The American Petroleum Institute (API) predicted in March that the global oil market would collapse within three years, but the reality is much more dire.
“The energy sector is in serious trouble,” API President and CEO Bill Dudley said in an interview with CNBC.
In an interview this week, Dudley said that the collapse of the oil and gas sector is inevitable and is happening faster than anticipated.
According to API’s “Energy and Climate Change Outlook,” the world’s energy supply will become more expensive over the next three decades, and demand will drop even further as more people use electric vehicles and natural gas instead of oil.
“[W]e are in the early stages of the energy transition, and the longer the transition goes on, the more vulnerable we will be to the effects of climate change,” Dudley said.
Dudley said the world is already losing $30 trillion a year due to climate change, but he said that by 2030, this number could be as much as $150 trillion.
The industry has been predicting that the oil price would fall in 2019 as global oil demand declines, but Dudley said this has not happened.
It is “pretty obvious” that the price of oil is going to fall further, he said.
“There’s no doubt about that.
There’s no question that it’s going to drop further.
While the oil market will likely shrink as a result of the price decline, Dudley predicted that the industry will see a boom in new investment.
This will lead to a $100 billion-plus investment in the oil industry, according to Dudley.
If you think the market is collapsing now, then you are wrong.
It’s not the case.
As we all know, oil is the world currency.
So the fact that people are willing to invest in the sector that is the engine of their livelihood, is a big deal,” Dudley continued.
With oil prices already on the decline, a decline in the market could force companies like BP and Shell to raise their prices.
BP has raised its prices on average by 30 percent since last spring, but it still sees profits on the platform drop by 10 percent each year.
Shell, which currently sells oil at $70 per barrel, recently lowered its price to $49 per barrel.
Even the biggest oil companies are not immune to falling oil prices, however.
LNG will soon be used to power ships, and many companies are using it to power trains as well.
But even LNG companies will face challenges in replacing oil with gas, as the amount of LNG that can be produced each year will be limited.
There is no guarantee that new LNG projects will be completed or profitable, and as a consequence, there is a risk of overproduction.
Moreover, LNG is a finite resource, and even with enough supply, the amount produced each day will decrease.
Currently, LPG plants are operating at about 15 percent of capacity, and that could increase as a percentage of the world production over the coming years, Dudley explained.
A decline in oil prices could force a reduction in the number of jobs, Dudley noted, and could lead to an increase in unemployment.
And while Dudley says that there is still hope for the sector, the reality may not be what he expected.
Last year, the American Petroleum Research Association predicted that oil and natural-gas jobs will increase by 6 percent between 2018 and 2020.
For instance, the oil-producing North Sea region is forecast to see a 2 percent increase, while the oil production in the U.S. Gulf Coast region is predicted to increase by 7 percent, according the API.
However, it’s not just jobs that are on the line.
Climate change is also a factor that will cause the industry to shrink, Dudley stated.
Because of the increase in CO2 emissions, the industry is on track to decrease its production in 2023.
Additionally, Dudley says the oil sector will see its profits drop by 20 percent in 2028, while its profits in 2020 and 2025 are expected to drop by 30 and 20 percent respectively.
Furthermore, Dudley believes that as oil prices fall, the price drop will affect the prices of everything else in the economy, including automobiles, energy products, and furniture.
Meanwhile, Dudley predicts that the energy industry will have a bigger impact on the climate than the overall economy.
“Oil is a carbon sink, so if the price drops, the carbon sink is going away,” Dudley explained, adding that if the prices don’t fall, it will take more time for the carbon sinks to come back.
What are your thoughts on the energy market?