Europe could face a shortage of oil within the next decade, making the move to increase the use of low carbon energy even more urgent, according to a new report.
The study has warned that oil production may fall faster than the EU’s reliance on fossil fuels, raising the risk of a looming oil supply crisis and severe market price shock.
The report by the Shift Project, a French climate thinktank, said the risk of reaching “peak oil supply” before major economies have transitioned to cleaner energy sources is “an additional compelling reason for designing a world without oil”.
The analysis was based on data from Norwegian consultancy Rystad Energy, which found that oil production from Russia and the former USSR, which provide more than 40% of the EU’s oil supply, has already entered “a systematic decline” which would outstrip the rate at which the EU has curbed its use of oil over the last 10 years.
Africa’s oil production, which makes up more than 10% of the EU’s oil supplies, is expected to decline sharply over the next decade.
The impact of the Covid-19 pandemic threatens to compound the risk of an oil supply shortfall in the 2020s by stalling investment in new oil projects.
Major oil companies are expected to cut their spending plans for the year ahead by almost a quarter, or nearly $40bn (£32bn), to weather the impact of coronavirus, which has caused oil demand to plummet to 25-year lows and pushed down its price.
Rystad Energy said the crisis could bring forward the world’s peak oil demand from 2030 to 2027 before the market enters a terminal decline.
Per Magnus Nysveen, head of analysis at Rystad Energy, said “it is not unthinkable” that the world could still face a looming oil supply crunch, and severe market price spikes, even as global oil demand begins to fall.
“The oil price is driven by balances and not by levels, we see this clearly now with oil prices at fairly healthy levels for a hibernating oil industry – despite oil demand at levels not seen since 2009,” he said.
The global oil price has climbed above $40 a barrel, after scraping lows of $16 a barrel in the wake of the Covid-19 lockdown, because major oil producers within the Opec oil cartel have agreed an historic deal to temporarily reduce the amount of oil they produce.
Oil prices are likely to remain subdued for at least another two years as global economies recover from the economic aftershock of the pandemic, but could quickly surge by the middle of the 2020s if oil demand rebounds above the world’s production rate.
“The impact on society from an undersupplied oil market is largely under-communicated, so a rapid energy transition is crucial not only for the climate but also to avoid enduring recessions in emerging markets triggered by undersupply of oil and energy,” Nysveen explained.
He concluded the forecasts offer “yet another reason” for economies to reduce their reliance on oil.
The countries which invest heavily in electric vehicles, for example, will be able to avoid the economic pain of surging fuel prices while those that do not may be forced to accelerate the shift away from petrol and diesel cars to avoid the higher costs.
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