Do oil and gas stocks have a future? Not if the IEA forecasts for 2050 oil demand are correct

Do oil and gas stocks have a future…at all? And if they do, what does it look like? Evidently, it won’t be anything like the previous century as the world turns to renewable energy. It is not quite dead yet – after all, the world consumed 100 million barrels per day (mb/d) according to the International Energy Agency (IEA). But for how much longer will it last in the energy mix? Let’s take a look.

Oil and gas stocks have a future, but will it be a short one or a long one?

Its a good question – it depends on how you define short and long. Oil demand will be in terminal decline up to 2050. The IEA forecasts demand of 77mb/d by 2030, a drop of just over 20% from current levels. By 2050, it will be 24 mb/d, well down on 2023 levels. Granted, this is just one estimate. Oil majors like BP predict a fall of 10-20% by 2040. You have to credit them for honesty, but maybe is that still a cop-out.

It may be a different story for gas, particularly LNG. Companies like Woodside (ASX:WPL) have been preaching that gas can be part of the solution. And Woodside, for one, has been practicing what it has been preaching by investing in new LNG projects.

Since 1989, Woodside’s flagship LNG project has been Pluto, which consists of oil fields off the coast of WA and an onshore processing facility near Karratha with a gross capacity of 4Mtpa and annual production over 46MMboe. It also has a minority stake in North West Shelf Project which has a capacity of 16.9Mtpa and 33MMboe LNG production.

Woodside also owns the Scarborough LNG project which will be Australia’s biggest oil and gas project for at least a decade, expected to produce 9m tonnes of LNG annually when it enters production. The oil field has proved plus probably reserves of 1,810MMboe and Woodside retains a majority stake for the time being. Specifically it owns 74.9% with 15.1% owned by Japan’s JERA following its February 2024 acquisition of that share for A$1.4bn and another 10% belongs to LNG Japan, which paid $500m in August 2023.

Is gas more environmentally friendly?

LNG has half the lifecycle emissions of coal to begin with, and emissions can be even lower dependant on technology. It is very mobile, seasonally adaptable and can fit into existing natural gas networks. Woodside thinks LNG may play a big part in replacing coal, which accounts for a quarter of the world’s energy consumption according to the Energy Institute. In fact, it reckons LNG is playing a role already with the largest driver in emissions reductions in the US was switching form coal to gas. Some countries rely more heavier on coal, China for instance relies on coal for over 60%, but it is expected to turn to natural gas as part of decarbonisation efforts. It used 390bcm in 2023, but S&P thinks demand will reach 605bcm in 2040. If only 12% of coal-fired power generation was converted to LNG today, it would double the current global market. If more than that…use your imagination.

But ultimately, Scarborough will still generate some emissions (880 million according to its own development proposal). A good run in the oil price in the aftermath of Russia’s invasion of Ukraine masked the fact that oil and gas is on the way out in the long-term. From an ESG standpoint, Woodside is on track to cut its direct emissions by 15% by 2025, although this is not good enough for some investors.

So Do oil and gas stocks have a future?

Not from the perspective of long-term investors. But of course, this doesn’t mean investors should just go and buy renewable energy stocks. There are better opportunities for investors in sectors like healthcare that have a more secure future and are immune to economic conditions.

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