The Organisation of Petroleum Exporting Countries (Opec) and the Organisation for Economic Co-operation and Development’s energy watchdog — the International Energy Agency (IEA) — are on a war path.
In an opinion piece dated September 11 carried in the Financial Times, Fatih Birol, the executive director of the IEA, said the world was heading towards the end of the fossil fuel era.
“The age of seemingly relentless growth for fossil fuel demand is at the beginning of the end,” Mr Birol, the guru of the energy world, underlined.
“This is the first time that a peak in demand is visible for each fuel (oil, gas and coal) this decade — earlier than many people (had) anticipated,” adding demand will hit an all-time high before the end of this decade.
The peak in demand was primarily driven by the spectacular growth of clean energy technologies such as solar panels and electric vehicles, the changing energy governmental policy around the globe, the structural shifts in China’s economy, the rise in the use of heat pumps and the forced accelerated move off gas in Europe after Russia invaded Ukraine, Mr Birol underlined.
Is the era of fossil fuels over or is the world transitioning away at a rate that is unsustainable and overly optimistic?
This was a startling admission and hitting raw nerves in some quarters.
In a sharply worded response, Opec Secretary General Haitham al-Ghais accused the IEA of ideologically driven fearmongering that would destabilise the world economy.
“Such narratives only set the global energy system up to fail spectacularly,” Mr Ghais said in a statement on September 14. “It would lead to energy chaos on a potentially unprecedented scale, with dire consequences for economies and billions of people across the world.”
Further fuel was added to the raging debate during the World Petroleum Congress (WPC) in Calgary later in September. Saudi Arabia openly warned of the consequences of ditching oil in haste, stressing the need for a more realistic energy transition and more investment in oil and gas.
The sector can’t solely focus on climate change, the Saudis asserted.
“If we really want to be faithful to the idea that we will be transitioning, we also have to make sure that transitioning happens whereby you end up attending to energy security, ensuring that energy is still affordable and does not act as an impediment to economic prosperity and growth,” the Saudi Oil Minister Prince Abdulaziz bin Salman emphasised.
“And if you don’t do all of the above, I’m sorry, but I don’t think you could attend to climate change issues.”
Prince Abdulaziz bin Salman also struck out the IEA projection, underlining that the trend was dangerous to the energy security of the world. “They (the IEA) have moved from being a forecaster and assessor of the market to one practising political advocacy.”
Likewise, Amin Nasser, the CEO of Saudi state-controlled oil giant Aramco, underlined that the notion of peak oil demand is “wilting under scrutiny,” noting “many shortcomings in the current transition approach that can no longer be ignored.” He also stressed that carbon capture “can no longer be the bridesmaid of transition.”
Premier Danielle Smith of the energy-rich Canadian province of Alberta and the chair and CEO of ExxonMobil, Darren Woods, made similar points. “There seems to be somewhat wishful thinking that we’re gonna flip a switch, and we’ll go from where we’re at today to where we’ll be tomorrow,” Mr Woods said.
“If we don’t maintain some level of investment in the industry, you end up running short of supply, which leads to high prices and some of the effects that Amin referenced,” he stressed.
Despite the transition toward renewable energy, Opec continues to be bullish. It is reportedly raising its medium and long-term oil demand forecast in its forthcoming 2023 World Oil Outlook, to be released today (October 9). Three Opec sources told the media that the group continues to carry a positive outlook about oil demand.
The IEA, however, is insisting that the global energy portfolio is changing fast and that no new major oil and gas extraction projects are needed now. This made headlines all around the globe.
Even if no new government climate policies are introduced before 2030, global demand for fossil fuels will still peak before the end of the decade, a report released late in September stated.
The report, an update on the IEA’s 2021 plan to get to net zero global greenhouse emissions by 2050, added that this meant that no new major oil and gas extraction projects are needed anywhere around the globe, nor any new coal mines, mine extensions or unabated coal plants. This is a huge projection.
“If the world is successfully bringing down fossil demand quickly enough to reach net zero emissions by 2050, new projects would face major commercial risks,” the IEA highlighted. The world is already set to invest a record $1.8 trillion in clean energy in 2023, the report noted.
Some others seem to concur. “Demand is peaking,” Claudio Galimberti, Norwegian consulting firm Rystad’s head of North America Research, reportedly said last Thursday.
Global oil demand growth, which averaged 3.7 million barrels per day (bpd) last year, should decelerate to 2.4m bpd this year, 1.2m bpd in 2025, and just 500,000 bpd in 2026, Galimberti said.
Such a transition will have a huge impact on oil market prices. “We anticipate prices to taper off in the next three to four years, primarily due to ample supply.” Oil producers’ group Opec+ has succeeded in moving oil prices this year by cutting output, but that strategy can not succeed in the long term, Galimberti added. JP Morgan analysts are now also reporting ‘demand destruction has begun’.
Things are changing fast. The era of electric vehicles (EVs) has arrived. More and more EVs could now be seen on the streets all over the developed world, and China is taking the lead.
With the transport sector currently responsible for more than 60 per cent of total global crude consumption, switching from internal combustion engines to EVs would considerably impact crude demand and market prices.
Climate issues are at the forefront of our problems. Early adoption of EVs could be one answer, yet not much seems being done. This could spell catastrophe for Pakistan and the region.
Published in Dawn, The Business and Finance Weekly, October 9th, 2023