Electrification and oil demand

Global oil demand to peak between 2024 and 2027

Management consulting firm, McKinsey & Company, released its Global Energy Perspective 2022 on April 26. The report, which describes the company’s view on how the energy transition will take fold, delivers a pessimistic outlook for oil demand growth with an expectation that global oil demand will peak between 2024 and 2027.

Commitment to reducing carbon emissions is gaining momentum. The report emphasises that peak fossil fuel demand continues to be pulled forward, with the ceiling now expected much earlier than previously reported. Global liquids demand will peak at around 102 million barrels per day (bpd) in the next two to five years. While oil will plateau within the next five years, McKinsey expects gas to be more resilient with projections it will grow another 10–20% compared to today. After 2035, there are larger uncertainties due to the rise of hydrogen.

Electrification and renewables show accelerated growth in McKinsey’s scenarios. In what may be a shock to some lubricant manufacturers, the long-term outlook indicates liquids demand in road transport will decline 75% by 2050. Growth of electric vehicles is attributed as the main reason for languishing oil demand. Slowing overall growth in cars on the road and the prevalence of bio- and synfuels will also play a role.

Despite the grim picture pained for automotive lubricant manufacturers, McKinsey concedes there is huge uncertainty around global energy markets off the back of the Covid-19 pandemic. The analysis was also largely completed prior to the war in Ukraine and therefore does not capture the fallout on the economy, energy markets, and supply chains.

The study highlights the chemicals sector as one growth prospect, with chemicals-driven demand set to jump by 50% by 2050.