[Editor's note: A version of this story appears in the July 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]
The Great Energy Transition away from fossil fuels that some claim must happen, and that others say is already underway, is one of the biggest events to unfold in our lifetimes. It brings up the specter of peak demand.
“A peak does not necessarily lead to an immediate decline though, and this is where we focus much of our attention,” said Chris Brown, manager of global automotive for Stratas Advisors, a Hart Energy company. He reminded us that “even as dominance within the road transportation sector wanes, crude oil’s footprint will be expanding in petrochemicals and other industrial uses. This will lead to a more specialized, more competitive corporate landscape for crude oil producers and refiners.”
“Peak Oil Demand” featured in the July 2019 issue of Oil and Gas Investor
No one disputes that the world will need more energy. If current population and consumption trends hold up, more of some kind of fuel for transportation and electricity will be needed.
As Bernstein analyst Neil Beveridge wrote: “Over the next 25 years, the world will change considerably. The global population will expand …to 9.2 billion people … Increased per capita GDP will likely drive demand for mobility and petrochemical products, as emerging markets close the gap with the West. The global vehicle park will likely double from 1- to 2 billion vehicles, similar to the global commercial vehicle fleet, which will expand to 790 million vehicles.”
At Exxon Mobil Corp.’s annual meeting in May, CEO Darren Woods took note of these trends. He said, “For the next 15, 20 to 30 years, it’s hard to imagine when you look at the numbers a scenario where there’s peak demand.”
But at the same time, the world seeks diverse, safer energy solutions, and urgently, if climate scientists are to be believed. This challenge—energy vs. environmental protection—combines supply, demand, logistic and cost issues for an array of topics: oil, natural gas, LNG, renewables, batteries, lithium, utility capacity, regulation, consumer behavior, research and more layers.
Some of the recently proposed solutions are naïve, glib or physically impossible. The problem is scale. Here’s one good example of that: the U.S. Transportation Safety Administration (TSA) said almost 263 million passengers and crew members would be flying this summer between Memorial Day and Labor Day. How many gallons of jet fuel is that? Will there be enough renewables to replace them any time soon, and affordably? No.
On Memorial Day weekend, AAA said 43 million Americans would drive or fly. How many oil wells, pipelines and refineries does it take to make those gallons of gasoline? Can you tell 10% of the 43 million to just stay home? No.
The chorus for change is growing louder. Some 70 CEOs from many industries swarmed Capitol Hill in May to ask Congress to pass a carbon tax whose revenues are returned to citizens via a dividend. Some majors are walking the walk. BP Plc, Royal Dutch Shell Plc and Exxon Mobil have pledged millions to this carbon dividend campaign and have joined the Climate Leadership Council. They are dipping into renewables as well.
Meanwhile, nearly 50 countries have agreed to use only renewable energy by 2050, according to a Bernstein report. Natural gas or LNG is a big winner here.
Last year, Exxon Mobil attended the Vatican’s climate dialogue, joined the Oil and Gas Climate Initiative and advocated for a carbon tax and strong methane regulations. CEO Woods said the company is focused on reducing emissions through R&D, including next-generation biofuels for transportation, carbon capture for power generation and new industrial processes to reduce energy use.
“The world needs additional solutions,” he said.
The company recently announced it will spend up to $100 million, over 10 years, on R&D with the Department of Energy’s National Renewable Energy Lab and National Energy Technology Lab, to bring lower-emissions technologies to commercial scale. “The agreement adds to our work with more than 80 universities around the world and with five energy centers: at MIT, Princeton, Stanford, the University of Texas and two national universities in Singapore,” Woods said. “In addition, we partner with private sector companies that have unique capabilities critical to potential breakthroughs, such as Synthetic Genomics on algae biofuels.”
NGP’s Bob Edwards commented on peak oil demand during IHS Markit’s CERAWeek earlier this year. “When you look forward to some concept of peak demand, you talk about electric vehicles, you talk about a throttle on fossil fuels and climate change. But the reality is for the next 25, 30 or 40 years, it’s hard to satiate the fundamental demand of … the emerging market of 2 billion people coming into the middle class, demanding some plastics and demanding transportation.
“So I think ultimately for our business in North America, we need to keep focused on the rock, on capital efficiency, on making sure our companies are executing when they say they can drill 70% IRR wells without stumbling …”
When all is said and done there remains a lot of work to do on every front of this battle.
Leslie Haines can be reached at email@example.com.
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