Calls for the cessation of all investment in new oil and gas production, protests demanding an immediate halt to oil production and denouncing reports from environmental NGOs criticizing banks for still financing fossil fuels have become an integral part of today’s lives. westwards. But fossil fuels are getting nowhere, at least for the foreseeable future.
“The idea that we can turn off the taps tomorrow and stop fossil fuels is obviously ridiculous and naive,” Standard Chartered CEO Bill Winters said in an interview with CNBC this week. “Well, first, it’s not going to happen, and second, it’s going to be very destructive.”
The reason why this will not happen must be obvious and can be deduced from a quick look at any oil price chart. Global oil demand is currently greater than available supply; therefore the prices are high. What followed the loss of only a relatively small part of the global supply of anti-Russian sanctions should suggest what will happen if all oil production stops.
However, the pressure on the oil industry remains and is growing. Two years ago, the International Energy Agency said that investment in new oil and gas exploration should be phased out by the end of 2020, because we will not need more oil and gas in the future. And now the Secretary-General of the United Nations is calling the oil-producing countries “dangerous radicals” to increase fossil fuel production.
The IEA, for its part, has called for less investment in oil and gas. In just a few months, the industry has reversed its message: it is now calling on oil producers to produce more oil and gas. How long will it take for Antonio Guterres of the UN to join these calls for more oil and gas because prices have become unbearable?
Meanwhile, demand for oil has remained steady despite protests from environmentalists, despite reprehensible reports and calls for less investment in oil and gas. In its report on the oil market in March, the IEA said that demand for oil in 2022 will increase by 2.1 million barrels per day compared to last year. In context, this is roughly the same as the combined oil production of Nigeria and Venezuela as of March this year, according to OPEC’s latest monthly report on the oil market.
However, oil demand is not static, and this month the International Energy Agency revised down its demand forecast to 1.9 million barrels per day from last year. This is roughly the same as the combined production of Libya and Algeria. OPEC also revised its demand forecast downwards, although it still expects stronger demand from the IEA, at 3.7 million barrels per day.
The reason for the revisions is not the action of NGOs on climate and the European government, switching from oil to renewable sources. On the contrary, the reason for the revisions has nothing to do with climate issues. Instead, it has to do with inflation forecasts.
Demand for crude oil is a rather inelastic type of demand. This means that this demand is quite stable, even when prices increase or decrease. The reason for this inelasticity is the dependence of the world economy on oil – a dependence that so many organizations and governments have been trying to challenge for years with limited success.
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The duration of the demand for oil is also supported by the emerging debate on how to make the energy transition fair. A concept that was out of the spotlight as students protested across Europe over urgent action on climate change, the idea of a fair transition has finally begun to attract attention.
The idea, as described by Greenpeace, is “moving towards a more sustainable economy in a way that is fair to all – including people working in polluting industries”.
In fact, proponents of a fair transition are focusing on the most important aspect of the shift to less fossil fuel use from an individual’s perspective: that no one suffers from the adverse effects of this change.
Yet, in addition to “people working in polluting industries”, the idea of a fair transition also affects entire nations in the developing world. Unlike proponents of climate change in the so-called first world, these nations have not had the chance to reap the full economic and social benefits of oil-based economies, which many say have become industrialized and even post-industrialized because of their generous use of fossil fuels. .
The developed world, proponents of a fair transition say, has no right to deny the developing world these benefits simply because it has reached a level where it has sufficient economic comfort to deal with problems such as the impact of human activities on the environment.
It is this idea of a fair transition that will help secure the future of fossil fuels for some time to come. Despite the proliferation of renewable energy as cheaper than fossil fuels, it is a fact that large, rich economies have the greatest capacity, while poorer countries lag far behind, even in the EU.
But oil is everywhere – even in the poorest of the poorest countries. And it will stay there for decades.
By Irina Slav for Oilprice.com
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