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Because of lockdowns and travel restrictions, global oil demand dropped by 29 millions barrels per day in April, the worst fall in the history of the oil markets. 2020 was also the year when something very odd, and again unprecedented, happened. US oil prices dropped below zero for the first time in history due to oversupply and limited storage capacity. Even if oil prices have partly recovered since then, the IEA expects overall demand to decrease by 8.8 mb/d (million barrels per day) in 2020.
The prospect of depressed oil prices linked to peak oil demand is likely to lead to the undoing of the OPEC+ cartel and will benefit oil importing countries and regions like the EU. In the middle of this unstable period, the new BP energy outlook surprised energy analysts by actually suggesting that oil demand will never be as high as in 2019. Quite a shocking reality check, coming from an oil major.
This shows the new paradigm we are living in. Yes, 2020 might just be the year that consecrated the beginning of the end of the oil era. The impacts of the 2020 pandemic, especially the economic crisis, will be felt for years. People’s behaviours are likely to change, with a likely reduction in business travel in favour of remote meetings and a partial shift to working from home.
A major shift towards an oil free economy has started in the EU, driven by environmental, health and climate considerations. While oil demand was dropping, new commitments to phase-out the sales of ICE vehicles emerged and a surge in the sales of electric cars started. T&E now expects electric cars to treble their market share in the EU this year as a result of the EU CO2 standards. The EU also adopted a hydrogen strategy which could displace demand for oil in shipping and aviation, paving the way for a long-term energy shift.
What this means for future EU decisions is clear. The EU needs to step up its efforts towards zero-emission cars, trucks, ships and planes as part of the many proposals expected in 2021. And while oil’s dominant role in transport declines, it shouldn’t be replaced by the wrong alternatives. A majority of oil majors have now adopted climate goals and promise to invest in clean sources of energy. But we simply cannot trust them to do the right thing. The example of Total and its push for palm biofuels shows how cautious we need to be.
We will continue to fight against bad alternatives like crop biofuels, biogas and fossil gas, while ensuring renewable electricity is rewarded as the cleanest and most efficient fuel. Hydrogen-based solutions should be used where electrification is not possible, especially in aviation and shipping.
Whether peak oil has already taken place or not, the cracks in the foundations of our oil-dominated society are real. The deep changes that transport experienced in 2020 are unlikely to disappear tomorrow. It is now time for the EU to step up its efforts and bring us closer to the end of the oil era.