The International Energy Agency, which has stepped up its efforts to become a major green energy supporter, appears to have forgotten the reason it was set up as an agency in the first place. In its new report “Net Zero in 2050”, the energy agency calls for no new investments in oil- and gas-related projects.
As stated by Fatih Birol, the IEA’s executive director, “new energy security challenges will emerge on the way to net zero by 2050 while longstanding ones will remain, even as the role of oil and gas diminishes”. The IEA also stated that the contraction of oil and natural gas production will have far-reaching implications for all the countries and companies that produce these fuels. In a very remarkable statement, Birol said that “no new oil and natural gas fields are needed in the net zero pathway”. While he admits that, within that pathway, oil and gas supplies (aka production) will become increasingly concentrated in a small number of low-cost producers. Based on its own assessments, the IEA predicts that OPEC’s share of a much-reduced global oil supply will increase from 37% at present to 52% in 2050, a level higher than at any point in the history of oil markets.
While the IEA’s new report focuses on the need to drastically reduce our use of fossil fuels in order to reduce CO2 and methane emission, there are some major underlying issues it fails to address. In its determination to reach Net Zero emissions by 2050, the IEA appears to have engaged in wishful thinking, ignoring the existing constraints and immense investments needed to achieve such a goal. In its report, the agency does admit that there are severe risks on the way to Net Zero, including geopolitical and economic risks related to an overdependency on critical minerals.
The fact that the main risks are not only geopolitical but also commercial appears to have been ignored. At present, demand for critical materials and minerals is already putting immense pressure on markets, suppliers, and overall costs. If you extrapolate this demand growth under the IEA’s net zero pathway, markets will not be able to keep up with supply, and risk levels will increase exponentially.
The main criticism that should be leveled at this new report is its statement that no new investments are needed in upstream oil and gas worldwide. That statement not only runs entirely contrary to the main reason that the IEA was founded, namely to promote secure and affordable energy supplies to foster economic growth, but it also seems to forget the pivotal role hydrocarbons, mainly oil and gas, play in the global economy. By understanding oil and gas as simply energy products, the IEA appears to overlook the downstream products that are produced by the same sector.
By shaping an environment in which the call to divest or not invest in oil and gas is central, several key markets including chemicals, semi-products, and fertilizers, are going to suffer. Another factor to consider is the pivotal role that international oil majors (IOCs) and independents play in the global market. To focus all efforts on removing one part of the global market is to threaten the stability of both energy and economic security. For decades the symbiosis between IOCs and NOCs has been a key pillar of stability in energy security, as both have different strategies and production approaches. By removing available financing for IOCs via divestment, the market power will be given to the national oil companies or government-led entities, which will also give them significant influence in global markets.
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Currently, most oil and gas reserves are in the hands of national governments, which can be demonstrated by the power of OPEC+. International oil companies currently have the right (concession) to produce and explore for oil/gas within these. At the same time, most production reserves (P1/+P3) of IOCs are already at critical levels, with most IOCs holding reserves for 5-6 years of full production. By removing access to capital or even their license to operate, IOCs will not be able to survive in their current business models. That may be seen by some as a desirable outcome, but economically and geopolitically it could be a disaster. Without independents, all power will fall into the hands of national producers.
Some already consider OPEC+ to be a cartel, and if you remove IOCs from the equation, it truly would have the power of one. A fully renewable, sustainable, and stable world before 2050 is not something that can be achieved without oil and gas for both petrochemicals and energy. The IEA’s member countries may be able to cough up the cost of this aggressive green strategy without imploding their own economic wealth, but non-OECD countries will not be able or willing to. Oil and gas will be needed for economic growth, transport, and mobility. In short, the approach suggested by the IEA is not only impossible but also reckless.
By Cyril Widdershoven for Oilprice.com
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Your points about IOC vs NOC are interesting and relevant. However I believe your comments about needing fossil fuels for petrochemicals, ammonia etc is a bit wide of the mark.
Contrasting natural gas with petroleum.
Natural gas as a feedstock for various chemical industries is not, primarily, because it is as the primary chemical component - Methane. Rather the Methane is used as the source of chemicals that ARE needed by the chemical industry. Hydrogen, Carbon Monoxide and to a degree Carbon Dioxide. These are currently produced from natural gas (Methane) via several different 'reforming' processes. Essentially CH4 + H2O -> 3H2 + CO.
The hydrogen alone is the feedstock needed for the ammonia derived industries. And Hydrogen with Carbon Monoxide (sometimes with Carbon Dioxide CO2) as SynGAs (or Synthesis Gas) is the primary feedstock as a starting point for making Methanol and Ethane - precursors to much of the petrochemicals and plastics we make.
So Natural gas as a source of hydrogen and SynGas has histroically been a cheap means of obtaining these precursors. However, we can get them in other ways.
There is much talk of a hydrogen economy. As the cost of electricity from renewables continues to fall, and as production of hydrogen electrolysers gathers pace, the cost of producing hydrogen through electrolysis of water will fall. Hydrogen synthesis via electrolysis is an existing technology, an existing industry, allbeit not a large industry - yet! Most estimates suggest the cost of hydrogen via this pathway needs to fall by a factor of 2 to be cost competitive with natural gas. As the pace of the energy transition gathers pace, it is hard to project how quickly green hydrogen costs will fall, but if the cost changes we have seen in other renewable technologies is any guide, be prepared to be surprised.
So to Carbon Monoxide. Apart from obtaining it from Natural gas, we also currently obtain it from other processes where carbon based materials are burned. But there is another pathway, again existing technology. Carbon Monoxide can be produced from Carbon Dioxide, also via electrolysis. Again this is an existing, although small industry.
And Carbon Dioxide can be obtained from the atmosphere itself, either via direct air capture, or by burning biofuels then doing CO2 capture in the smoke stack.
Might there be some small industries where Methane is needed directly, as Methane? Perhaps. But we can also back-synthesis Methane from H2O and CO2. The technology for that also already exists.
Thus the technologies to substitute production of hydrogen and SynGas from water and atmospheric CO2 using green electricity already exist. They just aren't at scale at present. How quickly might they scale up, and see costs decline sufficiently? Hard to be sure, but with the pressure on to decarbonise our society, and the huge economic benefits that may accrue to the first companies to achieve this, the race is on. And if we look at the track-record of cost reductions for the other renewable technologies, we may be surprised by the pace of development. As with most industrial revolutions, conventional analysis usually over-estimates how long the change takes.
In contrast, substituting petroleum as a feedstock is harder. The petrochemical industry has a toolbox of technologies that allow it to build larger hydrocarbons from smaller ones, and break larger hydrocarbons down into smaller ones. So many of the components of petroleum that we use as fuels - gasoline and diesel - can be synthesized starting with SynGas - Mobil demonstrated this in the 1970's. And the world is beginning the inexorable switch to EV's for much of transport so the need for gasoline/diesel will fall.
However, petroleum is a witches brew of other very complex compounds such as bitumens that are very complex, and may be harder to synthesis. We may in the end need a small petroleum industry for supplying those. But already synthesized oils and lubricant's are being produced.
So the contention that the world will still substantially need oil and even more improbably gas in 2050 seems unlikely. Will these industries still exist in a vestigial form, perhaps? But the pressures we face to decarbonize, and the economic pressures on companies, both to mitigate and protect themselves from climate change, and the huge opportunities offered by moving into these new industries suggest the pace of change will be much faster than many people expect.
And to the essence of Fatih Birol's remarks.
If we are to have any chance of avoiding serious, catastrophic warming later this century, the pace of change is simply what is needed. If we shrug our shoulders and say "Nope, we can't go that fast" then Mother Nature will shrug her shoulders and say "No, you can't do that? Oh well, sorry, you loose"
As he simply points out. We are in a crisis. And crises require crisis responses.
Also, it is a big hint that whatever oil & gas recoverable reserves are present now only those will be permitted for oil & gas drilling. That means we are very close to oil & gas shortage by next decade as America has left with recoverable oil reserves that would last only for next 4-5 years.
IEA has been insane really. This could send oil prices hitting 10-20 times more than current prices in a decade's time.
Hydrogen can entirely change the face of green energy which was viewed only through solar, wind power & Lithium batteries.
Hydrogen powered fuel vehicles, Hydrogen storage will start showing their real worth sooner.
Anyhow I don't really see how their exists any form of global Government to effect such a belief system given the hilariously pathetic attempt to ahem "finance their Wars" ahem at the purely nation state level to include the United States remarkably.
Anyhow the over/under on this is that Governments will always choose mass murder...even of their own citizenry...before being no longer allowed to ahem "prosper" ahem.
Meanwhile Prospero himself..