Global Agenda Council on Oil & Gas Today
Oil & Gas Today
April 2020
Introduction
The enormous economic contribution of the oil and gas industry to many national
economies makes its future of critical importance to the global community. The purpose of
this paper is to consider the future of the oil and gas industry and the profound challenges
that it is facing. Although oil and gas are likely to be major sources of energy for decades to
come, policy-makers and the public worldwide are re- evaluating the central role they play
in modern life. With rising concerns for future demand, climate change, the cost of project
development, governance and deteriorating community-level relationships, the industry
finds itself in a delicate situation. Only by recognizing the true scope of these ongoing
challenges and addressing their implications by offering leadership on solutions can the
industry continue to prosper in an increasingly complex world.
Future Demand Trends
Since the Industrial Revolution, oil and natural gas have played an instrumental role in
economic transformation and mobility in everyday life for the majority of the world’s
population. Oil was so fundamental to the development of modern society in the
industrialized world that the 20th century is often referred to as the Age of Oil. Today, oil
and natural gas play a pivotal role in the current global energy system. Approximately 31%
of primary energy used globally is met by oil-based fuels while natural gas represents a
further 21% of total world energy supply.
Since the 1980s, many oil-producing countries and oil companies operated from the
assumption that the industrialized world would progressively use up its easy to access oil
resources and become increasingly dependent on oil controlled by OPEC (the Organization
of Petroleum Exporting Countries), and in particular the vast reserves of the Middle East.
Under this long-prevailing world view, which lasted from the 1980s until recently, OPEC’s
petropower would increase over time and therefore all the oil cartel really needed to do was
wait it out for that day to come. Through the 2000s and up until last year, OPEC took a
revenues-oriented strategy, believing that this oilconstrained world had arrived and its oil
was more valuable under the ground than on the market. Oil companies, too, responded to
this world view by pursuing a business model that maximized adding as many reserves as
possible to balance sheets and warehousing expensive assets.
The shale boom in the United States and the Paris climate accords, however, have changed
the industry’s outlook for the future of oil and gas. With the prospect that major economies
like the US, China and Europe will actively try to shift away from oil at a time when the costs
for producing oil from shale and other kinds of source rock as well as from conventional
sources is declining through technological innovation, producers are coming to realize that
oil under the ground might someday be less valuable than oil produced and sold in the
coming years. In effect, perceptions have changed from believing a peak in
supplies was possible to believing a peak in demand for oil is possible over the next several
decades. Some investors have also become concerned that oil and gas company shares
may be overvalued, if warehoused high-cost oil and gas assets become stranded.
This dramatic shift in expectations is changing the operating environment for the future of
oil and gas. Moreover, policymakers, investors and scientists gathering in Paris last
December at the UNFCCC COP21 concluded that new efforts are needed if the planet is to
avoid catastrophic climate change driven by the accumulation of greenhouse gases in the
atmosphere. Under a scenario where fossil fuel use is restricted to limit global warming to
2°C, oil use may still be relatively stable, but certainly not expand to the same extent as in
existing business-as-usual expectations.
The World Economic Forum’s Global Agenda Council on the Future of Oil & Gas considers
strategies that can be deemed to be robust for the oil and gas industry in a future 2°C world
towards 2040 as well as most alternative futures. The council is not advocating or opining on
the “realism” or likelihood of any given scenario, but considers what would be a robust
strategy either in a business-as-usual outcome or if a low-demand growth circumstance
indeed emerges.
According to the central New Policies Scenario of the International Energy Agency (IEA), the
need for oil and gas to fuel global economic well-being for an expanding middle class in the
developing world will increase oil and gas demand significantly over the next three decades,
despite significant improvements in energy efficiency. Given the natural decline that
comes in operating the world’s current inventory of producing oil and gas fields, industry
believes it can sustain its current business models. In its New Policies Scenario, the IEA
projects that oil demand will rise by 14% from the 2014 demand of 90.6 million b/d to
103.5 million b/d by 2040. Overall, the global system will still be dependent on oil and
natural gas for the majority of the energy required to fuel economic activity, with fossil
fuels generally representing roughly 75% of total primary energy use in 2040. But this
forecast is looking more questionable in light of changing global economic
conditions, technology innovation and shifting demographic trends.
Under a scenario where fossil fuel use is to limit global warming to 2°C, oil use
restricted significantly more limited. The IEA’s would be (consistent with a 50%
450 Scenario 2°C global warming) projects probability for less than rise slightly to
global oil demand to thereafter fall to 74.1 93.7 million b/d in 2020 but
million.
