What do toothpaste, deodorant, soap, cameras, computers, gasoline, heating oil, jet fuel, car tires, contact lenses and artificial limbs have in common?
If oil vanished today, these and many other vital products and services that use oil or its derivatives would vanish too. Transportation networks would grind to a halt, homes could freeze, supply chains would crash and energy poverty would rise.
The World Energy Report for 2022, published by the UK-based Energy Institute and consulting firms KPMG and Kearney, noted that fossil fuels constituted 82% of global energy in 2022. This is comparable to OPEC’s latest world oil outlook and represents a similar level to 30 years ago.
Why then do most energy transition debates disregard the critical role that commodities like oil and gas continue to play in improving lives, fostering stability and energy security, as well as related industries’ efforts to develop technologies and best practices to reduce emissions? The scale of the climate change challenge is daunting, but meeting the world’s rising energy demand and mitigating climate change do not have to exist in a vacuum or be at odds with each other.
Rather, the world should act to reduce emissions and ensure that people have access to the products and services they need to live comfortably. Towards these goals, OPEC members are investing in upstream and downstream capacities, mobilizing cleaner technologies and deploying vast expertise to decarbonize the oil industry. Major investments are also being made in renewables and hydrogen capacity, carbon capture utilization and storage — as well as in promoting the circular carbon economy.
The bottom line is that it is possible to invest heavily in renewables while continuing to produce the oil the world needs today and in the coming decades. This approach also contributes to global stability at a time of volatility and is critical given that history shows that energy transitions evolve over decades and take many paths.
Take electric vehicles: Although the Toyota Prius became the world’s first mass-produced hybrid vehicle in the late 1990s, an analysis from the U.S. National Automobile Dealers Association noted that sales of hybrids, plug-in hybrids and battery electric vehicles (BEV) accounted for only 12.3% of all new vehicles sold in the U.S. in 2022.
While the rising popularity of electric vehicles is indisputable, total sales of BEVS also made up only 19% of new car sales in China last year. Similarly, in the EU, vehicles using petrol or diesel still accounted for around half of all car sales in 2022.
Thus, when it comes to the transportation sector – and indeed many other fields – it is clear that it would not be prudent to ignore that billions of people across the globe rely on oil and will continue to do so for the foreseeable future.
This becomes even more pressing when coupled with the investment needed to meet the rising demand for energy, ensure energy security and affordable access, and lower global emissions in line with the Paris Agreement.
Rising demand for energy
The world’s population is growing. OPEC’s World Oil Outlook (WOO) for 2022 sees it increasing by 1.6 billion people through 2045, while United Nations statistics note growth to around 10.4 billion by 2100.
In parallel, OPEC’s estimates that global energy demand will increase by 23% to 2045. Within this, oil demand is projected to increase to around 110 million barrels a day (mb/d). Thus, it is clear that oil will continue to be an essential part of the global energy infrastructure for decades to come. This is in stark contrast to the many proclamations of past decades that the age of oil was over. Indeed, contemporary demand is close to an all-time high and will rise by close to 5 mb/d in 2023 and 2024.
No single form of energy can currently meet expected future energy demand; instead, an “all-peoples, all-fuels and all-technologies” approach is required. As such, OPEC member countries are ready, willing and able to provide the affordable energy needed to cater towards these future energy needs, all the while reducing their emissions and helping eradicate energy poverty in doing so.
The UN notes that more than 700 million people still lack access to electricity and almost one-third of the global population uses inefficient, polluting cooking systems. Daily life is not about cars, laptops or air conditioning for these people; it is about basic access to heat and electricity. To provide adequate and affordable universal energy access, and eradicate energy poverty, oil can and will play a key role in developing countries. The Global South has been – and continues to be – very clear about this; is the Global North taking heed?
Investment in oil is critical for energy security
Another worrying reality across the globe is that not enough investment is going into all energies. Looming oil demand growth alone necessitates far more investment if a sustainable supply is to be maintained.
Oil will make up close to 29% of global energy needs by 2045, with investment of $12.1 trillion needed by then — or over $500 billion a year — but recent annual levels have been far below this.
The consequence of failing to invest adequately in oil is hammered home by recent OPEC Secretariat research outlining that in five years there would be a staggering oil market deficit of 16 million barrels per day between forecasted rising global demand and supply if investments into upstream activities were stopped today — as some are calling for.
The oil industry has played a central role in improving billions of lives to date. If it is to continue to do so, and if the world is serious about implementing orderly energy transitions and meeting future energy demand while ensuring energy security for all, chronic under-investment in the industry needs to be remedied swiftly.
Ahead of this year’s United Nations Climate Change Conference (COP28) in the United Arab Emirates – where the world will evaluate progress on the Paris Agreement – COP28 President-Designate Dr. Sultan Ahmed Al Jaber said the world needs “maximum energy, minimum emissions.” A healthy degree of pragmatism will be necessary to achieve this goal, especially given the clear need to utilize all energies if we are to meet the world’s current and future energy demands.
Ultimately, no people, industry or country can be ignored, and we believe that discussions at this year’s COP28 will reflect this. After all, history is filled with numerous examples of turmoil that should serve as ample warning for what occurs when policymakers fail to take on board energy’s interwoven complexities.
Source: Finance - cnbc.com
