China is offering the global oil and gas industry a glimpse of how energy demand may rebound once Covid-19 is under control, analyst Daniel Yergin told a conference in Beijing.
The vice chairman of IHS Markit told the International Energy Executive Forum 2020 on Friday that China, which rolled out a coronavirus vaccine last month, has seen a rebound in oil demand.
“The only real-time evidence we have of what will happen after Covid-19 is China, [where] oil demand is up this year,” he said.
Much of the rest of the world is still making its way through an "alley" running between the virus and vaccination, Yergin said.
The pandemic has reduced global gasoline demand this year by 20% — to a level not seen in 23 years — as many people continue to work from home and travel has been curtailed.
However, Yergin expects a partial recovery in demand in 2021 as vaccination programmes ramp up in late spring and summer.
“We expect oil demand will regain the level of 2019 towards the end of 2021" or the following year, he said.
Future supply, meanwhile, could face constraints due to drastic budget cuts at international and independent oil companies, Yergin said.
Large international oil companies, concerned about their balance sheets, have slashed budgets by 28% to 30%, he said.
Some $350 billion in upstream assets are now for sale, of which 30% is in the US, Yergin said.
The world could see supplies tighten due to the "drastic fall in investment", he said.
Oil demand will continue to grow in the 2030s, when “oil and gas will be a very important part of energy mix”, he added.
Role for oil and gas to play
By 2050, the energy demand and consumption mix will change but Yergin believes oil and gas will still be a major part of the mix, even as low-carbon energy gains steam.
“It will be a transition where all the energy resources will have their role to play,” he said
Yergin pointed out the divide in how the energy transition is viewed by people in the industrialised countries of the northern hemisphere and those in the developing world, where indoor pollution is a more immediate concern.
Indoor cooking using wood and other inexpensive fuels belches carbon monoxide and other noxious fumes at levels up to 100 times international safety limits, according to the World Health Organization, which estimates that indoor air pollution causes 1.6 million deaths per year in developing countries.
Natural gas will be necessary as a replacement fuel to reduce indoor pollution in much of the world, Yergin said.