BP’s Peak Oil Era Threatens More Venezuela-Like Collapses

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Higher-cost producers face a brutal squeeze as demand declines.

One of the world’s largest energy companies says the era of oil demand growth is dead; a key OPEC producer flouts supply cuts that have rebalanced the crude market; the country with the largest reserves turns pipelines into scrap to upgrade crumbling refineries.

The three events aren’t unconnected. The future of declining oil demand forecast in BP Plc’s latest energy outlook is one in which lower-cost exporters may opt to quietly flood the market, as the United Arab Emirates now appears to be doing. That will drive out production from higher-cost nations in brutal fashion. Those that aren’t able to diversify in time face economic collapse, not unlike the one now forcing Venezuela to cannibalize its own infrastructure to keep the barrels flowing.

To see why, it’s worth looking at how oil producers might hope to make money in a world where crude demand falls by half or more over the next 30 years, as two of BP’s latest scenarios predict. The trick is (in theory) simple: As long as supply drops faster than demand, prices should remain high enough to make a profit, especially for those with the lowest production costs.

Over the Hill

Two of BP’s oil production scenarios envisage demand falling by half by 2050

Source: BP Energy Outlook

The difficult part is coordinating such a reduction in a market where even Saudi Arabia accounts for only 13% or so of production. For the past 60 years, the best answer has been the Organization of the Petroleum Exporting Countries, which groups nations together accounting for about 42% of oil production, or 61% if all 23 members of the expanded OPEC+ body are included.

Still, there have always been deep splits between OPEC’s wealthier, more oil-rich states in the Gulf and its less developed, more populous members in Africa and elsewhere, as my colleague Julian Lee has written.


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