Two years after the “Declaration of Cooperation” was signed by the Organization of the Petroleum Exporting Countries (OPEC) in December 2016, the future of the oil market has never looked more uncertain. The historic declaration has been central to the recent market recovery and has largely improved the global GDP, but uncertainty remains as to whether oil producers will survive the coming energy transition towards a carbon-free world.
Crude oil is the most traded commodity in the world, with a consumption of 93 million barrels per day (b/d), and OPEC is renowned for the extensive reserves of its member countries. It is no surprise then, that the agreement drafted in response to the dramatic downturn of oil prices in 2014, one of the worst slumps in oil industry history, has been the centre of public attention. There is consensus amongst OPEC members that by 2030, the demand for oil is expected to increase to 111.7 million b/d, with China and India accounting for almost half of the increase. Other energy sources, like renewables, are not projected to threaten a robust 33 percent increase in the demand for oil and natural gas.
Nevertheless, OPEC countries have recognized that all forms of energy will be required in the future and they remain fully engaged and supportive of the Paris Agreement, which aims to mitigate greenhouse gas emissions starting in 2020.
The core of the cooperation agreement is thus a collaboration between members and non-OPEC members, but also between producing and consuming countries, with the ultimate aim of sustainably developing supply to meet the future increase in demand without interruptions and volatility. The oil industry has indeed recovered extensively since 2016 as a result. Not only has the declaration brought about more economic stability, but it has also encouraged vital new investments to support new technology-driven opportunities and ensure a smooth energy transition from fossil fuels to a carbon-free world.
The oil cartel remains positive about the future. OPEC Secretary General, Mohammad Barkindo, described the industry as a “vital, exciting and dynamic industry, that’s always on the cutting edge of new technologies.” However, a growing number of commentators question this optimism and wonder how long we can continue pumping fossil fuels, at the current rate, without exhausting our supplies.
The risk isn’t just due to a lack of investment. The Norwegian research firm Rystad Energy, reported that oil companies discovered less than 7 billion barrels of oil and gas in 2017, “the lowest number on record.” In 2005, the Oil Depletion Analysis Centre reported that almost 944 billion barrels had already been extracted and roughly 764 billion remained in global reserves. In light of the increase in demand, the International Energy Agency (IEA) claims the oil industry would need to replace “one North Sea per year” to maintain the supply. Resource depletion and environmental harm are two sides of the same coin: human activity. Global CO2 emissions have risen again last year, making 2017 the second warmest year since 1880—a big step backward for all of the nations party to the Paris Agreement.
The world currently depends on fossil fuels to meet its energy needs, and accordingly many nations rely heavily on the oil production of the OPEC countries. However, the trend has started to change. At the beginning of the 21st century, members of OPEC accounted for some 60 percent of the proven oil reserves, but at present, these numbers have decreased and their production is being threatened by the boom in the U.S. shale oil output. For years now, there have been warnings concerning the unsustainability of the present level of human activity: we are altering the climate, damaging ecosystems and rapidly depleting natural, non-renewable resources. There is no doubt that oil and gas will continue to play a key role in global energy outputs in the upcoming years, but the challenge lies in seeking cleaner energy technology designed to reduce the environmental footprint of the industry, especially in the long run. Whether the future of OPEC and its industry looks bright is debatable, with opinions clearly polarized. Can the oil industry reform pave the way for a greener future?