Is The Anti-Oil Movement Installing The Next Recession?
Attention my fellow Americans and all energy consumers of the world.
From politicians to environmental groups to even some on Wall Street demanding ESG at all costs, it seems everywhere that we turn we keep hearing that new investment in oil and natural gas is simply unwarranted and unwanted.
They proclaim that more investment in the production and transport of oil and gas is an affront to our climate change goals and will simply “lock us” into more usage.
While this position might seem extreme, it is becoming more common than logic would dictate but has an obvious gigantic hole: oil (37%) and natural gas (33%) supply 70% of the energy used in the U.S.
Let me focus here on oil, given the worsening misconceptions out there on what is still our most vital source of energy, entrenched as the sine qua non of globalization without any material substitute whatsoever.
The timing is clearly right: now at their highest in 13 months, U.S. WTI oil prices have been rising toward $60 per barrel, with international benchmark Brent at $63.
More renewables will not displace “black gold” nearly as much as some what you to believe.
Even a immense boom in wind farms and solar panels, for instance, will effectively do zero to lower our oil requirement: they only compete in the power sector, while oil overwhelms in the transportation sector.
Illogic abound: drastically low (and even negative) oil prices during the worst of the Covid-19 pandemic in April 2020 was never about “the end of oil.”
But just like you are surely thinking, the problem for the oil industry in 2020 was far less profound: “people are not traveling.”
As compared to 2019, global oil demand in 2020 fell 8% to around 92 million b/d, where it was back in 2013.
Not surprisingly, jet fuel accounted for the bulk of that loss, followed by gasoline and diesel – fuels that meet nearly all of the world’s transportation needs.
As the vaccine rollout begins to normalize our lives, however, oil use is already starting normalize.
Although the upside is surely not unlimited, there is simply no evidence of a structure decline in oil consumption.
This year, global demand should average 97-98 million b/d, with Goldman Sachs projecting that we could even hit the 2019 record level of ~100 million b/d by August.
None of this is difficult to understand.
The U.S. economy, for instance, is expected to grow 4-5% this year, after contracting 3% last year during the worst economic crisis since the 1930s.
While for sure electric cars are rising in importance, they have a list of unreported shortcomings and an extremely long way to go.
In the U.S., for instance, for every one passenger car that runs on electricity, we have over 100 that run on oil.
Even if electric cars begin to displace gasoline, their ability to reduce total global oil demand in the absolute sense is regularly overstated.
That is because more petrochemicals, jet fuel demand, SUVs, heavy trucking, and other uses of oil that lack “drop-in” replacements could easily compensate.
In fact, with passenger vehicles accounting for just 7-8% of all emissions, all of us environmentalists should actually be concerned about the obsession surrounding them, somehow now installed as a panacea to abate climate change.
As one of my Forbes colleagues recently documented, you should be seriously questioning the climate focus on electric cars.
The Wall Street Journal just set everybody straight: “EVs Are the Lowest Climate Priority.”
In any event, WoodMac reported last week that oil-based cars will still dominate until 2047 – and even that should be considered optimistic.
So as oil demand returns, and if we follow the shallow opposition to investing in oil, we are setting up a deadly combination of a price spike and severe market volatility.
Released in December, an essential International Energy Forum report with Boston Consulting Group found E&P capex for oil and gas fell 34% in 2020, with another 20% decline expected this year.
This comes as natural annual declines of 4-7% for the world’s reservoirs make constant oil investment a must just to keep production flat.
Even Total, the French oil giant that now champions itself as renewables focused, has warned about a looming catastrophe.
Total reports that the world could face a 10 million b/d shortfall of oil supply as soon as 2025, or 11% of current demand.
And let us be clear: any spike in oil prices could easily lead to another economic collapse like the one we have been trying to pull out of because of Covid-19:
From CNBC last year: “Historically, U.S. recessions have been preceded by sharp spikes in oil prices.”
The reality is that any serious projection of the world’s future energy demand has oil and gas remaining very strong for decades to come.
And why not?
Oil and gas today supply about 55% of global energy today, and the world will be adding 2 billion more in population and $80 trillion in GDP by 2050 – a human conveyor belt of “more” that sustains our life on planet Earth.
Even in the International Energy Agency’s best policy projection for renewables put forth in October 2020 (“Sustainable Development”), which critically holds the world’s temperature rise to below 1.8 °C, oil and gas supply nearly half of the world’s energy in 2040, compared to less than 20% for wind and solar.
Under the more realistic and much less speculative “Stated Policies” scenario, oil and gas about keep their current 55%, with wind and solar only growing to 8%.
Even in a “Sustainable Development” scenario, the International Energy Agency reports some $550 billion in yearly oil and gas investment is needed from 2019 to 2050, mostly in the capital intensive upstream sector.
It is very clear that forcing divestments in essentials like oil and gas will make energy too expensive for the global poor – and ultimately make the energy transition much more difficult, if not impossible.
To me, the world’s biggest problem remains a seemingly forgotten calamity that persists TODAY, not decades from now: six in every seven humans currently live in still developing countries (read that again).
If the billions of poor suffering from premature death, a dearth of educational and economic opportunities, and a lack of energy access come to think that they are being blocked from the same energy systems that built the developed West, the already great division between the rich and poor could become a irreparable chasm, potentially putting the required global alliance on climate change completely out of reach.
I can assure you that our mind-blowing Western hypocrisy on energy and climate is not going unnoticed: “New climate czar John Kerry said taking his family’s private jet ‘the only choice for somebody like me.”
You should know that all of the world’s incremental CO2 emissions will be coming from the countries in the still developing world.
We rich Westerners must align WITH them, not against them.
Understandably, even above climate, the United Nations has made clear that eradicating poverty is an “overriding issue.”
For far too long, environmental groups and tenured climate scientists have avoided the energy poverty issue, but nobody should be left behind in the energy transition.