Panel
Energy Markets: The Year Ahead for Oil, Gas and Renewables
Milken InstituteGregory Zuckerman, Helima Croft, Joshua Harris, Bernard Looney, Michael Smith, Greg Zuckerman
- OPEC and Russia are expected to maintain production discipline to drain global inventory overhang to five-year averages, while U.S. shale supply continues to generate despite OPEC constraints, creating higher short-term and lower long-term prices.
- Global oil demand growth is projected at 1.6 to 1.7 million barrels per day for this year, with total global energy demand forecast to increase by one-third over the next 25 years and oil demand remaining higher in 2040 than today even if 70% of vehicle kilometers are electric.
- A potential recession, electric vehicle adoption, or ride-sharing trends are cited as factors creating significant uncertainty regarding oil prices five years from now, with backwardated market signals suggesting a possible demand slowdown.
- Long-term oil prices are expected to rise over time as low current prices cap supply and conventional projects run dry, leading to a supply-demand imbalance and potential price spikes, particularly without Middle East supply given current U.S. import needs.
- BP targets a break-even price between $35 and $40 by 2020–2021, expects its gas mix to rise from 45% to 55% over the next four to five years, and aims to hold company emissions flat over the next decade.
- Non-hydro renewables are projected to grow at 7% per annum through 2040, reaching 25% to 40% of the global power mix, though this is insufficient to drive emissions down alone without additional measures.
- Natural gas demand is expected to grow faster than any other fossil fuel globally, with China likely surpassing Japan as the top LNG importer within two to three years and the global marketplace reaching up to 600 million tons by 2030.
- LNG facilities typically require four to six years to construct, creating a potential demand shortfall as early as 2022 if new projects are not sanctioned immediately.
- India is predicted to soon surpass China as the center of oil and energy demand, while U.S. shale producers may shift strategies to lock in captive markets in China and India and invest in downstream petrochemicals.
- The U.S. is projected to become a net energy exporter within five to ten years, though it currently produces 10 to 13 million barrels of oil per day against a 20 million barrel daily need.
- Geopolitical risks include trade war talks potentially igniting a macro sell-off, uncertainty in Mexico's trade regime slowing investment activity, and material risks from Mexico's upcoming elections stalling energy reforms.
- Renewables are expected to create regional pricing imbalances in natural gas markets where mandates exist, while their intermittency requires gas plant backups that may alter utility demand profiles.
- Private equity investment in renewables is viewed as lacking economic benefit without government tax credits due to subpar equity returns, whereas productivity improvements in the sector mean a dollar invested today yields more value than in 2014.
- Russia's global influence is expected to rise through deals in Kurdistan, Libya, and as a patron for Venezuela, while Middle Eastern countries like Saudi Arabia and the UAE look to invest in U.S. shale plays.
- BP plans to expand in Mexico's offshore sector and downstream market with 150 to 200 retail sites, while the airline industry requires biofuel investments to reduce emissions by 50% by 2050.
- Sustainable development scenarios indicate a global need for 85 million barrels of oil per day in 2050, and emissions must fall by 50% worldwide between now and 2050 for the Paris Accord to succeed.
- 21 of the 30 projects started between 2017 and 2021 are identified as gas projects, with the airline industry specifically requiring biofuels to achieve a 50% emissions reduction by 2050.