Crude Oil Is Back, And It Isn’t Going Anywhere
Pressured by investors and society, the global oil industry is looking for ways to stay in the game by meeting the world's growing demand for energy, including crude, with the lowest carbon emissions possible.
Such a feat by an industry so entrenched into our existence could surely secure its position even in a green future. Have they recovered enough from the pandemic to take on this monumental challenge?
Oil Demand Is Back
A year and a half after the 2020 COVID crisis began, analysts, forecasters, industry executives, and investment banks have been forced to acknowledge that the pandemic did not, in fact, sound the death knell for global oil demand.
Consumption has roared back to pre-crisis levels—or is at worst merely weeks away from reaching them. It has become evident for all observers—even reluctant ones, including the harsh critics of the 'keep it in the ground' camp—that the world will not move away entirely from oil—at least not for decades to come.
According to supermajor BP, global oil demand has 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 this week, as carried by Bloomberg.
And crude oil demand is set to continue rising into next year, Hardy added.
Earlier this week, Saudi Aramco's CEO Amin Nasser said that the world would see its level of spare oil production capacity dwindle next year as jet fuel demand returns to pre- or near-pre-crisis levels. Little spare capacity amid continued underinvestment in oil and gas should be "a huge concern" for the market going forward, Nasser said, echoing the sentiment of many executives in the industry.
Even Fatih Birol, the Executive Director of the International Energy Agency (IEA), highlighted this 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.
Industry Looks To Cut Emissions, But Oil Will Be Needed For Decades
Although it has been demonized by activists in recent years, it will be the oil industry that will meet the world's demand for energy for years and decades to come. Fossil fuels still account for 80 percent of total global energy consumption, while hundreds of millions of people in developing countries still do not have access to any energy source at all.
Some supermajors, such as Shell, have said their own oil production has already peaked. All international oil companies are boosting investments in reducing their emissions and are using the cash from profitable oil and gas projects to invest more in lower-carbon energy sources.
It's not easy to be a supermajor these days—investors, activist shareholders, and environmentalists want accountability and lower emissions, but the world still runs on fossil fuels and will continue to need oil and gas for decades, whenever peak oil demand occurs.
Shell, for example, 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 on the Q3 call last month, 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.
ExxonMobil, for its part, is investing $15 billion in a lower-carbon future, as the U.S. supermajor is "taking a leading role in providing the products that enable modern life, reducing carbon emissions and developing needed technologies to advance a lower-carbon emissions future," CEO Darren Woods wrote in a post this week.
Not All Crude Is Equal
The industry is looking at cutting emissions from operations, and many companies have pledged to achieve net-zero emissions from their operated assets at some point over the next 30 years.
Yet, not all oil projects have the same carbon footprint, so operators have different pathways in their efforts to cut emissions.
Some of the differences are striking, according to crude carbon intensity calculations recently launched by S&P Global Platts.
According to the estimates of 14 major oilfields globally, Johan Sverdrup in Norway has the lowest upstream carbon intensity of CO2 equivalent per barrel of oil equivalent, followed by another project offshore Norway—Ekofisk.
Johan Sverdrup's operator Equinor says that a barrel of oil produced at the giant field in the North Sea emitted 0.17 kilograms of CO2 in the first year. That's almost 100 times lower CO2 emissions than the global average of 18 kg CO2 per barrel, mainly due to the use of hydroelectric power from shore, the Norwegian major says.
The Cold Lake oil sands field in Canada has the highest carbon intensity of the 14 oilfields, followed by Kirkuk in Iraq, according to S&P Global Platts. The Bakken in North Dakota has the third-largest carbon intensity of the fields in the analysis.
The major U.S. shale fields, the Permian and the Eagle Ford, as well as Saudi Arabia's giant Ghawar oilfield, have carbon intensity around the global average, per S&P Global Platts estimates.
Companies that can meet the anticipated and ongoing need for crude oil with lower emissions could have more staying power than those producing oil and gas with higher emissions.
But lower emissions or not, oil demand isn't going anywhere just yet, and the world will need oil and gas companies to fulfill that demand.