Future of oil bright but prices may dip to around $65-$70/b in 2022: BPCL executive

The future of crude oil is still bright until about 2030, when crude oil prices will likely hit peak demand, D V Mamadapur, executive director, international trade, Bharat Petroleum Corp. Ltd., or BPCL, said.

“The COVID-19 pandemic has brought forward this peak demand by five years or so. The way we are going [ahead] into the transition phase of energy, it may get forwarded [further] by a few years or so,” Mamadapur said during a panel discussion at the 37th Asia Pacific Petroleum Conference, or APPEC 2021, organized by S&P Global Platts from Sept. 27-29.
The world is in the midst of adverse climate conditions because of the overuse of fossil fuels, prompting the industry to turn its attention to high technological and capital intensive investment regimes related to renewable energy such as wind, solar power and even green hydrogen, he said.

While the momentum in developed countries has gathered much pace, developing and underdeveloped countries might find it difficult to drive this decarbonization journey swiftly because of techno-economic reasons, he said.

“So, oil is going to stay with us,” he said.

Meanwhile, despite the hurdles posed by the COVID-19 pandemic, demand has started recovering worldwide. US shale production is also expected to increase as crude is above $65/b, he added.

There is some pressure on OPEC+ countries who are squeezing production and trying to maintain prices, Mamadapur said. Also, there is every possibility that Iran and Venezuela oil may also come into play, he said.

OPEC and its allies agreed Sept. 1 to hike their collective crude production by 400,000 b/d in October, sticking to their initial agreement reached in July to increase output by the same margin each month from August through to the end of 2022.

According to eight major Asian refiners and trading companies surveyed by Platts during the first day of APPEC, including ENEOS, BPCL, SK Innovation, Chinaoil, Pertamina and PTT, OPEC+ should ideally raise supply by at least 700,000-800,000 b/d as current oil prices appear overheated and Asian consumer sentiment is hurt by the high prices.

Meanwhile, Platts Analytics said the US and Iran could reach a deal in the first quarter of 2022 after lengthy nuclear talks and negotiations, with Iranian barrels potentially returning to international markets by April 2022.

“Overall, what I feel is that in 2022 oil prices may come down, maybe to around $65-$70/b [on average],” Mamadapur said.

Changing energy landscape
Investments in the industry will mostly come where discovery has been done and oil companies will likely invest there to produce, Mamadapur said. But oil will peak around 2030 or so. So, that means a lot of investment is not going to come to exploration, he said.

In refining, no major investments are likely to come beyond 2025. After that, if demand is steady to higher, refineries will have ample opportunity to increase their refinery runs and make “good money” in the refining sector, Mamadapur said.

“As far as BPCL is concerned, we are also not looking to invest in any big expansion plans for our refineries. However, we are investing in our refineries [to the extent that we] have a nimble footing to ensure that other products mix like petrochemicals, chemicals or any other products, help us make money in the refining sector,” he said.

To grow its business, BPCL will continue fuel retailing while also expanding into other areas like renewable energy, Mamadapur said. BPCL is also aiming to grow the gas business to some extent. It is also looking into electric vehicles to gear up for cutting CO2 emissions, Mamadapur added.

In 2020-21 (April-March), BPCL’s refinery throughput declined 17% year on year to 26.6 million mt and sales dropped by 10% on the year to 38.74 million mt, mainly on demand destruction due to the first wave of the coronavirus pandemic of 2020.
Source: Platts