An immediate halt to oil exploration is one of the steps that need to be taken in order for the world to reach Paris Agreement climate change commitments. That’s what the International Energy Agency said in a first-of-its-kind roadmap to net zero.
The roadmap features a lot of fascinating changes that our species would need to make to their way of life by 2050, and most of them are already popular enough with various forecasters: a massive increase in electric car sales is there and an equally massive shift to wind and solar power as sources of electricity.
Yet an immediate stop of new oil exploration has so far not been on the agenda of anyone but environmentalist groups on the radical end of the activism spectrum. With its call for the end of all new oil exploration, however, the IEA may have given OPEC a huge gift.
“Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required,” the authority said in its report.
The prediction is global, but of course, there is no way the IEA or any other single agency could force countries to stop boosting their oil production until demand for it subsides. This is exactly what the Gulf members of OPEC and Russia are doing. They are building their oil production capacity in a bid to monetize their natural resource assets while there is still demand for them. But here’s the twist: roadmaps are not factual information. They are general projections at best, and wishful thinking with figures thrown in at worst.
“The contraction of oil and natural gas production will have far-reaching implications for all the countries and companies that produce these fuels,” the IEA said in its roadmap, adding, notably, “For oil, the OPEC share of a much-reduced global oil supply increases from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil markets.”
Indeed, the authority clarifies that this concentration of oil supply will be a lot less significant than the concentration of global oil supply that is in OPEC’s hands today when the whole world is running on oil. According to the roadmap, by 2050, oil demand will be a fraction of what it is today, so nobody would care about whether OPEC controls 30 or 50 percent of the global supply. The problem is that while the more benevolent parts of the roadmap are arguably quite hypothetical, the increase in OPEC’s control of global oil reserves is quite a realistic scenario.
The call for a suspension of new oil exploration would resonate with the new cohort of ESG investors who have been pressuring Big Oil—the world’s largest non-state producers of oil—into effectively moving away from their core business. It’s far-fetched to say that activist investors would be able to pressure Big Oil into suspending all new exploration activities by the end of this year, but it is not unthinkable that it could happen in a few years or a decade. Related: The IEA’s Latest Proposal Is Both Reckless And Impossible
In contrast, OPEC producers are state-owned entities. There are no activist investors who could pressure Rosneft—despite BP’s stake in it—or Adnoc or even Saudi Aramco into stopping their production capacity-building efforts. OPEC countries are not members of the European Union and cannot be forced to comply with EU’s net-zero goals. They’re also not members of the OECD.
Last month, a former leader of the British Conservatives, William Hague, suggested in an article that UK military forces and diplomacy might be deployed across the world to protect the environment: “In the past, the UK has been willing to use all of our firepower, both military and diplomatic, to secure and extract fossil fuels. But in the future, the UK will need to use all of its diplomatic capacity to ensure that these resources are not used and that natural environments are protected.”
Yet this is more of an eccentric idea than the basis for another roadmap, at least at this point in time. It appears that net-zero ambitions are growing exponentially, and it is not unthinkable that we will—in the fullness of time—see a roadmap to protecting the world’s remaining fossil fuel resources. One might even go so far as suggesting that the wars of the future will be wars for keeping oil in the ground rather than wars over extracting.
But on a more realistic note, while it is perfectly plausible that Big Oil could be pressured into shrinking its oil and gas output by governments and shareholders, the state-owned oil companies of OPEC members are free to continue their exploration efforts. It’s worth noting here that these exploration efforts have historically been led by Big Oil because of its technical expertise and financial means. This is not to say, however, the Big Oil club is the only one with technical expertise and financial means. Money tends to buy expertise, and a shrinking oil supply base will boost oil prices significantly while the West advances its net-zero agenda.
The expectation that oil demand in 2050 will be 75 percent lower than it is today and average 25 million bpd would prompt some who are committed to a cleaner-air future to cheer. However, that would require that every other expectation of the IEA as laid out in its roadmap is met, too, and this is a little difficult to believe.
These feature universal energy access by 2030 when there are close to a billion people without such access to date and no major plans to change this for several reasons. The roadmap also sees a global end to sales of internal combustion engine cars by 2035—a move that would practically require governments to force their citizens to switch to EVs, which would raise some questions about rights and freedoms in a democracy.
The list of hypothetical expectations by the IEA is as long as its report. The most realistic among them remains the expectation that OPEC will come to account for even more of the world’s oil supply than it does now. What the cartel can do now is keep its fingers crossed that OECD countries stay on their net-zero path. The rest of the world is big enough to keep OPEC in the petrodollar game for decades to come.
By Irina Slav for Oilprice.com
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