Plummeting demand could drive the price of a barrel of oil down as low as US$10 by 2050—far less than fossils need to cover their production costs—according to one of a series of scenarios produced by analysts at Wood Mackenzie to tease out the implications of meeting the carbon reduction targets in the 2015 Paris Agreement.
The modellers’ Accelerated Energy Transition Scenario, or AET-2, “is a scenario, not our base-case forecast. It is one interpretation of how the Paris Agreement could be achieved, based on our fundamental analysis across the natural resource sectors,” said Ann-Louise Hittle, WoodMac’s vice president of macro oils, in a company statement.
“Even so, the oil and gas industry cannot afford to be complacent. The risks associated with robust climate change policy and rapidly changing technology are too great.”
The accelerated transition scenario, part of WoodMac’s annual Energy Transition Outlook, sees oil demand beginning to fall in 2023, eventually by as much as two million barrels per day—a small fraction of the industry’s daily output, but still enough to put a severe crimp in prices. The scenario has total demand declining to 35 million barrels per day by 2050, reports fossil industry newsletter Rigzone.
The shift in demand brings Brent crude oil, the benchmark price for North American producers, down to an average of $40 per barrel in 2030, well below the $60 to $70 that has had fossils breathing sighs of relief over the last couple of weeks. By 2050, Brent crude could fall somewhere between $10 and $18 per barrel.
The analysis shows fossil gas trading “at a premium to oil” under the AET-2 scenario, Rigzone adds, notwithstanding recent concerns that gas “is falling out of favour with emissions-wary investors and utilities at a quicker pace than coal did,” leading to the risk that at least $100 billion in gas infrastructure will be declared stranded assets.