Regardless of whether oil prices rise around potential OPEC production cap, there is no long-term future for the hydrocarbon sector, Wermuth Asset Management (WAM), an impact investment firm, has said in a recent report.
According to WAM’s research, continued investment in oil and gas exploration would only make sense if production cost could be lowered to below $5 per barrel.
The firm goes on to compare the cost of crude to that of solar power, claiming the latter is now available at $3 cent/kWh, an equivalent of $5/barrel.
As OPEC predicts demand growth to slow from 1.3% this year to 1.2% next year, WAM warns that while oil supply might not peak in the next few years, peak oil demand and negative demand growth is likely to occur.
The firm believes this will happen more quickly than the industry anticipates, with demand growth falling below 1% by 2018 and becoming negative by 2020.
Jochen Wermuth, founding partner at Wermuth Asset Management, commented ahead of OPEC’s November meeting: “If we look at the OPEC cartel, Saudi Arabia and Russia are its most important players.
“These are economies that could, if they wanted, lead the field in terms of diversifying energy resources. In the Middle East, Dubai has been the most innovative on solar power.
“The other Emirates may soon follow, along with other GCC countries that benefit from a lot of sun. Without efforts to diversify, we expect to see countries such as Russia and Saudi Arabia struggle in future years.”
Wermuth continued: “At the macro level the GCC remains heavily reliant on oil. This is having a profound impact on its economies.
“Now we are reaching peak oil and gas demand, the creditworthiness of fossil fuel producing countries may start to erode.”
“Some GCC countries have already begun this process, but they must not wait to see where prices are going – we don’t see the recent slump as merely a phase in a cycle,” he concluded.
