- Proponents of the global energy transition believe demand for oil and gas will begin to ebb in the next decade as clean energy takes over.
- Based on current progress, those predictions appear to be very ambitious, especially with the rising demand for petrochemicals and plastics.
- Even if the electric vehicle, solar energy, and wind energy industries expand rapidly, they are all heavy users of petroleum derivatives.
The end of oil and gas is nigh. In a decade or so, demand will begin to ebb as electrification takes giant strides toward a cleaner, more reliable energy system.
This is the leitmotif repeated by proponents of the energy transition from fossil fuels to low-carbon energy sources such as wind, solar, and hydrogen. These include many high-profile people, from prime ministers and presidents to the head of the International Energy Agency and the chief executives of the biggest asset managers in the world.
Last year, investment in wind, solar, and other transition tech hit a record high of $1.1 trillion. This, Bloomberg reported at the time, was the first time investment in low-carbon energy was on par with investment in oil and gas production. Even so, this year, the IEA expects oil demand to hit a record high. Fossil fuels still have a good few decades in them.
Forecasts of peak oil demand have become something of a sports discipline among forecasting agencies of all sorts. Those with a stronger leaning towards the “Keep it in the ground” crowd tend to project oil demand peaks sooner than others, with weaker leanings towards groups that are calling for the immediate end of oil and gas production.
Yet both oil and gas continue to surprise with strong and rising demand. And that is because demand for energy does not depend entirely on government policies—unlike the transition away from these most popular sources of energy.
A lot of the end-of-oil-and-gas projections are based on expectations that government policies will continue to gradually stifle the oil and gas industry or at least push it to transform into a renewable energy industry. BP tried to do that over the past two years, but, according to its CEO, it didn’t go as well as expected in the profitability department.
But these government policies also look for—and find—ways to ensure the continued use of some fossil fuels, namely natural gas, for a longer period because they are sane enough to see that without gas, the economy stops. This was made perfectly clear last year in Europe, most notably in Germany. For all its already massive capacity of wind and solar generation, when gas prices spiked, the German economy shrunk.
Not all energy forecasters are of the radical sort, however. Some with a more measured approach to the future of energy suggest oil and gas will continue to be around but in a much-reduced capacity, mostly used for the production of petrochemicals and plastics, which the world will continue to need in substantial volumes for decades to come.
Indeed, the biggest killer of oil is seen to be the electrification of transport, while the biggest killer of gas would be wind and solar for electricity generation. But both these hydrocarbons would remain in some demand because both electric vehicles and wind and solar installations are heavy users of petroleum derivatives such as plastics, oils, and chemicals.
But that suggests a much-reduced consumption of oil and gas compared to current levels. That would be consumption that a lot of transition proponents would be fine with. If all those forecasts for the electrification of transport and the superfast buildout of wind and solar pan out. And they don’t look like they will.
The International Renewable Energy Agency recently estimated that the world needs to invest $35 trillion in changing its energy mix in such a way that renewables collectively account for 89.8% of total generation.
This means that we need to accelerate the expansion of wind and solar capacity at a galloping pace. And this is not happening. Not only is it not happening, but capacity additions are showing signs of a slowdown.
Last year, new wind capacity additions in the EU were 40% higher compared to 2021 but much lower than what was needed to meet the Paris Agreement goal of limiting global temperature rises to an average of 1.5 degrees from pre-industrial times.
In the United States, solar developers are struggling with higher costs and tariffs on Asian panel imports targeting China. The White House recently waived the tariffs to stimulate more solar activity, but Congress just voted against the waiver to bring back the tariffs.
EV production, meanwhile, is facing the same raw material squeeze that wind and solar are facing. A copper shortage is looming large over the transition’s clear skies, with no new mines being put into operation and ore grades falling across existing mines.
The energy transition that should spell the end of oil and gas is not moving in leaps and bounds as hoped but is rather lurching along with difficulty. Until such times as this lurching can turn into a measured, fast step, demand for oil and gas is guaranteed.
And because of inherent problems with the way policymakers have gone about implementing the transition, with almost exclusive reliance on low-density, low-reliability energy sources, chances are oil and gas will be around for a very long time yet. We might yet face another round of peak oil supply doomsaying.