Demand for oil peaks in 2035, but significant investment in new production will be needed
Aggregate demand for oil products peaks in 2035 at around 107m b/d, declining by 10% out to 2050 to 96m b/d. From the peak in 2035, the destruction of demand accelerates to -1.3m b/d per year in 2041, but the rate of decline then begins to slow, falling to less than -400k b/d in 2050. The reason for the slowdown in the destruction of demand for oil is the shape of the outlook for road fuels. We expect the rate of penetration of electric vehicles (EVs) and other alternative drive trains to begin to slow as saturation points begin to be reached in major markets in the 2040s. This causes the decline in the demand for road fuels to begin to slow, which coupled with continued growth in demand for jet fuel and chemical feedstocks, leads oil demand overall to plateau by 2050.
Demand outlook by sector and year-on-year change
A key question for future upstream oil investment is how much new production will likely need to be brought online as demand for oil peaks and begins to decline. Demand growth is set to slow to less than 1m b/d per year by 2027, turning negative from 2036. Importantly, declining demand must be set against the decline in the level of production over time from existing oil and gas wells, which historically has been on average around 3-4% per year. We make a set of conservative estimates that U.S. shale production from existing wells declines initially at 20% per year, falling to 7.5% per year after 10 years. For all other global production, we assume a natural decline rate of 1.5-3.5% per year. This analysis concludes that 55m b/d of additional production will need to be brought online by 2050, equivalent to what global demand for oil was in the mid-1980s.
Demand outlook versus production from existing and new oil wells
2 degrees is a pipedream without transformative policy to overhaul key oil consuming sectors
Assuming a carbon budget in line with a scenario where the increase in average global temperatures is limited to 2 degrees Celsius above pre-industrial levels, we have applied a number of assumptions for the accelerated uptake of alternative technologies, such as electrification, hydrogen, biofuels, and plastics recycling in key oil-consuming sectors. The resulting ‘Climate Scenario’ concludes that oil demand would decline to below 20m b/d by 2050, but that this decline would be predicated on a wholesale transformation of all major oil-consuming sectors, which would require massive, sustained support from governments.
Oil demand in the base case outlook versus the NEO climate scenario
