Oil demand will rise further in medium term, says Rystad Energy

Oil demand will rise further in the medium term, according to Rystad Energy.

In a statement on Thursday, the Oslo-based energy consulting firm said low-carbon alternatives are not yet sufficiently developed or economically competitive to offset the growing demand for transportation and industrial services.

Rystad Energy’s latest Oil Macro Scenarios report explained how the 13 sectors that rely on oil will face a more complex transition than expected just a couple of years ago.

The firm said these findings underscore the notion that oil demand remains sticky, and the process of substituting the capital stock associated with oil consumption will be complex and lengthy due to the competitive advantages of oil in multiple transportation sectors and industrial processes.

Rystad Energy’s research evaluates the five-year demand trajectory of oil, the technological readiness of each sector to transition and the policy frameworks supporting that shift.

The firm said the analysis sheds light on the impact of crucial breakthroughs, such as the rapid electrification of buses, rail and cars, as well as the challenges faced by the remaining sectors that lack fully developed or competitive alternative technologies.

Rystad Energy global market analysis director Claudio Galimberti said that as oil demand is likely to stay on an upward trajectory in the medium term, the probability of a fast transition away from oil decreases unless there are breakthroughs in those low-carbon energy carriers that can technically and economically substitute oil.

“Our updated mid-term forecast should bring a dose of realism to the oil transition narrative, alongside a renewed sense of urgency to explore and invest even more — wherever it makes economic sense — in clean tech and renewables, to achieve those breakthroughs,” it said.

Rystad Energy said about a quarter of global oil demand comes from passenger road transportation, so it is no surprise that the adoption of electric vehicles (EVs), which comprise both battery EVs and plug-in-hybrid EVs, is a key factor to estimate the oil demand impact.

It said EVs have risen since 2018, making up 16% of global sales in 2022.

However, the firm said that last year saw an inflection point — with global EV sales landing only at 19% — due to a combination of lack of mass-market EVs outside of China, poor charging infrastructure, low consumer acceptance in some regions, charging insecurity, and the withdrawal of subsidies in some countries.

Stationary sectors
Rystad Energy said the stationary sectors, which include petrochemical, industry, building, non-energy use, energy own use, power and agriculture, account for 42.3% of global oil demand as of 2024 and are vital components of the energy transition. In the petrochemical sector, demand for plastics is set to surge in the coming years — on the back of an expanding global middle class — and oil and natural gas liquids will be the feedstock used to produce plastic.

It said to reduce demand for virgin feedstock, mechanical and chemical recycling rates must increase.

However, the firm said higher investment in the recycling supply chain, as well as research and development, are needed to achieve this.

Rystad Energy said oil demand in the building sector has proven more resilient than expected just a few years ago.

The firm said in regions where the natural gas grid is not available and winters are long and frigid, oil — in the form of liquefied petroleum gas (LPG), kerosene or gasoil — remains the most efficient energy carrier for space and water heating.

Heat-pumps, which are typically very efficient for space heating in milder climates, tend to have a reduced effectiveness in very cold regions.

Finally, in countries that still rely on burning biomass for cooking, such as sub-Saharan Africa, LPG could be a cleaner energy carrier, which could result in a 1.5 million barrels per day uptick in oil consumption.
Source: The Edge