HIGHLIGHTS

Global oil demand seen peaking around 2030

Vitol interested in more upstream assets as majors exit oil

Trafigura CEO sees future price pressure from supply gap

The world faces a potential global oil supply shortage over the coming decade as the pullback from fossil fuels project by parts of the industry creates a gap with expected demand, Russell Hardy, CEO of commodity trader Vitol, said June 15.

Vitol, the world’s biggest independent oil trader, expects global oil demand to peak around 2030 before a slow decline to 2040, Hardy said, a far more upbeat demand scenario than some of the more recent estimates by some market watchers.

Noting the International Energy Agency’s recent report showing global oil supplies would need to collapse by 76% to 2050 to hit net-zero emissions, Hardy said Vitol sees a growing mismatch with oil demand over the 2025-2035 period if upstream spending slumps in a radical shift away from fossil fuels.

The IEA also said the world needs no new oil and gas developments under a path to net-zero energy emissions by 2050, fueling calls by environmental groups for the governments to call off new upstream exploration and halt new developments.

“There is a need for [new] petroleum production in that 2025 to 2035 timing,” Hardy told the FT Commodities Global Summit. “When we do the demand analysis we do not think consumer demand is going to match. That growth is going to be there and we are going to stretch to new demand highs by 2030s so that does leave that production gap,” he said.

S&P Global Platts Analytics expects global oil consumption to continue rising before reaching a plateau of around 113.5 million b/d in the late 2030s under a “most likely case” scenario.

Hardy’s comments were echoed by the head of rival commodity trader Trafigura, Jeremy Weir, who expressed ‘concern’ over the supply implications of a current upstream spending slump into oil and gas.

“The supply situation is getting quite concerning. We’ve gone from 15 years of reserves life down to 10 years of reserves and we’re seeing capital expenditure go from something north of $400 million a year to just over $100 billion a year,” Weir told the event. “So, therefore there’s a concern on the supply side which will probably drive prices higher.”

Weir also said required future upstream spending could also be dependent on higher oil prices than today’s levels of around $70-$75/b due to higher costs of capital, rising carbon prices and any inflationary pressures.

Filling the gap

With a likely acceleration away from oil and gas toward cleaner energy by western integrated oil majors such as BP and Shell, Hardy said he expected a greater share of global upstream investment from national oil companies and OPEC producers in coming years in addition to further upstream opportunities for private companies such as commodity traders.

“They’re going to invest less … but how you actually fill that gap is yet to be determined and we think some investments are going to be needed to find or to produce new resources to meet that gap,” Hardy said.

Hardy said, while Vitol is also growing its spending in energy transition fuels such as biofuels, the company is also still interested in investing in upstream oil projects given the potential for a supply gap in the coming decade.

“We feel we can invest some of our capital in that space…oil prices will probably be the supportive end of those investments because of the gap,” he said.

Vitol and commodity trader Mercantile & Maritime agreed last week to acquire a 5% stake in Russia’s Vostok Oil megaproject operated by Russia’s largest crude producer, Rosneft.

Vostok Oil’s assets include the Vankor and Payakha clusters and contain combined estimated resources of over 6 billion mt, or around 44 billion barrels, of low sulfur crude.

Rival trader Trafigura confirmed in a June 10 earnings report it paid Eur1.5 billion ($1.8 billion) of its own cash for a 10% Vostok stake, which Rosneft has valued at Eur7 billion.

Source: https://www.spglobal.com/platts/en/market-insights/videos/market-movers-americas/061421-markets-court-ruling-us-eu-trade-talks