By Sarah Kent in London and Brian Spegele in Beijing
This month, European oil company MOL Group delivered a stark
message to investors: Demand for fuel in its key markets is bound
to fall.
So-called peak oil demand is a mind-bending scenario that global
producers such as Royal Dutch Shell PLC and state-owned Saudi
Aramco are beginning to quietly anticipate. But MOL has a
transformation plan that is among the most explicit responses to
the trend, indicating how the landscape may change for big energy
providers over the next decade.
The Hungarian company is rethinking its traditional focus on
fuel supply and shifting investment to petrochemicals, the key
ingredient of everyday plastic products and a sector where MOL
believes growth will continue even when its fuel business
falters.
Although there will still be customers for its fuel, the company
reckons demand will soon flatten and then start falling in its
Eastern European markets around 2030. "We see that as an
inevitability," MOL Chief Financial Officer Jozsef Simola said.
Big oil players such as Exxon Mobil Corp, BP PLC and Saudi
Arabia -- which is leading recent efforts by the Organization of
the Petroleum Exporting Countries to boost oil prices -- are also
anticipating significant shifts in demand, though there is no
consensus on the timing and their moves have been gradual. They are
increasing their investment in petrochemicals, pumping more natural
gas, driving down costs and even diversifying into alternative
energy sources like solar power.
Last month Shell finance chief Simon Henry caused a stir when he
said the company sees oil demand peaking in five to 15 years.
Shell's latest published forecasts have consumption flattening
toward the end of that period.
State-owned China National Petroleum Corp. quietly issued a
report in the summer predicting that China's oil consumption -- a
major driver of growth in recent decades -- will begin to fall by
2030, if not sooner. Global demand is expected to follow suit.
The International Energy Agency, which advises industrialized
countries on energy policy, says consumption will continue to rise
for decades in its most likely scenario. But that picture shifts
radically if governments take further action to limit global
warming to less than 2 degrees Celsius with more stringent policies
like carbon pricing, strict emissions limits and the removal of
fossil-fuel subsidies. If that happens, oil demand could peak
within the next 10 years, the IEA says.
"The question is more a question of when, rather than if,"
Dominic Emery, BP's vice president for long-term planning and
policy, told the Economist Energy Summit in London this month. BP
says oil demand could fall by the late 2020s if tougher emissions
laws are enacted.
Others don't see peak demand coming so quickly. Exxon expects
consumption to grow through 2040, though at a decelerating pace.
Likewise, OPEC sees demand continuing to grow beyond 2040, but
acknowledges new technologies and efforts to curb climate change
could mean consumption peaks within the next three decades.
Still, OPEC mainstay Saudi Arabia, the world's largest exporter
of oil, is pushing its state oil company to invest heavily in
petrochemical plants around the world. The kingdom is trying to
diversify away from oil, publicly list Aramco to raise money for
other industries, and build a new base of renewable energy.
Peak demand "will be later than the common dates that are being
thrown around, but if it does happen, because we're building
multiple engines for the economy and we're planning for an economy
beyond oil, we'll be ready," Saudi Arabia's energy minister, Khalid
al Falih, told a conference in Istanbul last month.
Timing and preparing for peak demand are critical to companies'
fortunes. Energy producers could move too fast to adapt to shifts
that are still years away. Or new technologies and policies could
leave them vulnerable to changes that happen sooner than
expected.
"There's risks on both sides," said Paul McConnell, research
director of global trends at Edinburgh-based consultancy Wood
Mackenzie.
Shell, Exxon and others are pouring money into natural gas -- a
less-carbon-intensive fossil fuel they bet will benefit from
efforts to curb global emissions. In China, where growing oil
demand has supported global markets for years, the state-owned
energy giants are aggressively embracing natural gas as a fuel for
use in everything from power generation to running cars.
Several of the world's biggest oil companies are also increasing
their focus on alternative energy sources like solar and biofuels.
France's Total SA has said it wants 20% of its portfolio to consist
of low-carbon businesses within the next 20 years. The company
hasn't commented on the prospect of peak demand.
Peak demand is already arriving in some regions. In Europe, for
instance, the IEA sees consumption most likely falling to 10.8
million barrels a day by the end of the decade from 11.7 million
barrels a day in 2015.
Those numbers are driving big changes at companies like MOL.
"To come to a point to say that, wow, maybe the future will be
different and maybe we have to prepare ourselves for a different
world...that was not easy for guys like myself," said Ferenc
Horvath, head of the Hungarian company's refining and
petrochemicals business.
--Bradley Olson in Houston contributed to this article.
Write to Sarah Kent at sarah.kent@wsj.com and Brian Spegele at
brian.spegele@wsj.com
(END) Dow Jones Newswires
November 27, 2016 07:14 ET (12:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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