LAUNCESTON, Australia (Reuters) - If 2020 had been anything close to a normal year, the oil and gas industry would have just wrapped up its annual gathering in Singapore, most likely reassured of its ongoing essential role in humanity’s future.
But this is far from a normal year, and the Asia Pacific Petroleum Conference (APPEC) was a virtual event for the first time in its 36-year history.
While the numerous cocktail parties and the bonhomie of catching up with old colleagues was undoubtedly missed, the event did manage to provide a platform for the industry to take stock of how it’s going during the novel coronavirus pandemic.
If the wide variety of views can be summed up, the industry knows it’s in the worst situation in generations as far as demand goes, and that there is considerable uncertainty over how the situation will unfold in coming months.
The problem for the crude industry is that it can’t really predict the demand side of the equation with any accuracy, given the uncertain nature of the recovery from the pandemic.
A widely-implemented and successful vaccine would obviously be bullish, but there is no certainty that this will occur, and no definitive timeline even if a vaccine that works is developed.
The risk of second-, or even third-wave outbreaks of COVID-19, the disease caused by the coronavirus, also hangs over the demand equation.
At best, the industry believes the massive overhang of crude oil currently stockpiled around the world will start to draw by the end of the year.
At the APPEC event, hosted by S&P Global Platts, some optimism was expressed by Russell Hardy, the chief executive of major oil trader Vitol, who said that oil demand in transportation sectors, with the exception of jet fuel, could return to pre-pandemic levels by the fourth quarter of 2021.
“The market is slowly chewing through that excess inventory,” he said, adding that about 300 million barrels have been drawn down from this year’s peak.
Hardy was one of the more bullish speakers at the event, but even his scenario is for a return to “normal” in a year’s time.
Where the industry appeared even less certain was the long-term outlook, and whether BP Plc may be correct in suggesting that oil demand has already passed its peak.
Roughly speaking, two distinct camps are emerging. The first sees oil and gas as an industry that will inevitably decline as the world switches to renewables in a bid to combat climate change, while the second sees a growing role for fossil fuels as the global population expands and hundreds of millions of people seek to join the energy-intensive middle classes, especially in Asia and Africa.
“Everyone’s talking about this great reset ... What do we need to do to survive this?” Arif Mahmood, executive vice president and CEO of downstream at Malaysian state producer Petronas, told the conference.
“Energy transition will be pushed forward much faster,” he concluded, but he said Petronas was sticking to what he termed its “gas agenda.”
There was a surprising amount of support for carbon capture and storage (CCS), with executives from Royal Dutch Shell, Citigroup and Vitol all saying it should be part of future carbon mitigation.
CCS, however, has been the next big thing for quite some time, but has so far failed to attract sufficient investment, or shown cost-effective results, as the coal industry can attest.
The problem for oil industry executives is that they are starting to sound like their coal counterparts of a decade ago.
The coal argument then, especially in Asia, was that their fuel was cheap and reliable, and that concerns over climate change were overblown.
What has happened since is that coal is no longer cheap against renewables in much of Asia, and is even struggling against liquefied natural gas (LNG) in some countries.
There are also question marks over the long-term reliability of top coal exporter Indonesia, given its domestic reservation policies. Add to this the threat of carbon border taxes, and coal is rapidly losing its edge, especially for countries that have to import.
Just as the coal industry didn’t see renewables, cheap natural gas and rising environmental activism as an issue, some in the oil and gas industry are making the same mistakes.
Betting on rising oil demand growth is now effectively saying that global vehicle makers will fail in their multi-billion dollar investments to shift to electric cars and trucks, that renewables won’t continue to get cheaper and easier to store, that carbon taxes won’t continue to rise or become more widespread.
It’s also perhaps a bet that rightwing populist, nationalistic and climate change denying politicians will continue to command electoral success, even though history suggests that power tends to swing back and forth in democracies over time.
The opinions expressed here are those of the author, a columnist for Reuters.
Editing by Richard Pullin
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