Russian Lukoil long term oil forecast up to 2050 according to Kommersant

[Tomasz + 1,608]

 

Lukoill is largest russian private oil producer ruled by tandem Vagit Alekperov (CEO) and Leonid Fedun (vice-president). It produces more than 1 milion barrels per day. 

So LUKOIL expects acceleration of inflation due to energy transition Oil price in 2050 may reach $ 380 per barrel  (its nominal value due to inflation - real value would be about 50 $ in 2020 real terms)

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The energy transition may cause an acceleration in global inflation and an increase in the nominal oil price to $ 380 per barrel by 2050, LUKOIL expects in its forecast for the development of world energy. More than two-thirds of this increase will be accounted for by accumulated inflation, another 20% - by payments for CO2 emissions. According to the company, even the most radical scenario of the energy transition will not lead to a complete rejection of oil by 2050, although its consumption may fall by half.

LUKOIL admits an increase in oil prices to $ 380 per barrel by 2050, follows from the company's forecast for the development of world energy. The vice president of the company Leonid Fedun explained that most of the rise in prices will be due to inflation, while in real prices in 2020, the price of Brent oil will not exceed $ 50 per barrel.

The company builds its long-term forecast based on three scenarios - "evolution" , "equilibrium" and "transformation" , which have different prerequisites for the volume of CO2 emissions and, accordingly, an increase in the average global temperature by 2100. For the "evolution" scenario, the temperature rise will be 2.6 ° С, for the other two - 1.8 ° С and 1.5 ° С, respectively. Thus, only the last two scenarios meet the conditions of the Paris Climate Agreement, the main goal of which is to keep the rise in global temperature “significantly below” 2 ° C by the end of the century.

In order to reduce emissions within the framework of these climatic goals, according to LUKOIL, the global cost of emissions should reach $ 50 per tonne of CO2 even in the “evolution” scenario , and for the “equilibrium” and “transformation” scenarios - $ 100 and $ 200 per ton, respectively. For comparison, now the cost of emissions in the EU is about $ 90 per ton, in China - ten times less.

The widespread introduction of payments for emissions, according to LUKOIL, will accelerate global inflation (the more, the higher the payment turns out to be). This will become the main factor in the growth of the nominal oil price.

Another, albeit less significant, factor will be the need to pay for CO2 emissions from oil production.

So, for the “evolution” scenario , the base oil price (in 2020 prices) in 2050 will be $ 50 per barrel , another $ 20 will be added by the payment for CO2 emissions, and $ 58 will be accounted for by accumulated inflation, which gives the final price of $ 128 per barrel.

For the "transformation" scenario , the base price will be $ 35 per barrel (since world oil demand will halve, from 100 million barrels per day to 45 million barrels per day), but the CO2 price will be $ 70, and about $ 275 will be accounted for by accumulated inflation.

LUKOIL expects that demand for motor fuel in the transport sector will remain strong until at least 2030, and even then, its decline will not be too dramatic in all three scenarios. This is due to the fact that, although by 2035 most of the new car sales in the world will come from electric vehicles, there will be an old fleet of 1.2 billion cars that will need to be refueled. The company expects that even by 2050, combustion-engine cars will still account for more than half of the global fleet, although 65-85% of new sales will be from electric vehicles and other non-carbon vehicles.

 

Oil consumption in the world will remain stable until 2030, then it will drop sharply - first in Europe  and from 2035 in the United States and China, said Lukoil's vice president for strategic development Leonid Fedun.

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Lukoil estimates oil price by 2050

In the next few years, according to the presentation of the company's updated strategy, after the shock of 2020, demand for liquid hydrocarbons is expected to recover.

"Our forecast is that liquid hydrocarbon consumption will remain stable until at least 2030 under various scenarios ... in 2030 we will see a sharp decline in liquid fuels consumption in Europe, most likely from 2035 ... in large markets such as the US and China", - said Fedun.

At the same time, the industry is now "heavily under-invested," he stressed. In recent years, according to Fedun, investments in oil production have more than halved.

"If companies do not invest in oil production, the world will face a dramatic rise in oil prices, which will push inflationary pressures that will make it difficult to move towards a climate neutral future," he added.

In the absence of investment, the supply of liquid hydrocarbons will decrease annually by 4-5% due to a drop in the production of the base stock, and in shale projects and hard-to-recover projects, the rate of decline in supply will almost triple - to an average of 10-15% per year.

Another challenge facing the industry is the high level of energy inequality in the world, which complicates the process of decarbonizing the economy. Almost a billion people in developing countries, as specified in the presentation, do not have access to electricity.

On the one hand, companies must comply with climate requirements, comply with the desire to move towards carbon neutrality by 2050, but on the other hand, they must not allow energy hunger and meet market requirements, concluded Fedun.

 

 

Because today on Twitter there was a hype of forecast 380 $ in 2050. No not 380 but 50 $ in real 2020 terms.

Edited December 18, 2021 by Tomasz

[Meredith Poor + 883]

Anytime anyone predicts something 28 years into the future, I reply by asking them to look 28 years in the past and see what was being predicted then.

2022 - 28 = 1994

The Internet went 'commercial' in 1995 when Netscape went public. 1994 was dial up telephones (in various parts of Europe this cost a certain number of pennies per minute for local service). Windows 3.1 was still in use, the Windows 95 release wouldn't occur until next year.

Bill Clinton had been elected in 1992 and sworn in in 1993. The US was recovering from the Savings and Loan collapse in 1988. The WTI spot price at the end of 1994 was $17. Photovoltaic panels cost $6 per watt.

"In 1999, M. Chikao et al. at the National Institute of Advanced Industrial Science & Technology (Tokyo, Japan) reported the fabrication of an optical absorption layer for a solar cell using a rare-earth-based perovskite compound.

The new millennium began with a sharp increase in research activity related to perovskite solar cells, leading to the introduction of new material formulations and fabrication methods, and the first steps in their commercialization." In short, Perovskite solar cells didn't exist in 1994, not even in research labs.

When I root around on certain East Asian industrial wholesale goods sites, I get solar panel prices running from 7.5 cents per watt (low end, possibly lowball) to 17 to 19 cents per watt (common from multiple vendors) to prices over 20 cents per watt, usually for smaller panels or 'flexible' cells for boats or RVs.

"Perovskite solar cell with ultra-long stability" (Eurekalert)... "In tests at elevated temperature and illumination over 1450 hours of operation, the perovskite-based cell retained 99 percent of its initial efficiency." "...'But the perovskite solar cell we have now developed could certainly be operated for more than 20,000 hours under normal circumstances,' estimates Prof. Brabec." If current panel prices are below 20 cents per watt, a 'significant' reduction would have to reduce prices to single cents per watt, or less.

Land Use Projections to 2050

India's fertility rate is now below 2.1 (replacement). This means that China, India, and the US are all 'below replacement', which China at perhaps 1.3 and the US at around 1.7. Roughly 2/3rds of the land area of the world is in countries with below-replacement fertility rates, in particular Russia, Canada, Australia, and Brazil.

Beef, chicken, and salmon tissues can now be grown in vats, meaning that it is now technically possible to replace livestock with cultured meat equivalents. This gets rid of not only the grazing land needed for cows, but for the feed crops, typically corn, alfalfa, and soy. 2/3rds of agricultural land in the US are dedicated to livestock.

Starch can now be synthesized in a laboratory. To do so, an earlier step synthesizes glucose. Glucose is one of the ingredients necessary in cultured meat. Glucose + fructose makes sucrose, or table sugar. Making starch pretty much means the replacement of sugar crops, wheat, rice, some corn, and perhaps potatoes. In a fully industrialized food production environment, land use for these crops and animals would shrink by 90% - world wide.

One other large land use is for forestry and cotton. Cotton is 100% cellulose, which is a polymer of starch. If it becomes possible to synthesize cotton, this crop will also 'disappear'. Wood is heavily used in home construction as well as paper. Synthetic cellulose could be used to make paper. Wood, in that case, would only remain in use for home building and furniture.

Many of the inhabited rural areas of the world, including in the US, India, Russia, Eastern Europe, and South America, would simply 'disappear'. They would no longer be economically viable.

This would represent a massive asset portfolio collapse.

Photovoltaic Price Shrinkage

There are four distinct problems with projecting hydrocarbon use in 2050.

First is the substitution of petroleum for batteries in cars and power plants. ESS is making utility scale power storage for the grid, meaning that at least technically this problem is solved. Predicting battery storage technology and costs 28 years in the future is pretty dicey. More than likely, they will be substantially lower.

Second is the cycle of CO2 capture, 'reduction' to pure carbon or to hydrocarbons, and subsequent use. One input cost is the price of power, the other is electrolysis efficiency. If solar panel costs drop from 20 cents per watt to 2 cents per watt, then presumably the wholesale cost of power will drop from 2 cents per kwh (or $20 per MWh) to .2 cents per Kwh. A gallon of gasoline represents about 32Kwh of electricity, so 32 x .2 = 6.4 cents of wholesale electricity. US gasoline prices at retail are currently hovering around $3.

Third is the impact of urbanization on what remains of the rural population. The number of farm workers in the US in 1948 was about 8 million, out of a total US workforce of 52 million. As of 2020, farm worker employment is now 2 million, out of a workforce of 160 million. Farms support the communities of feed stores, grain elevators, agricultural equipment suppliers and dealers, and other businesses that dries up when agricultural production stops. Not only do the farmers move to urban areas, but the now ex-employees of these other businesses have to relocate, along with the teachers for the kids, doctors, road maintenance, and other public sector workers. This drops demand for fuel for cars and trucks, as well as far flung homes and warehouses.

Fourth is the 'energy infrastructure energy use'. Drilling oil wells requires fuel for powering the drilling equipment, carrying workers and materials around, and constructing and maintaining roads. Pumping and piping hydrocarbons requires either electricity or fuel to run the pumps, compressors, and refineries. Every time solar prices drop, it becomes rational to substitute hydrocarbon powered equipment with electrically powered equipment. As the cost of synthesizing hydrocarbons drops, the 'highest price producers' (Canadian oil sands, for example) drop out. This eventually produces a domino effect.

While oil might cost $380 per barrel, demand for such oil might be roughly equivalent to the demand for olive oil or some other upscale market commodity. It's only use would be for powering 'antique' cars, airplanes, or boats.

Edited December 20, 2021 by Meredith Poor
Fix a math error