"The world consumes oil, but is not ready to invest in it”

Why the net-zero drive in the energy industry is a delusion at best and blatant hypocrisy at worst

“The world runs the risk of facing an acute deficit of oil and gas,” Rosneft’s chief executive Igor Sechin said earlier this month at the St. Petersburg International Economic Forum.

He is not the first to warn about a shortage of oil and gas but such warnings tend to get brushed off in the greater energy narrative because oil and gas are no longer in. They are on their way out, according to what seems to be the public consensus as demonstrated by various surveys and media reports.

Fossil fuels are nothing short of evil incarnate, the narrative goes, and they need to be phased out once and for all so we can all breathe a cleaner air and produce less carbon dioxide and other greenhouse gases. And yet when the Colonial Pipeline shut down in the United States, there wasn’t a run on dealerships selling EVs. There was a run on petrol stations to stock up.

During the worst of the Covid-19 crisis some analysts said oil demand was unlikely to return to pre-pandemic levels. Even the oil industry, in the face of BP, said oil demand growth was dead and it might never recover to pre-pandemic levels. That was last year. Now, BP’s Bernard Looney, the architect of the supermajor’s radical pivot away from oil, says oil demand is recovering and likely to remain strong for some time yet.

The International Energy Agency said in one of its forecasts that oil demand was unlikely to recover to pre-pandemic levels for at least two or three years because of EVs and renewable energy as the world trudges along the way to its net-zero goal. That was then. Now, the IEA’s Fatih Birol says oil demand will be back within a year.

If one reads energy news every day for a couple of months, they might begin to wonder what is happening and why people are contradicting themselves. If they read the news for a few years, the picture will clear up. There is a deep and wide gap between the great energy narrative and actual reality.

The narrative says we should stop using oil and gas, and coal because they emit large amounts of carbon dioxide. This is absolutely true. That carbon dioxide in excessive amounts is harmful for ours and many more forms of life is also an indisputable fact although there are those who note carbon dioxide is actually an indispensable part of the cycle of life on this planet in that it is vital for plants – another indisputable fact. It’s the excess CO2 that is the problem and this excess CO2 comes from oil and gas, and coal being burned for the production of energy and motion. It is all their fault.

The actual reality of the world is that the large majority of people living on this planet use oil and gas in one form or another. It’s not just the fuel for the car you drive yourself around in. It’s not just the gas you use to cook with (which some U.S. cities want to ban, by the way, and replace with electricity.).

It’s also the synthetic fibers that environmentally conscious people prefer to natural fibers and that many professions need for better safety. It’s also a myriad consumer products, from detergents and toothbrushes to dyes and perfumes. The human civilization runs on oil and gas in exactly the same way as a 1967 Chevy Impala runs on petrol and, like an Impala, it would be difficult to electrify it with any degree of success.

“The world consumes oil, but is not ready to invest in it,” Rosneft’s Sechin went on to say in his keynote speech in St. Petersburg, after referencing data from Citi, which revealed that the contribution oil and gas companies are currently making to global GDP is exceeding their share in the capitalisation of the global market. And this is the first time it’s happened.

Meanwhile, pretty much everyone in oil and gas is either cutting their exploration budgets or keeping them flat in the face of yet more forecasts that oil and gas are on their way out. Subsidies for the oil and gas industry are being reconsidered and this is fair because an industry must be able to stand on its own two feet to be sustainable (in the original, not the environmental, meaning of the word). Yet judging by the massive rebound in demand we are currently seeing, despite the recent surge in Covid-19 infections in India, one of the world’s largest oil guzzlers, the forecasters must have forgotten to inform people they needed to stop using oil and gas for the purposes of their forecasts.

Oil demand is surging. According to a report by Standard Chartered cited by Rigzone, this month, demand is set to jump by more than 2 million bpd, from 94.97 million bpd in May to 97.22 million bpd. In July, this will rise further to 99.03 million bpd. This, if it happens, will mean that by next month, global oil demand will already be higher than it was in the last pre-pandemic year: 2019 oil demand averaged 98.27 million bpd. The IEA has chimed in as well. In its latest report, the agency saw oil demand at end-2022 at 100.6 million bpd.

The reason for this relentless thirst for the polluting fossil fuel is that it still offers best value for money. Granted, it also offers more pollution although exactly how much more remains open to debate given the lifecycle of solar panels and wind turbines, to mention but a couple of examples. There is the always present risk of a pipeline leak or an oil train derailment, too. Yet even this, and all the protests pipeline projects have led to, has not had any actual effect on the consumption of oil.

To paraphrase Rosneft’s Sechin, the world consumes oil but parts of it try to pretend they don’t. Pipeline opponents celebrate every setback for any pipeline project, forgetting that the absence of a new pipeline will not result in a decline in oil demand. What it will result in—and is already resulting in—is companies finding other ways to bring their commodity to those who use it, in this case, oil trains.

Various consultancies, banks, and think-tanks spew report after report that EV sales are going to claim the global market any time now and yet a lot more people still opt for the petrol powered cars, the bigger, the better.

The same outlets, plus a multitude of official agencies such as the IEA and the EC celebrate new renewable energy capacity additions and the fact that wind and solar additions now exceed the addition of gas plants. At the same time, China last year commissioned more coal power plants than the rest of the word retired. Meanwhile in the U.S., Warren Buffett is offering Texas to build 10 GW of new gas-fired power capacity to avoid a repeat of the February Freeze.

Many would dismiss China as being an energy hypocrite and Buffett as being behind the times but there is a reason for both China’s coal offensive and Buffett’s gas proposal. The reason is called baseload – something that currently only fossil fuels and nuclear power can provide to a grid. Some would say that energy storage should be there, too, but for now, energy storage only provides a couple of hours of backup power during a blackout, which is very different from baseload.

The reason the world runs on oil is that modern civilisation was built this way. This is something net-zero proponents readily admit. It’s much harder to admit, however, that rebuilding civilisation without oil might do a lot more harm than good – a topic I will address in another article. For now, suffice to say that if a lot of people keep using a product even when there is a variety of other products to substitute for it, it means this first product is doing its job, adverse side effects and all, better than the alternatives. Things don’t get much simpler than this.