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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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World Leaders Have To Face The Truth About Oil Demand

  • Across the world, politicians are grappling with the reality of expensive energy
  • Price shocks, scarcity and energy poverty are on the cards after two consecutive years of underinvestment in the oil and gas industry
  • World leaders might have to acknowledge that oil and gas demand are here to stay for the foreseeable future
Gasoline pump

"Our products make the world run." This is what Chevron's chief executive Mike Wirth said at this week's World Petroleum Congress in Houston. The statement echoed a sentiment expressed by other oil executives attending the event—oil and gas are indispensable and will continue to be indispensable for the observable future and beyond it.

This is not something that a lot of people want to hear. It is certainly not what environmentalist organizations want to hear. It is certainly not what the Biden administration and the EU want to hear. Yet, it appears to reflect a hard reality.

Europe is struggling with record gas prices, and yet its gas inventories are being depleted at the fastest rate in about a decade because of a colder than usual start of the winter across much of the continent. In the U.S., gasoline prices have become a top priority for an administration that came to power with the promise to reduce the country's consumption of fossil fuels. Whether everyone likes it or not, quitting oil and gas will not be as easy as some hope.

"I understand that publicly admitting that oil and gas will play an essential and significant role during the transition and beyond will be hard for some," said the chief executive of Aramco, Amin Nasser, also at the World Petroleum Congress. "But admitting this reality will be far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high and seeing net zero commitments by countries start to unravel," he said, as quoted by the Financial Times.

The price of electricity is already getting intolerably high in many parts of Europe that were until recently used to affordable and secure energy. This, unless it is tackled urgently, could indeed lead to social unrest—there are few things more flammable than public opinion in the middle of winter amid an energy shortage and the risk of blackouts. 

"Oil and gas continue to play a central role in meeting the world's energy needs, and we play an essential role in delivering them in a lower carbon way," Chevron's Wirth said, as quoted by the Wall Street Journal.

If the news from Europe since September is any indication, Wirth is correct in his prediction. However, supply may be tight due to underinvestment, which is at least in part the result of the rush to replace oil and gas with renewable energy.

Price shocks, scarcity and energy poverty are on the cards after two consecutive years of underinvestment in the oil and gas industry, a report by IHS Markit and the International Energy Forum said this week. This year's investments in the industry would be about $341 billion, which is 23 percent lower than pre-pandemic investment levels of $525 billion, and that's despite rising global demand for the commodities, the report noted.

"Oil and gas investment will need to return to pre-Covid levels and stay there through 2030 to restore market balance," the report's authors wrote, with the secretary general of the IEF saying, as quoted by Upstream Online, the "energy crisis in Europe and Asia this winter is a preview of what we can expect in the years ahead".

This would certainly not sit well with renewable energy proponents like the head of the International Energy Agency Fatih Birol and the EU's green deal chief, Frans Timmermans. Yet, it wasn't too long ago that Birol called on OPEC+ to produce more oil and on Russia to pump more gas to Europe, and Timmermans was forced to admit gas had a part to play in the energy transition.

"Underinvesting in oil and gas before renewables and other low-carbon technologies that are ready to scale up to meet energy demand could create recurrent energy crises of the kind we saw in Asia and Europe over the last few months," said IHS Markit's Daniel Yergin in comments on the report. He added that these crises could lead to adverse economic consequences. These, in turn, will in all likelihood spark the social unrest Aramco's Nasser talked about at the WPC.

The big energy problem appears to be one of prematurity. The buildup of renewable generation capacity in Europe and the U.S. was accompanied by a premature retirement of fossil fuel generation capacity, leaving countries short of baseload energy when they need it.

It is no coincidence that some countries such as the UK and Sweden had to restart coal plants: in the UK's case, to fill a gap between demand for electricity and supply amid the gas crunch, and in Sweden's case, to export the electricity to Poland in order to help it avoid blackouts. What caused the shortage in Poland? Low wind and shutdowns at some power plants.


The premature shift to relying on wind and solar is leaving countries vulnerable to the weather and effectively increasing their dependence on fossil fuels. Perhaps the current crunch will teach some important lessons to those willing to learn. Otherwise, the scenario outlined by Aramco's Nasser and IHS's Yergin may well materialize in the not too distant future.

By Irina Slav for Oilprice.com

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  • Lee James on December 09 2021 said:
    It's easy to attribute today's shortfall of energy supply to over-emphasis of clean energy. Capacity prices have dropped dramatically for wind and solar. Fossil fuel has been made into the bad guy.

    I think we're seeing a reaction to the willingness of fossil fuel investors to lay fiscal discipline aside over the last couple of years, resulting in negative free cash flow. The investor's eye was on production volume, not cost of production.

    The reality is that it is not getting any cheaper to bring in a barrel of oil. If it isn't the natural world cost constraints on exploitation of fossil fuel, we have geopolitical ones. Crude is tougher to extract and safely transport; and even if it comes in at a lesser cost, who profits and what does the producer-company or country do with the revenue?

    There's no answer one way or the other when it comes to energy supply. It's a balance. We need all kinds of energy supply. But we must keep in mind the bigger picture for what it means in an economy and a society to devote considerable resources to a particular type of energy, including the full consequences of using and burning that energy.

    Really, we're just seeing a pendulum swing in discussions like this one that unreservedly embraces fossil fuel.
  • Mamdouh Salameh on December 09 2021 said:
    I have been dealing with oil and energy issues for more than 32 years and my research has convinced me without any shadow of doubt of the following realities.

    1- A post-oil era is a myth. It is very doubtful that an alternative as versatile and practicable
    as oil,could totally replace oil in the next 100 years.
    2- There could never be a peak oil demand either throughout the 21st century and probably
    far beyond. How could the world feed a growing population projected to rise from 7.9
    billion today to 9.7 billion by 2050 and a global economy projected to grow in size from
    $91 trillion in 2021 to $245 trillion also by 2050 without oil?
    3- A total global energy transition is an illusion. Even a partial one will never succeed without
    huge contributions from natural gas and nuclear energy.
    4- The notion of net-zero emissions is a myth. It will never be achieved in 2050 or 2100 or
    5- Oil and gas will continue to be the core business of the global oil industry well into the

    The only world leader who understands oil and energy best and has no qualms about oil’s place in the world is no other than Russian President Putin. He made Russia the world’s superpower of energy and, moreover, he is prepared to exercise its economic, geopolitical and strategic influence when necessary. His country will be one of three entities that will be supplying the last barrels of oil produced, namely the Arab Gulf region, Venezuela and Russia with the very last barrel produced most probably coming from Iraq.

    It is possible that one sinister reason behind the calls for global energy transition and keeping oil underground is to prevent the Arab world, Venezuela and Russia from enhancing their geopolitical and economic influence over the global economy in coming years with the continued use of oil.

    World leaders should also understand that humanity has two choices. One is to accept at face value climate alarmism and misleading information about imminent existential threat of climate change that the environmental activists have been propagating over the past three decades, threats that may or may not happen. Ditching fossil fuels could lead to a collapse of the global economy resulting in starvation, plagues and even nuclear wars with major powers trying to grab whatever available energy resources left and the eventual demise of humanity.

    The second choice is to continue using oil and gas while striving to mitigate their emissions until alternatives are found or developed.

    I am sure that the overwhelming mass of humanity would accept even a high level of emissions and global warming rather than its demise.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • DoRight Deikins on December 09 2021 said:
    The emperor was quite happy with his new clothes and satisfied with the uhhs and awws of his syncophants (i.e. bureaucrats and advisors), until winter set in. Then his new clothes somehow seemed inadequate.

    Dios mio, ¿qué les enseñan en esos colegios?
  • rob White on December 10 2021 said:
    How about using less instead of every old fart driving a 4 door 4x4 Ford F150 to carry their groceries in? Why is it always about supply instead of demand and conservation?
  • Lee James on December 14 2021 said:
    I find the notion of an immediate "ditching of fossil fuels" a misrepresentation of what most fossil fuel critics think. An "all or none" position like that is a distortion in the discussion, made for argumentative effect.

    Think about it. Do most fossil fuel critics really think that fossil fuel is going to be here today, and gone tomorrow?

    Or, is it more the case that we should pull fuel subsidies, make sure we plug abandoned wells, and stop the considerable methane gas leaks in the distribution system. If the fossil fuel industry and we, the burners of fossil fuel, pay the real cost of using the product, this will go a long way toward creating a steady transition away from burning so much fossil fuel.

    Some people seem to have a problem with even the idea of a transition to clean energy.

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