Peak oil demand and wishful thinking

One of the many things I find amazing about people is how ready we are to defend an opinion even if facts prove it inaccurate. Clearly, nobody likes to be wrong — except me, since I’m only right about bad things — and this makes many of us ingenious in their defence. Especially when it comes to something that we really, really want to happen but begin to suspect it won’t be happening any time soon.

A tweet caught my attention last week, whose author claimed global oil demand has already peaked. The author cited forecasts by the EIA and her own company’s EV sales forecast as basis for her prognosis about oil demand.

For many, the contents of this tweet must be hilarious given the latest oil price developments. My point in mentioning it, however, is not amusement. This tweet is among the clearest examples that wishful thinking has become the default foundation of decision-making for a lot of people and organisations.

Let’s continue with the example. The tweet author’s company, per its own bio, is an investment firm exclusively focused on “disruptive innovation”. In other words, the company’s employees advise people to invest in things like EVs. If this is the case, then, what would make more sense for such a company: to present to their clients the complete picture on EVs that includes GM’s total Bolt recall and consumer misgivings about the whole revolution or to skewer the picture to the positives?

For many, if not all, companies the natural thing to do would be to skewer the picture, of course. How else do you create demand for your products or services? It’s their business to adjust the odds in their favor, so if a bank, say, is investing in, say, solar, it will make sure to forecast a bright future for solar. Or EVs. Take this news report: GM sets to double revenue, lead US in electric vehicle sales. This means the company is putting all its chips on EVs. It would just have to create demand, possibly with some — or a lot of — help from the federal government. Or by just ending the production of all other cars.

Perhaps some will remember the flurry of EV startups that went public last year to much fanfare, their shares soaring in debut trade. And then certain issues began to come to light. Nikola was accused of overstating its progress on its flagship vehicle and GM cancelled a major contract. Lordstown has basically folded after it sold its factory to Foxconn, although the latter plans to go ahead with the company’s Endurance pickup truck. The Investopedia list of the hottest EV stocks for the fourth quarter has an all-Chinese lineup. Hype and reality have divorced.

Now, it’s true that electric vehicle sales are rising and they are rising fast — state subsidies make sure they are attractive. This is reality. It is also a reality that carmakers are pouring literal billions into EV production betting on an all-electric future while EVs, despite the sales surge, only account for single-digit percentages of total global car sales.

This is the side of the EV reality that we are being presented with by most sources: that and the constantly falling costs of EV batteries that, however, this year stopped falling and started rising because the world is currently riddled with so many shortages it’s not clear if there’s a commodity in sufficient supply at all.

The complete EV reality we are being told — by experts, that is — only grudgingly and infrequently. There is, for instance, the potentially huge problem of battery waste (and no, battery storage is not a solution). There is also the issue of charging, especially in cities — an issue I’ve detailed in an earlier article. Finally, and perhaps most importantly, there is something called fuel tax and another thing called budget revenues. A lot of the latter comes from the former. I have yet to hear about a government that has a plan about how it will replace lost fuel tax revenues as EVs take over ICE vehicles.

In other words, on the one hand we have the wishful thinking that the world of the future is an electric one where we will all drive long-range, stable battery, zero-emission electric cars, where charging these cars will cost pennies and be available whenever and wherever we need it and the world will be a better place, so let’s invest in EVs right now and get rich while doing good.

On the other hand, we have the real world where EVs are still prohibitively expensive without generous state subsidies, where charging infrastructure is too scant to motivate mass demand for EVs, and where Chevy Bolt batteries tend to explode so owners are being told to park outside and be careful about not charging their cars to the maximum. That was before the recall became total, that is.

What is true of the EV revolution is true of the rest of the energy transition, as seen with painful clarity in Europe and China. Utility bills are skyrocketing because gas is expensive. But gas is expensive because it suddenly became the only option and it suddenly became the only option because the wind had stopped blowing. Interestingly enough, the wind is blowing again but gas prices are still rising because, one, wind power output is still not enough and, two, speculation has more than one meaning.

It is, incidentally, speculation that has driven much of the ESG investment boom whose proponents effectively buy into all the wishful thinking about renewables and the electrification of everything as the only path ahead for human civilisation. Those familiar with how the game is played are making a lot of money out of this wishful thinking while it lasts. Because it won’t last forever.

The net-zero narrative claims that if we only wean ourselves off fossil fuels and start sourcing all of the energy we consume from renewable, low-emission sources, the world will become a great place to live in. Oh, and we’ll also solve the planet’s carbon dioxide problem, which has now been blown up to such proportions that some might find it shocking to be reminded that CO2 is actually tree food, to put it excessively simply. That is not to say that CO2 excess in the atmosphere is a great thing. It’s not. But overblowing problems does not help their solving. On the contrary, it may well aggravate them.

This has recently become obvious with Europe’s new hunger for coal. After years of shutting down its coal power plants to switch to wind and solar and reduce pollution, now European utilities are finding themselves in a corner and it is a highly polluting corner despite the record price of emission permits in the EU. And this is happening just ten years before, per plans, all coal power plants in the EU are retired. Imagine if the gas crunch had happened in 2031.

To clarify: Europe wanted to go green and do it fast so it closed its coal-powered plants and built wind and solar farms that don’t make people choke when they go out for a walk. But now, because of seasonal weather peculiarities, Europe’s wind and solar farms cannot cope with demand for electricity, so power utilities are being forced to start consuming coal again with the respective increase in emissions. The Wall Street Journal last week carried an analysis titled “How Not to Do an Energy Transition” focusing on the UK as an example, but the EU would be just as good an example.

Before this year’s crunch all energy forecasts were based on the wishful thinking that the energy transition drive will go exactly as planned, that there are no drawbacks to it and, to paraphrase the now immortal words of UK’s PM Johnson, we should all grow up and open our eyes to how easy it is to be green. Peak oil demand in these forecasts had either already come (bp) or was coming in a few short years (many others). And then it turned out that the world needs more energy than it produces. Who could have thought?

Well, the answer is everyone who can think of more than one thing at the same time. In this case, everyone who is aware of other trends besides consumers’ changing sentiments to EVs or rooftop solar installations. In other words, everyone who knows that, first, the world’s human population is growing and this is a steady trend, and, second, that this growing population will inevitably need more energy and there is no plausible way of making all or even most of this energy green in the next three decades.

Those aware of these bigger trends are also aware of the disconnect between the wishful thinking that drives budding investors to whatever is hottest on markets today, which is, of course, ESG investing, renewables, and EVs. This rush, in turn, motivates more bright-future forecasts by those same institutions that have motivated the budding investors to create the rush. It’s sort of a closed loop and it’s got trillions of dollars in assets in it. Because, ultimately, it’s all about money. And when Big Money is backing an energy transition, this transition is happening… until it doesn’t because electricity bills have tripled and are still climbing.

Author’s note: Image courtesy of Ken Mull.