For as long as there’s been an oil industry, people have poured enormous effort — often without much success — into trying to predict future demand. Today, the question is more urgent, and more uncertain, than ever, as the imperative of decarbonization in the face of the climate crisis collides with surging demand in emerging economies. At the CERAWeek conference in Houston this week, there’s been a “reset on the recognition of the pace of the energy transition,” as Cahir put it — a growing sense that the climate ambitions of former US President Joe Biden and other world leaders are losing political momentum and also running into the hard realities of cost and logistics. If that’s true, it’s bullish for oil. And if it’s not — in other words, if EVs and renewables gain momentum — companies like Exxon have little choice but to drill anyway, cutting costs as much as they can and hoping to be the last one standing.
Privately, some oil industry insiders here told me they are indeed worried about the risk of a recession — less consumer spending means less oil demand — and don’t understand what Trump intends to gain with his tariff threats. Even before the trade wars heated up, there was an unresolved tension between Trump’s goal to bring down energy prices and his goal to boost drilling. Energy Secretary Chris Wright said this week that he’s confident drilling can continue even at $50 per barrel, but many economists believe that, apart from a behemoth like Exxon, most companies will start to close down rigs below $70.
Lorenzo Simonelli, CEO of oilfield services company Baker Hughes, told me this week that there’s a concerted push across the industry to do more with less, and that total US production will likely increase this year even if the rig count — which is about 5% lower now than it was a year ago — continues to decline.
Short-term volatility aside, the prevailing perception at CERAWeek is that alternative energy sources, rather than displacing fossil fuels per se, will soak up the growing demand for electricity, leading less to an energy “transition” and more to energy “addition.” No one here believes oil demand is going up. But at least in these circles, few see it going away.
“There’s not going to be a ‘peak’ for oil. It will be a very flat peak and decline very, very moderately after that,” Eirik Waerness, chief economist at Equinor, said during the conference. “We’ll stick with oil for as long as we don’t have an alternative.”