Producers that aren’t able to diversify in time will face economic collapse.
By Bloomberg – David Fickling
Sep 15, 2020
One of the world’s largest energy companies says the era of oil demand growth is dead; a key OPEC producer flouts supply cuts that have rebalanced the crude market; the country with the largest reserves turns pipelines into scrap to upgrade crumbling refineries.
The three events aren’t unconnected. The future of declining oil demand forecast in BP Plc’s latest energy outlook is one in which lower-cost exporters may opt to quietly flood the market, as the United Arab Emirates now appears to be doing. That will drive out production from higher-cost nations in brutal fashion. Those that aren’t able to diversify in time face economic collapse, not unlike the one now forcing Venezuela to cannibalize its own infrastructure to keep the barrels flowing.
To see why, it’s worth looking at how oil producers might hope to make money in a world where crude demand falls by half or more over the next 30 years, as two of BP’s latest scenarios predict. The trick is (in theory) simple: As long as supply drops faster than demand, prices should remain high enough to make a profit, especially for those with the lowest production costs.
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Read More: Bloomberg – Expect More Venezuelas in the Post-Peak Oil Era
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