Amid the trillions of dollars invested in renewable energy capacity, the share of oil and gas in the global energy mix has declined by just a few percentage points
Predicting what an industry will look like 20 or more years from now has always been a challenge. There are always unforeseen factors that have the potential for disruption, which can make any prediction ridiculous, and so long-term estimates are usually unclear. Unless it’s about oil or natural gas, writes Oilprice.
Regarding these two fossil fuels, there are two schools of long-term forecasting, and these two schools are at odds with each other.
One school—the transition school—argues that the electrification of transportation and the transformation of power generation will eventually lead to the demise of oil and gas as commodities and raw materials at the core of the global economy.
The other school – which supports the idea of fossil fuel sustainability – argues that the current approach to the electrification of transport and the transformation of energy production will not happen as predicted due to the laws of physics. And because of this, oil and gas will retain their role.
Transport has been electrifying quite rapidly in the last few years, especially in the passenger car segment, with the share of EVs in total sales continuing to grow, especially in countries such as the UK, the European Union (EU) and in some states such as California. However, this does not affect the demand for oil.
Oil demand has actually maintained steady growth for decades despite temporary dips like the one we saw in 2020 during pandemic lockdowns. In the same year, British energy giant BP predicted that oil demand would never return to the levels of 2019. It was assumed that oil demand had peaked. And that turned out to be a miscalculation.
This year, according to the International Energy Agency (IEA), global oil demand is expected to reach a record of almost 102 million barrels per day. This will happen despite all the sales of electric cars and the large-scale construction of non-fossil fuel power generation capacity.
The IEA does not issue long-term forecasts very often, but when it does, they are in line with BP’s predictions: the energy transition should significantly reduce demand for oil and gas. No one knows if it will really happen, but it should, says the MAE’s findings.
Other forecasters are bolder in their assessments, framing their predictions as certain. BloombergNEF is one of them. The company regularly predicts a bright future for electric cars and provides data to support this claim. So do other think tanks that see transitioning away from fossil fuels as the only future for humanity.
The oil and gas industry, on the other hand, has a different take on the matter. This view is naturally grounded in the business of the industry, but that doesn’t mean it has no basis in reality, again because of the business of that industry.
Industry and OPEC tend to focus on global energy demand rather than clean energy demand specifically. Their argument can be simply summarized as follows: most people need energy. They need it at all times and it is a top priority for them to get this energy. Where it comes from and how pure it is – well that’s a secondary concern for most of the world’s population.
Whatever objections one might have to the oil and gas industry, it would be hard to argue against this argument simply because it reflects actual, material reality. Exxon, for example, said in its recent long-term energy outlook that it expects global energy demand to grow 15 percent from this year to 2050.
Noting that developed economies will improve energy efficiency over the next few decades, Exxon points out that “developing countries, which account for 80% of the world’s population, will use more energy as they strive for a better standard of life”.
Like BP, which expects demand for oil and gas to fall sharply by 2050, Exxon also assumes that the share of these fossil fuels will decline significantly by the year in question, dampened by the momentum of the transition. However, these predictions are highly conditional because of one thing: the way the transition will actually play out. And it is already clear that he is not going according to plan.
Developing economies may be building wind and solar power, but their main bet remains fossil fuels, including coal. China, the symbol of wind turbines and solar panels, is building coal-fired power plants at a rapid pace, while Europe and the US are decommissioning theirs. And against the background of all the trillions of dollars invested in renewable energy capacity – 1 trillion. dollars only in 2022! – the share of oil and gas in the global energy mix has declined by only a few percentage points, if at all.
Meanwhile, people like Saudi Aramco’s CEO warn that not enough is being invested in future oil and gas supplies. In other words, we may begin to run out of available oil and gas supplies before demand begins to decline.
From a certain point of view, this would only facilitate the transition to cleaner energy, as fossil fuels would become less available in limited supply. The problem is that alternatives are also becoming less and less available due to limited supply.
The ultimate question for our future may be “Which is cheaper?”. Some think they know the answer and it is “wind and solar”. Others, with some knowledge of the mining industry and geopolitics, would like to challenge this answer. Only time will tell who is right.
