By Alejandro Narváez Liceras on July 20, 2022
In the midst of the voices that considered oil dead in the near future, the projections launched by the main oil producing organization and in the light of the recent world energy crisis, we are facing a very different scenario from the one projected in the discourse of the energy transition towards renewable energies. Many studies by international organizations point to the same place: the change in the way energy is produced, which is the key to the world economy. However, speeches are one thing and what is happening in the real world is quite another.
The Organization of Petroleum Exporting Countries (OPEC) cartel warns that oil will not die. It is true that it will progressively lose weight in the world’s energy matrix, but this does not mean its death or early extinction, as some erroneously predict.
Oil will continue to be the main source of energy
According to OPEC’s World Oil Outlook 2021 (World Oil Outlook 2045), oil demand is projected to increase in the long term from 82.5 million barrels per day (bpd) in 2020 to 99 million bpd in 2045. Despite the slowdown in its demand growth in the second part of the 2020 – 2045 forecast period and the strong growth of other energy sources, such as renewables, gas and nuclear, oil is expected to retain the largest share in the global energy matrix over the next 25 years. In 2020, oil accounted for 30% of global energy needs. Together with the recovery of its post-coronavirus demand, its share is expected to reach 28.1 % by 2045. Its weight in the global energy mix will decline slightly, but it will remain the main energy source for decades to come.
OPEC’s estimates are unpleasant figures for the promoters of the decarbonization plans that have been pushed mainly in Europe. Why then will oil demand increase in the future? Because not all the planet is Europe, nor are all countries developed. Demand in emerging, so-called undeveloped countries is expected to reach 46.3 million bpd in 2020 to 70.3 million bpd in 2045, with a growth of 1.7% per year over the forecast period. The growth in oil demand in these countries is mainly attributed to population growth and the expansion of economies in Asia, Africa and the Middle East.
In contrast, in the so-called developed countries of the Organization for Economic Co-operation and Development (OECD), oil demand will slow down in the long term. In figures, it means going from 36.3 million bpd in 2020 to 28.7 million bpd in 2045, with an annual growth of – 0.9%. This may be due to a further misalignment of economic growth due to structural changes and a political drive that continues to place greater emphasis on energy efficiency and the deployment of low-carbon technologies.
OPEC’s most recent oil market report (July 12, 2022), on the one hand, confirms its 2021 forecast and, on the other, reveals that global demand growth this year remains unchanged from last June’s assessment. In other words, total oil demand will average 100.3 million bpd this year and by 2023 demand is expected to average slightly higher at 103 million bpd.
The International Energy Agency (IEA, attached to the OECD), in its June 2022 report, differs slightly with OPEC’s estimates of global oil demand for the coming years. The document forecasts that global demand may stand at 101.6 million bpd in 2023, higher than expected so far and exceeding pre-coronavirus levels. This demand will grow by 2.2 million bpd, up from 1.8 million bpd in 2022, and will be concentrated in emerging (non-OECD) countries, mainly China and India.
The energy transition is going very slowly
Since the Paris Agreement in 2015, the energy transition to renewables was launched with great enthusiasm. At the time, it was said that the use of fossil fuels (oil, coal and gas) could end by 2050, and that the use of renewables would supply 139 countries that currently account for 99% of global consumption. This is according to a report led by Stanford University (2017) and in which other universities in the United States and Europe have participated. The study points out that renewable energies would mean the creation of 52 million jobs and would more than compensate for the jobs lost with the energy transition.
It is undeniable that, after centuries of world domination by fossil fuels in energy production, the transition to renewables is making headway. But very slowly. Demand for other renewables (mainly solar photovoltaic and wind) is projected to expand from 6.8 million barrels of oil equivalent per day in 2020 to 36.6 million bpd in 2045. They are the fastest growing energy sources with an estimated 10.4% share of the global mix in 2045, up from only 2.5% in 2020. However, despite this significant progress, the consumption of fossil fuels, according to OPEC itself, will represent a high 69.9% (oil: 28.1%, coal: 17.4% and gas: 24.4%) of the global energy matrix in 2045.
Decarbonization in decline
If to this global scenario of expanding oil demand and the slow progress of renewables, we add the recent announcements led by Germany on the reactivation of coal consumption and the construction of new coal-fired power plants planned by China and the recent installation of an unmanned oil platform in the South Sea, it is difficult to imagine that the goal of 1.5 °C increase in the global average temperature and the decarbonization of the economy can be achieved. The Paris agreements (2015) are barely a memory while those of the Glasgow summit (2021) seem to be extinguished with the sanctions imposed by the West on Russian oil and gas.
Current record natural gas prices are not only reducing global demand, but are forcing some users of this energy to migrate to coal and oil. For example, in Europe, continued price increases are putting many combined cycle (natural gas) plants at a cost disadvantage to coal-fired plants. The IEA estimates that gas demand will fall this year 2022 as in the coming years on a global scale. In the European Union, by far the regional bloc most dependent on Russian gas and most affected by the package of sanctions imposed on Moscow, the price of natural gas has increased eightfold in less than a year.
Climate change is a global problem. However, the United States has abandoned the Paris Agreement and the European Union has just decided to include natural gas (fossil energy) and nuclear energy in the green taxonomy. For his part, Chinese President Xi Jinping warned last January against an energy transition that interferes with the “normal life” of the Chinese. He added that renewable energy must become reliable before traditional energy sources are abandoned. It couldn’t be clearer.
Billion-dollar investments in fossil energy
The latest annual report Banking on Climate Chaos 2022, conducted by Rainforest Action Network and others, reveals that since the Paris Agreement 2015, the 60 largest banks in the world, financed investments in fossil energy, with 4.6 trillion dollars and only in 2021 was destined 742, 000 million. The three big North American banks (Citi, Wells Fargo and Bank of America) in a recent survey, asked their shareholders if they would abandon hydrocarbons for renewable energies, only 11% were in favor. In this scenario, the decarbonization of the economy, limiting global warming to 1.5ºC, is a chimera, at least until 2050. As long as there is cheap and abundant money and demand for oil, nothing is likely to change in the near future.
Final notes
By burning coal, oil and gas, the West has reached unprecedented levels of development that they are not willing to give up. In only 200 years we have extracted from the subsoil fuels that are the result of millions of years of fossilization. It was obvious that this would have consequences for climate change, which affects both rich and poor countries, with the difference that the latter have not benefited from this progress, and suffer more as they have fewer resources to deal with its catastrophic effects.
The rhetoric of decarbonizing the economy, of disengaging from fossil fuels, has been just that, rhetoric. In 100 years nothing radically new has happened; for example, in transportation, one of the largest CO2 producers, the same combustion engine has continued to be used with variations. Clearly, the decline of “black gold” is a long way off. Renewable energies are advancing too slowly. The Paris treaty should have been implemented much earlier, but was not.
Source: Alai, translation Resumen Latinoamericano – English