Oil Demand Growth – Twilight Years or Dawn Of A New Era?
Perhaps the first observation to make is that the significance of oil in our energy mix is not going to fall off the cliff within the next few years. The 2017 edition of BP’s Energy Outlook expects oil demand to continue to grow towards 2035 but its growth rate is expected to slow for a multitude of reasons. Just like global economy has been intoxicated with China’s relatively high growth rate over the past 20+ years that when it “slowed down” to single digit rate, some viewed it as a catastrophe. Never the less, the heydays of oil demand growth is possibly behind us but does not necessarily preclude a potential up turn as the world transits towards a different spread of energy mix featuring increasingly cost effective and efficient renewable energies.
Arguably, the bandwidth for innovation is greater than ever before with technology development, and affordable computing power have empowered creativity and low risk experimentation to the masses. The rise of artificial intelligence has already opened doors to many innovative applications previously considered to be in the science fiction category. Robotics is one such example and its development and sophistication has reached such levels that it has already replaced millions of jobs, some believe at a level which is just a “tip of the iceberg”. Similarly, for the oil industry, one could attribute the recent abundant supply to innovation, notably extraction technology for tight oil that has changed the supply landscape. Such game-changing phenomenon necessitates “upgrading” to claim continued relevance in the economy. Whether it is to do with manpower skills or crude oil/oil products. As BP’s Group Chief Economist, Spencer Dale said, “The possibility that the most important source of growth in oil demand in the 2030s won’t be to power cars or trucks or planes, but rather used as an input into other products, such as plastics and fabrics, is quite a change from the past”(1). Downstream upgrading including petrochemicals, is expected to be the growth engine where innovation for novel advanced material or manufacturing substitution would be key enablers. Many industry watchers and stakeholders hold the view that the growth of the petrochemicals industry is robust and sustainable with fairly strong correlation to overall economic growth. Whether it is solar or wind energy, robots or electric cars, the use of chemical products (e.g. high performance plastics, coatings, solvents, and specialty material) go hand-in-hand with their proliferation. Further innovation could unlock potential upsides just as smart phone has so evidently delivered for the telecoms and IT world…….so, why not smart fabric?
Singapore is an excellent example as one of the world’s leading energy and chemical industry hub. Jurong Island houses a highly integrated downstream value chain whereby more recent growth investments in the industrial zone have leveraged synergies and extended product range and specialties. Its continued success hinges on its ability to remain competitive on the one hand, and innovate on the other to lock in the “first mover” advantage that has served Singapore economy so well in the region, whether it is the port or the more recent initiative to be the first-mover nation on driverless car. With the key ingredients for success largely in place, including leading edge R&D capabilities, world class talent pool and logistics, the challenge shifts to realization and delivery.
Some would argue that specialty products development down the petrochemicals value chain has merely scratched the surface, limited possibly by a lack of urgency whilst upstream oil business was “privileged” or simply the lack of imagination. Perhaps a recent article on the BBC world news website “Australian scientists use soybean oil to create graphene (200x stronger than steel and a better conductor than copper)” could be an inspiration. Could innovation usher in a new dawn for oil growth?