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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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An Undisputable Truth: The World Still Needs Oil And Gas

  • On the back of COP26, much is being made of the global energy transition and the move away from fossil fuels 
  • Despite this transition, it is clear that demand for oil and gas will be around for decades to come and oil majors are focused on ensuring that there is enough supply to meet it
  • Oil majors are now focused on becoming energy majors while ensuring their legacy business can produce the cash to support an eventual transition 

While governments in many developed countries and institutional investors push for an accelerated energy transition and a move away from fossil fuels, the reality of the world's energy needs and consumption shows that oil and gas aren't going anywhere and will be part of the global energy mix for decades to come. The world will continue to need oil even if it somehow manages to put itself on track to achieve net-zero emissions by 2050. Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil. The only future in which the world will not need oil is if all consumers, globally, suddenly give up all the comforts of modern life they are so used to.

As long as there is demand for oil and products originally derived from crude oil, there will always be someone to supply it. If the oil and gas industry were to 'keep it in the ground' as many climate activists want, energy shortages would be inevitable. Just look at what has happened with the natural gas crunch in recent months - sky-high prices for a commodity that is still vital for keeping the lights and heating on. 

Oil & Gas Will Play A Role In The 2050 Energy Mix 

Big Oil has been sending a clear message to the market in recent weeks - oil demand growth did not die with the pandemic last year, and oil will be needed for decades, even if it may not be needed in record volumes. The accompanying message is that Big Oil - now aiming to be Big Energy - is working to supply the "best possible" oil and gas, that is, with as low emissions as possible. And the third message, especially from the European majors, is that the legacy oil and gas business will be the "cash engine" that will pay for their growing renewables business. 

Related: The Energy Crunch Is Adding Billions To Oil Tycoons’ Net Worth Oil and gas will have a role to play in the energy system for decades to come, BP's chief executive Bernard Looney said on Monday.

"It may not be popular to say that oil and gas is going to be in the energy system for decades to come but that is the reality," Looney told CNBC on the sidelines of the ADIPEC energy conference in Abu Dhabi. 

"What I want us to do is to focus on the objective — and I wish we had less ideological positions and more focus on the objective — which in this case is to drive emissions down," Looney added. 

"Performing While Transforming"

Despite the fact that many European majors will pump lower volumes of oil going forward, it will be the legacy oil and gas business that will fund their low-carbon divisions, the chief executives of BP and Shell said during the latest earnings calls. 

Shell operates in an environment of "significant hostility and demonization of our sector," and "I realize it finds its way also in the asset manager world and it finds its way in the asset owner world," CEO Ben van Beurden said, commenting on shareholder activism. 

"But let's also be very clear, the world still needs oil and gas…And I think, therefore, it is not only legal, it is legitimate and necessary that oil and gas products are being provided and they better be provided by companies that, first of all, know how to do it, have a very responsible attitude to doing so and indeed have a strategy to use some of that cash, not just to fund shareholder distributions, but also to transition the company to a better, a cleaner, a lower carbon slate," van Beurden added. 

BP's Looney—whose slogan is "performing while transforming"—said, "We need cash flow to invest into the transition. And our existing businesses generate enormous cash flow."

"This is not an oil to renewable story. It's a focusing of oil…And it's an investment in renewables. But not just renewables for renewables' sake, investing into the low carbon energy value chain," Looney noted. 

Move Away From Oil Begins With Demand, Not Supply 

Yet, accelerated investment in low-carbon energy doesn't mean that the oil industry should ditch oil projects and stop pumping oil. The world now needs as much oil as it did just before the pandemic, with demand bouncing back and disproving some theories from last year that global oil consumption would never return to pre-COVID levels. Not only is demand returning to those levels, but it would also soon exceed them to post new record highs. 

BP said earlier this month that global oil demand had already topped 100 million barrels per day (bpd) last seen before the pandemic. 

"We are at or about 2019 levels now," Russell Hardy, CEO at the world's biggest independent oil trader, Vitol, told the online Reuters Commodities Trading Conference last week, as carried by Bloomberg. 

Despite slightly reducing the demand outlook for this year, OPEC estimated last week that oil demand in 2022 would average 100.6 million bpd, or around 500,000 bpd above 2019 levels. 

Related: IEA Hikes 2022 Brent Oil Price Outlook To $79

Even Fatih Birol, the Executive Director of the International Energy Agency (IEA), highlighted last week in a video call with a senior Japanese official "the need for additional investment to meet future demand, explaining that the demand for oil and natural gas will not drastically decrease even through our path towards transition to renewable energy," per the statement from the Japanese foreign ministry. 

"Peak demand will come only through long-term structural changes, most immediately in light road transport, and those take time," Ed Crooks, Vice-Chair, Americas, at Wood Mackenzie, wrote last month. 

Until there is growing or stable demand for oil, as seems to be the case post-COVID, there has to be someone to supply that oil. If it's not Big Oil, which is increasingly pressured by activist shareholders and investors, it will be Saudi Arabia and Russia. The global economy cannot afford to have the oil industry purposefully cutting oil supply while demand continues to rise. 

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • DoRight Deikins on November 16 2021 said:
    « The only future in which the world will not need oil is if all consumers, globally, suddenly give up all the comforts of modern life they are so used to. »

    Exactly. And we can guess that such a shock would bring about shortages of food, medicine, shelter, and, probably, significant social upheaval.
  • Mamdouh Salameh on November 17 2021 said:
    Not a day passes without claims being made by experts, analysts and organizations prominent among them the International Energy Agency (IEA) about global energy transition, net-zero emissions, peak oil demand and the end of oil.

    Contrary to these claims, oil will continue to drive the global economy throughout the 21st century and probably far beyond underpinned by both rising world population and growing global economy.

    There could neither be a global economy nor a modern civilization as the one we know and enjoy without oil. 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.

    Therefore, humanity has two choices. One is to accept climate alarmism and the misleading information about the imminent existential threat of climate change that the environmental activists had propagated over the past three decades, threats that may or may not happen and the other is ditching the fossil fuels and see the global economy collapse resulting in global starvation, plagues and nuclear wars with major powers trying to grab available energy resources and the eventual demise of humanity. I am sure that the overwhelming mass of humanity would accept even a high level of emissions and global warming rather than immediate death.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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