus). It cannot be shifted to the backburner.

So, will the recent dramatic drop in oil and gas demand help us tackle climate change?

Well, truth is: The oil and gas industry will look different than it did before the pandemic, but the industry will still have a role to play - an important one. Those who proclaim (if not already celebrating) the end of oil and gas will be proven wrong. The industry has successfully coped with dramatic challenges in the past and it provides many of the resources the world needs to recover from the crisis, and beyond.

Yes, oil demand recently declined by 30%. This is significant. It is jeopardizing jobs, the profitability of projects and even companies. But we must put this declining demand into context. According to International Energy Agency (IEA) figures, road transport in regions with lockdowns has dropped by up to 75%, with global average road transport activity almost falling to 50% of 2019 levels. On top of this, air travel has almost come to a halt. In Europe, nine out of ten aircraft remain on the ground.

So, with these radical reductions in transport, why does the world still need 70% of the oil it needed prior to the crisis? Why is demand not declining more drastically? Because hydrocarbons have many uses beyond transport. You simply cannot produce hand sanitizers from wind or car wheels from solar.

It may sound brutal to those already waving oil goodbye: oil will remain relevant. Not because the industry is too stubborn to face reality. Not because we do not care about climate change. But because the world needs hydrocarbons. For transport, for heating, to keep wind turbines running, as raw material for furniture, fertilizers, clothing, medical equipment ...

Again, let’s look at the numbers: Even with a dramatic 9% decline predicted for oil this year, it does not mean that oil consumption is back to levels from decades ago. According to the IEA, in 2020 the world will need as much oil as it did in 2012, just eight years ago, when the world had recovered from the financial crisis.

And I am pretty sure that demand will rise again. No-one knows how human behaviour will change because of this pandemic. Will we use virtual options more than in the past? Yes, most probably we will. But my guess is: People will still want to travel, to visit their families, collaborate face-to-face, experience other cultures.

And already there are early signs of increases in oil demand as restrictions are relaxed and businesses start to reopen. The oil and gas industry is ready to ensure that this demand can be met.