Jeremy Warner’s Green Tinted Glasses

By Paul Homewood

It was only last week that Jeremy Warner was announcing the death of fossil fuels at the hands of irresistable green energy!

With the publication of the BP Energy Outlook, confirming that oil, coal and gas will still be playing a dominant global role in twenty years time with consumption continuing to grow, he has taken a slightly different tack in his Sunday column:

Few chief executives are ever willingly prepared to put their companies into run-off. To do so seems an admission of failure. Yet is this not the best strategy for the oil giants BP, Shell, ExxonMobil et al? I ask this question not just for its shock value, but because it is the logical conclusion to draw from BP’s latest “Energy Outlook”.

This highlights an increasingly self-evident fact; that despite one time predictions of “peak oil” and other such nonsense, the world is in fact overflowing with oil and other fossil fuel reserves. Today’s known resources dwarf likely consumption out to 2050 and beyond.

As a commodity product, oil has to date been quite unusual in that it accommodates both low and high-cost producers. This is largely because supply is deliberately constrained by OPEC and others with an interest in eking out the resource’s income stream for as long as possible. A barrel of oil, it has long been thought, is worth more left in the ground than extracted.

The now exponential growth of renewables threatens to challenge this established orthodoxy. Indeed, BP admits in its analysis that quite a bit of today’s known reserves will end up never extracted – music to the ears of the green lobby. The implications are clear: oil producers should make hay while they still can, even at the cost of a resulting glut that depresses prices. In any case, there may be little point in developing new sources of supply, particularly at high cost.

Rather, oil companies should be slashing their investment to virtually zero and handing the cash back to shareholders – either that or using their superior credit ratings to invest in renewables.

http://ift.tt/2kCvYCy

He is actually totally wrong – BP have not said that quite a bit of today’s known reserves will end up never extracted , simply that they won’t be extracted before 2050.

And he totally glosses over the fact that oil consumption is projected to grow by 16% up to 2035, when it will still be more than triple the energy provided by renewables.

I never cease to be surprised how supposedly knowledgeable business journalists get away with writing such utter rubbish.

But, back to his main point, I have no idea whether it would be a sensible business decision for oil companies to stop investing and pay the money back to shareholders. You could, in any event, use exactly the same analogy with Apple or Google; who knows whether they will still have a profitable business model in thirty years time.

But what I do know is that as soon as oil companies stop investing in new oilfields, supply will tighten, prices spike (with all of the damage to the global economy that would entail), and with new profits beckoning investment will pick back up again.

It does not take a genius to work that one out. It is after all exactly what has been happening in the oil and mining sectors for decades.

In fact, ample reserves of oil will ensure that the world retains access to a cheap and reliable source of energy, which will make it even harder for renewable alternatives to make headway without subsidies and carbon taxes.

Which is rather the polar opposite of what Jeremy Warner has been arguing.

But let’s finish with this chart from the BP Energy Outlook, which Warner bases his assertions on. This is their guesstimate of what might happen after 2035.

They acknowledge that future energy trends are very uncertain, and therefore include wide uncertainty bands, principally concerning GDP growth and road vehicle efficiency.

The base case suggests that oil demand will peak in the mid 2040s. But most significantly, it will still be well above current levels by 2050, even under the lowest scenario.

Given the oil reserves we already know about, there is no reason why oil will not continue to play a key role in global energy for many decades yet.