Big Oil Grows Bolder in Transition Pushback

Until recently, large oil companies tended to stay quiet when governments and activists urged them to accelerate the transition from their products to alternative energy sources. Now, this is changing. And it is changing radically.

At this week’s CERAWeek conference in Houston, this change was especially visible, with several top executives openly calling for a rethink of the transition and caution in the rush to give up oil and gas—which is unlikely to happen anytime soon.

Unsurprisingly, Aramco’s Amin Nasser was especially blunt, saying, “We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately,” as quoted by Reuters. Nasser added that wind and solar are yet to prove themselves as adequate replacements for oil and gas in terms of cost.

Nasser was not pulling any punches, pointing out that oil demand, whose demise has been predicted repeatedly, was going to once again hit a record this year despite those predictions. Indeed, the International Energy Agency, the most prominent outlet making the demise predictions, has now regularly had to revise its oil demand forecasts almost every month in the past couple of years.

It seems that oil demand may continue to grow at a similar pace in the coming years as well. In fact, another oil executive just warned that energy demand globally is set to increase faster than population growth, meaning that oil demand is nowhere near peaking by 2030.

“The world population is going to increase by about 25% between now and 2050, but energy demand will increase faster than that,” Sheikh Nawaf al-Sabah, the chief executive of Kuwait Petroleum Corporation, said at CERAWeek, as quoted by CNBC. He was responding to a question about the IEA’s peak oil demand prediction.Related: Oil Supported By Crude, Gasoline Draws

Al-Sabah added that “The global south will be a large component of energy demand in the future. And it’s only fair to have countries that have – to use a term – energy poverty, be able to exploit natural resources in a clean and efficient manner.”

The comment echoes statements made by African leaders who have slammed the West for preventing their countries from exploiting their energy resources by withholding finance from international lenders such as the IMF and the World Bank.

Private banks in Europe and North America are also reluctant to finance oil and gas projects in Africa, but they are leaving no vacuum. Chinese lenders are happily stepping in to fund oil and gas production in African countries.

The African resource question seems like one that is going to continue garnering growing attention. Africa contains much of the untapped oil and gas resources of the world, and it is difficult to argue with the claim that the West has no moral right to insist African countries skip the oil and gas phase to move straight to wind and solar, which are incompatible with industrialization.

So is the opposition to a rushed transition. Executives at CERAWeek are now openly warning against moving too quickly and applying some caution in the desired switch from oil and gas to full electrification.

A very on-point comment came from Woodside Energy’s Meg O’Neill, who said, as quoted by Reuters, that “It has become emotional. And when things are emotional, it becomes more difficult to have a pragmatic conversation.”

Indeed, there is a lot of emotion in transition conversations, and this has not been productive. It was because of this focus on emotions—fear of an apocalyptic future around the corner—that some major problems with wind and solar remained overlooked for quite a long time, only emerging recently to haunt the industries.

Take wind’s stock market crisis from last year as it emerged that wind energy is not exactly as cheap as advertised and that it cannot be as cheap as advertised because developers won’t make any money from it. Then there was the slowing uptake of solar as some governments began to phase out subsidies, suggesting that it, too, was probably not quite as cheap as advertised.

Naturally, none of these statements will be taken seriously by politicians who have declared their complete support for the transition. U.S. Energy Secretary Jennifer Granholm’s reaction to the above statements was a good illustration.

“That is one opinion,” Granholm said in comments on Aramco’s of Nasser’s forecast for oil demand. “There have been other studies that suggest the opposite that oil and gas demand and fossil demand will peak by 2030.”

Those other studies are the IEA report that Nasser referred to originally, pointing out the prediction of peak demand focused on Western nations while the big driver of additional demand will be the developing world.

Even for Western nations, however, it is difficult to imagine peak oil demand in less than ten years. The average per-capital consumption of oil in the U.S. is 22 barrels annually, versus less than 2 barrels annually for developing countries. Giving up such energy abundance would be quite difficult—and wind, solar, and EVs cannot provide it.

By Irina Slav for Oilprice.com