Interview: World set for long term oil demand destruction from coronavirus, Goldman's Currie says

Permanent changes to social behavior in the wake of coronavirus lockdowns are likely to hit long term oil demand forecasts and accelerate the shift to cleaner fuels but may be more modest than some forecasters predict, according to Jeff Currie, the global head of commodities research at Goldman Sachs.

More modest consumption habits following months of enforced remote, home-based work, travel curbs and social distancing, are likely to mean oil demand growth may struggle to return to 100 million b/d in the near term, Currie said on Tuesday.

"We're forcing that energy transition, or the sustainable transition, on the demand side right now and a lot of it will probably stick," Currie told S&P Global Platts in an interview.

Commuting to work, for example, consumes roughly 8 million b/d of oil globally, according to Currie. If the whole world decides to move to working from home one day of the week, oil demand would fall by about 1.6 million b/d, or about 1.5%.

INTERVIEW: Interview: Global cut won't be enough to balance oil market: Goldman's Currie

While global air travel consumes a further 8 million b/d of oil, Currie said he believes that leisure travel will return to former growth rates after lockdowns are lifted. Business-related air travel is the most vulnerable to remote working, Currie said, but still sees losses limited to around 25% of total air travel oil demand.

"So it's not this catastrophic gloom and doom backdrop that people are concerned about," he said. "But will (oil demand) rebound to 100 million b/d immediately? The answer is no. Will it rebound above 85 or 90 million b/d? Extremely likely."

ENERGY GAME-CHANGER

As coronavirus lockdowns cascade through the global economy, global oil demand is set to suffer its worst contraction on record this year. According to S&P Global Platts Analytics, world oil demand will shrink by 4.5 million b/d this year, from around 102 million b/d in 2019, even accounting for a short-term bounce-back in Q4, according to S&P Global Platts Analytics.

Further out, however, Currie said it's too early to revise longer-term oil demand forecasts based on expected changes in consumption patterns following the crisis. Longer-term oil demand scenarios won't be able able to be reassessed for at least for another six months to a year, he said.

Some market watchers have suggested that coronavirus-related behavioral changes by individuals and companies to more local, sustainable activities could be a major game-changer to future energy consumption.

According to the International Energy Agency's latest longterm forecasts, global oil demand will continue to grow over the coming two decades in spite of surging sales of electric cars and renewable energy, as the aviation, shipping, trucking and petrochemical sectors all remain hooked on crude. World oil demand will rise from 96.9 million b/d in 2018 to 106.4 million b/d in 2040, according to the IEA's central scenario in its 2019 annual World Energy Outlook published in November.

"At this point, it's all about consumer preferences. We don't know how much of that community demand is going to rebound or how much of that jet demand is going to rebound (from coronavirus lockdowns)," Currie said.

PACE OF ENERGY TRANSITION

Although hurting oil demand outlooks, the potential for the coronavirus crisis to accelerate the broader transition away from fossil fuels to cleaner, low carbon energy may be limited more on the supply side, Currie said.

Technological progress is still needed to lower the costs and boost the availability of electric cars, solar and wind power, and other alternative energies he said.

"The supply side is going to be difficult," he said. "The technology is not ready to replace all of the world's airplanes and cars and, and with other types of technologies like EVs, we just don't have the technology to replace the aircraft."

As a result of the lack of cheap, carbon-free alternatives to fossil fuels, new investment in oil and gas capacity is not going to be derailed any time soon, Currie believes.

"So we're going to be stuck with the question, do we rebuild these fossil fuel-based transportation sectors after this and increase drilling for fossil fuels, I tend to think we're going to have to," he said.