Can the world stop investing in oil & gas?

By the Ageing Tiger

The International Energy Agency was set up in 1974 to ensure the security of oil supplies, if you are old enough, like me, you might remember the Arab oil embargo, queues at petrol stations and rocketing oil prices. So, if the IEA come out and say “that no new oil and natural gas fields are needed in the net zero pathway”, then that must be true and all of us oil and gas professionals can hang up our boots and head to the scrapheap.

When the IEA was formed, it was in response to the emergence of OPEC. When OPEC flexed its muscles in the early 1970’s the cartel supplied over 50% of the world’s oil, they had massive market power.

By the time I was moving to Aberdeen to work offshore on Forties, you see for a brief period I was a genuine North Sea Tiger, OPEC supplied less than 30% of the world’s oil. Oil prices which had been over $100/bbl in 2021 money, duly collapsed and it wasn’t until US shale oil started to chip away at OPEC’s market share that anyone really paid attention to OPEC again.

The IEA say that as a consequence of no new oil and gas projects being needed that oil “supplies [will] become increasingly concentrated in a small number of low-cost producers. OPEC’s share of a much-reduced global oil supply grows from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil markets.” This seems a tad  antithetical to the IEA’s original mission.

I thought I ought to double check the IEA’s maths. Maybe I shouldn’t hang up my boots.

So I downloaded the IEA’s data, if you want to follow along you can get the data here: and the figures I am about to deconstruct are Figures 2.1 and 2.5, so you only need the data from chapter 2.

Figure 2.5 is the key one, it shows a little history and a projection of future energy demand. This is their chart.

It all looks pretty reasonable: all those nasty fossil fuels, which have lifted billions out of poverty, are going away and all the lovely green energies, like “Modern solid bioenergy” are taking over the world.

If you are wondering what “Modern solid bioenergy” is, that’s where forests in the US are mown down, the trees turned into woodchips and the chips burned to fuel the Drax power station so that Drax can cling on to the government’s subsidy teat. So obviously doubling that in the next fifteen years is a great idea. But most of the growth by 2050 is in wind and solar, solar will grow twenty-fold and wind fifteen-fold by 2050.

But when I see a chart like that, lots of questions pop into my mind. The first one was what does that chart look like if you tack on a bit more history in the front. To do that I turned to the BP statistical review of world energy. The datasets are almost consistent, something odd is going on between BP and the IEA’s definition of hydroelectric energy and BP don’t keep track of traditional wood burning, so I set that aside. Here is that same data but this time running from 1965, when this Tiger was just a cub.

Wow, so the IEA are projecting that energy demand growth has stopped for good. That wasn’t quite so obvious when the chart started in 2000.

Since the dawn of global GDP statistics, energy demand and GDP growth (you know people getting less poor) have moved in concert. The IEA must be forecasting that GDP growth is a thing of the past, no longer can nations lift themselves out of poverty by investing in cheap reliable energy. So I turned to Figure 2.1.

IEA start with population, which they are projecting will reach nearly 10 billion people in 2050, and lo and behold people are going to be more prosperous, global GDP per head is almost going to double by 2050.

Thank goodness, I was beginning to wonder if the IEA were Malthusians who wanted to cull the world population to “save the planet”.

But that means that they are projecting that, by 2050, GDP will grow by 147% but energy use will decline by 4%.

For years GDP and energy demand have moved in lockstep, so I thought I would plot the IEA’s history of GDP and energy demand over recent years and see how it compares to their forecasts.

Well shiver my timbers, the history and the forecast have a bit of a disconnect, and not a gradual disconnect a sudden decoupling of GDP and energy the likes of which has never happened in the past. I call “bullshit”.

This is patent nonsense.

So, I wondered what would happen if I used the recent history to forecast the future rather than making up a convenient story that had no basis in reality. If you use recent history as a guide, then for a 147% uplift in GDP you would expect to see a 94% uplift in energy demand. This is what the forecast demand looks like now.

That’s a bit of a gap, isn’t it?

I think that gap is why the Saudi oil minister described the IEA report as a sequel to “La-La Land”

I wonder how we might fill that gap, what if the oil and gas business isn’t dead, and what if coal isn’t a goner, as it obviously is in the IEA’s scenario; what if these industries stand their ground and deliver the energy they did in 2019, before all the unpleasantness.

Well, we might just make it, and I’m sure the oil and gas industry can fill in the gaps, so that people don’t actually suffer in energy poverty.

Maybe this ageing tiger shouldn’t hang up his boots, maybe, as Sarah Palin said, “It’s time to drill, baby, drill”.

via Tallbloke’s Talkshop

June 13, 2021 at 09:48AM

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