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      Why We Still Need Oil & Gas For Decades To Come

      Why We Still Need Oil & Gas For Decades To Come

      1. The G7 this week agreed to phase out fossil fuels, but did not come up with a specific answer on how to do it and at which cost.
      2. The very people who push the electrification of everything debunk it every time they call on the oil industry to pump more.
      3. Agencies such as the IEA have made repeated claims not to invest more in fossil fuels, underestimating aspects such as energy affordability.

      Earlier this month, in an op-ed for the Financial Times, the head of the International Energy Agency, Fatih Birol, wrote that renewable energy was expanding faster than many thought.

      The energy crisis sparked by the war in Ukraine, he said, was reshaping the global energy systems, making many countries realize that wind and solar were the safer bet. The transition, the message went, was well underway, and fossil fuels were on their way out.

      This is not the first time Birol, or the IEA as a whole, delivered this message. Neither is the IEA the only one with this message for the world. Every COP gathering says the same: the energy transition is underway, and renewables are going to replace fossil fuels.

      In such a context, it is somewhat odd, then, that the same IEA is projecting record oil demand for this year, especially since it also forecast a few months ago that oil demand will peak before 2030.

      It is also odd that the same Fatih Birol who repeatedly declared fossil fuels are in decline recently warned that the production cuts OPEC+ recently deepened risked hampering global economic recovery by making oil more expensive.

      The paradoxical messaging out of the International Energy Agency is a symptom of a cognitive dissonance emerging among backers of an accelerated transition from fossil fuels to renewables.

      The same dissonance has been demonstrated repeatedly by the Biden administration, which has alternated between threats and pleas with the U.S. oil industry to increase production so prices at the pump can remain affordable for more people.

      At the same time, the administration has pledged billions in subsidies for alternative energy projects aimed at reducing fossil fuel use. Effectively, it has been trying to squeeze more oil from the industry while taking away any possible incentive for the industry to do that.

      The latest example of the dissonance came from the G7, which this week declared it would aim to boost its collective offshore wind capacity by 150 GW and solar capacity to over 1 TW by 2030.

      So far, so good. The G7 also condemned "unabated" fossil fuels and pledged to do away with them. Only it didn't say how and when it would do that. All the meeting’s attendants delivered were some general remarks along the lines of "Fossil fuels are bad, and we will use less of them in the future."

      There were no specifics beyond, "We stress that fossil fuel subsidies are inconsistent with the goals of the Paris Agreement" and "(We) reaffirm our commitment to achieving a fully or predominantly decarbonised power sector by 2035, and prioritising concrete and timely steps towards the goal of accelerating the phase-out of domestic unabated coal power generation in a manner consistent with keeping a limit of 1.5°C temperature rise."

      The reason for the dissonance is that the world still runs overwhelmingly on fossil fuels. Yes, investments in alternatives, chiefly wind and solar electricity generation, are on a strong rise, and so is deployment, which hit a record last year. So did wind and solar output as a percentage of total electricity generation in the EU last year. Yet this did not dent the demand for oil. It did not dent demand for gas—high prices dented demand for gas in the EU and elsewhere.

      The transition, whose flagships are the SS Wind and HMS Solar, relies overwhelmingly on electrifying as much of the economy as physically possible. There are, however, two problems with that. The first is that electrification on such a scale takes a long time, whatever governments do to speed things up. The second problem is that electrification based on intermittent energy sources such as wind and solar is doomed to failure.

      Ultimately, it comes to a choice between reliable, on-demand power versus unreliable power. Oil, gas, and coal are dispatchable sources of power. They produce it any time you need it. Wind and solar are non-dispatchable. They produce power when the weather is right, regardless of whether you need it or not. And sometimes, they produce too much, and that becomes a problem, too. An expensive one.

      That wind and solar, with some green hydrogen and battery storage, could replace fossil fuels entirely is one of the most pervasive and, at the same time, most blatantly untrue myths in the energy transition canon. The laws of physics debunk it every single day.

      The very people who push the electrification of everything debunk it every time they call on the oil industry to pump more of that same commodity they want to get rid of. One of the most enthusiastic transition pioneers just closed its last three nuclear plants but is expanding a coal mine. The G7 admitted natural gas is necessary for the transition. The list of dissonance examples is long.

      Meanwhile, the world economy chugs along, fuelled by petroleum-fuelled ships and trucks, gas-fired power plants, and coal furnaces. The reality is that most people don't care where their energy comes from as long as it is there when they need it. That's because they cannot afford to care. And the only kind of energy that comes when you need it, every time, bar an extreme event, is fossil fuel energy. The rest is transition mythology.

      By Irina Slav for Oilprice.com