Perspectives On The Outlook Of The Oil And Gas Industry 

A number of recently-released reports have offered some insight into how the world’s biggest institutions see the future outlook of the oil and gas sector.

Moody’s Outlook

In the short term, a new report from Moody’s anticipates a stable outlook for the oil and gas sector, after high oil prices contributed to a 29% jump in sector EBITDA in the first half of 2018.

The report predicts a “likely decline” in earnings growth to mid-single digits next year based on its oil price assumption of $69 per barrel in 2018 and $60 in 2019.

As for the outlook for companies, despite the expected price decline the rating agency expects the credit profiles of large producers like  ,  , and    to “withstand further oil price volatility” because costs have been cut, spending slashed and assets sold in the wake of previous price weakness.

Sven Reinke, Senior Vice President at Moody’s said: “While declining earnings growth and rising dividends will limit the potential for most oil and gas sector players to strengthen their credit quality, many companies' financial profiles have already recovered to levels seen before the large prolonged drop in oil prices starting in late 2014.”

OPEC’s outlook

As for oil demand in the short term, in its World Oil Outlook 2040 report OPEC predicts that demand will continue to grow, increasing from 98.8mb/d in 2018 to 100.3mb/d in 2019. The institution expects global oil demand to continue growing at healthy rates to hit a level of 104.5m barrels a day (mb/d) by 2023.

Behind this increase however, there are significant variations in demand from different regions, sectors and products.

For example, incremental oil demand in the OECD is projected to flip from positive to negative growth territory from 2020 - initially rising from 47.8 mb/d in 2018 to 48.3 mb/d in 2020, before dropping down to 47.6 mb/d in 2023.

Demand in developing countries, however, is expected continue to climb from 45.5 mb/d in 2018 to 51.0 mb/d in 2023.

Looking further afield to 2040, OPEC predicts these variational trends to strengthen - demand in developing companies increasing, demand in the OECD declining, but total oil demand still rising by 14.5 mb/d to 111.7 mb/d in 2040.

BP’s outlook

As the graph below shows, there is a wide range of estimates of when oil demand is likely to peak – scenarios suggesting this could come as quickly as 2025, other scenarios suggesting demand will continue to grow to 2040 and beyond.

In a report on the subject of peak oil demand, BP chief economist Spencer Dale and Bassam Fattouh, director of The Oxford Institute for Energy Studies, said: "This focus on the expected timing of the peak attaches significance to this point as if once oil stops growing it is likely to trigger a sharp discontinuity in behaviour: oil consumption will start declining dramatically or investment in new oil production will come to an abrupt halt. But this seems very unlikely.”

“Even after oil demand has peaked, the world is likely to consume substantial quantities of oil for many years to come.”

"The comparative advantages of oil as an energy source, particularly its energy density when used in the transport system, means it is unlikely to be materially displaced for many decades. And the natural decline in existing oil production means that significant amounts of investment in new oil production is likely to be required for the foreseeable future.”

Other Oil and Gas Industry Players’ Outlook

This year’s recent price volatility has demonstrated the “lack of an extended transition path towards replacing fossil fuel with renewable energy” in a comment by Paul Griffiths, CEO  .

He added: “Global demand for gas is increasing as coal-fired power stations are replaced by perceived “greener”, gas-fired electricity generation, particularly in geographic regions where investment in and implementation of renewable energy projects cannot keep pace with rising demand for alternatives to fossil fuel.”

“The world of energy is changing, with increased focus on clean energy and renewables. However, demand for oil and gas will remain strong for the foreseeable future. Hydrocarbons are integral part of our world, contributing to virtually every aspect of our lives.” Mentioned Brian Larkin, CEO of  

He added: “International models differ on the exact date but peak oil demand remains some way off.  Even after this point is reached, we believe the decline in demand will be slow and gradual.  Demand for gas, will continue to be strong for many years, as it is the key enabler in the transition to a low carbon economy”

Part of the future of the sector will inexorably be tied to the growth in both developing economies and renewable energies.