“We believe it is highly unlikely that oil demand will decline meaningfully over the next decade, even with a stronger push by world governments toward net-zero emissions. However, global supply could fall well short of demand over the next five years amid growing pressures to slow investment, setting the stage for an unprecedented spike in oil prices,” BMO Markets, October 2021
The U.S. Department of Energy’s International Energy Outlook 2021 was just released on October 6.
It’s a long-range forecast (2020-2050) that comes from our National Energy Modeling System (NEMS).
Along with the International Energy Agency’s World Energy Model, NEMS is the most vital energy outlook of them all – not from the Sierra Club, not from ExxonMobil, not a Koch conspiracy.
Importantly coming under President Biden’s Department of Energy (i.e., under an administration that has the most aggressive renewable energy and electric car agenda in American history), our latest modeling still confirms what all previous administrations have: oil and natural gas will remain the foundation of our gigantic energy complex.
In fact, under the baseline scenario (which, importantly, avoids speculation and models out current policy and technological trends) oil and gas consumption are projected to surge (see graphs).
Given all that we keep hearing from most of the media and our politicians, experts modeling “more oil and gas” must come as a complete shock.
Or, maybe not so much: after more than a decade of Herculean gains for renewables and nearly six years after the Paris Climate Agreement, oil and gas still supply ~65% of the world’s energy and ~70% of U.S. energy.
Even in the U.S., where incremental energy needs are nowhere near what they are globally, demand for oil and gas is expected to rise 3.5 million b/d (+19%) and 4.6 trillion cubic feet (+15%) from 2020-2050, respectively.
Contrary to what we keep hearing, a projected oil and gas boom is completely logical.
It’s a really big world out there, and it’s only getting bigger: from 2020 to 2050, the U.S. Department of Energy has the world adding another 1,935 million people and $87 trillion in economic expansion.
No wonder then that the U.S. Department of Energy has global energy demand rising another 47% over the next 30 years, with hard-to-displace oil staying the world’s most crucial fuel.
Ultimately, this constant, rapidly moving train of “more” is why the oil and gas companies don’t have to vigorously promote the use of their own products like renewables and other competitors do.
The current global energy crisis of “shortages everywhere” is showing that we’re not even able to power and fuel ourselves today, let alone the devastation of what “more” could bring if we seek to quickly slash the use of our most essential energy sources, namely oil and gas.
Just imagine what tomorrow will bring: the world is a worsening 85% poor (i.e., non-OECD) and understandably wants access to the same energy options that made us Westerners so rich and long-living.
Even the primary oil major that strongly promotes a shift to renewables (despite losing money on them) is about to be proven so wrong.
I always said that BP’s prediction of peak oil demand in 2019 was more based in public relations than fact – I’m afraid that the demonization of oil is making some of its sellers say things that they probably know aren’t true.
Oil and gas companies, you see, sell products that are so essential to our daily lives that they don’t have to promote themselves like renewables and other competitors do.
A real shocker, I know: the U.S. Department of Energy reports that oil demand will hit record levels next year, at 101.5 million b/d.
We are already seeing a global energy crisis and skyrocketing prices as the “we must stop investing in oil and gas” fantasy is violently colliding with reality: rebounding demand from Covid-19 for indispensable sources of energy.
We’ve been seeing consistent $6 per MMBtu natural gas in the U.S. and over $35 in Europe.
Asian gas prices hit an eye-popping $56 last week.
Note: self-sufficiency thanks to the American shale revolution (which apparently many of our politicians now want to stop) is exactly why our gas prices aren’t so dangerously high as they are in the importing regions of Asia and Europe.
Far too many have confused Covid-19 energy demand destruction with a change in consumer behavior.
But, it’s really as simple as you think.
The 2020 drop in oil and gas demand (coal as well) had little to do with the Energy Transition but with the lockdowns and economic destruction caused by Covid-19.
Indeed, the International Energy Agency’s recent call to stop new oil and gas development to meet 2050 net-zero carbon goals will do little to reduce demand but will cause a huge supply shortfall to spike prices and economic dislocation.
We’re already seeing the devastating repercussions of “not producing” in the name of climate.
After years of under-investment in new supply, 2020 saw another 35% drop in oil and gas CAPEX (capital expenditures) spending to produce more, meaning that an even more dire situation looms on the horizon.
Exhibit-a: Despite a surge in gas demand and soaring prices, Europe is currently decommissioning its largest gas field, Groningen, eight years earlier than initially planned.
For example, a lack of wind has left UK’s huge wind capacity idle, so gas prices and power rates have ballooned as a result.
Many short-sightedly celebrate as climate stigmatization has banks afraid to loan oil and gas money.
All of this is actually terrible for the Energy Transition.
We’re walking a very fine line here with oil and gas in particular when it comes to this transformation of the world’s energy complex.
If we don’t invest in new oil and gas supply, we’re sure to bring a less reliable energy system, more volatility, and higher prices – truly a deadly concoction that will make the Energy Transition politically untenable.
Today’s surging cooling, heating, and food prices are a humanitarian catastrophe and are already creating a great “rethink” so early on in our Energy Transition path.
Potentially making the “deep electrification” that we seek to fight climate change politically impossible, we’re losing electricity security, as shown in Europe now, Texas in February, and California last August.
With airplanes, heavy trucking, and petrochemicals compensating for any lost demand from electric cars, the impact of climate change policies on oil needs are more likely to materially impact oil demand growth, not on absolute demand itself (see BMO quote above).
While I do think that a case could be made that global oil demand will peak in the 2030s and then plateau (i.e., don’t believe those telling you of a looming precipitous drop in oil use), it’s not realistic to speculate the same thing for natural gas.
Most ironically, more gas, not less, will be needed as we build-out wind and solar capacity, which explains why our greenest state, California, is now building five new gas plants to “avoid blackouts.”
Intermittent wind and solar are surely a huge part of our energy-climate solutions but more dependable and flexible gas will stay an indispensable tool for balancing electricity markets, and gas is an input for a variety of other uses, such as industrial manufacturing.
Let’s just take the PJM Interconnection, the largest wholesale power market in the U.S., serving over 65 million customers across 13 states and the District of Columbia.
In PJM, S&P Global reports that “reliability needs” have some 22,000 MW of new gas-fired generation in the queue from 2021 through 2026, compared to 14,385 MW for solar and 9,445 MW for wind.
In all-important Asia, gas will be crucial to shift away from King Coal: coal still generates ~65% of China’s power and ~70% of India’s power.
I do think that what we’re seeing now in devastated Europe especially, being forced to turn to much higher emission fuel oil and coal because of gas shortages, is bringing to light what I deem as the Energy Transition’s most important truth.
And that is this: natural gas is undeniably a centerpiece strategy and must not be under-appreciated.
While the International Energy Agency has inexplicably changed its tune this year, it has been telling us for decades that many trillions of dollars in upstream (E&P) oil and gas investments are needed for supply to adequately meet new demand in the coming decades.
With COP26 in Glasgow just weeks ago, this all explains why our major energy-climate goal is to not to “get rid of” oil and gas but to make their production, transport, and use as clean as possible.