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Strong global demand for oil will continue because emerging nations will choose the most economical, energy-dense fuels for growth, an expert said during an Offshore Technology Conference webinar on June 9. This will occur even as developed nations turn away from fossil fuels toward renewables.
“When you talk about the world of energy, it is definitely a world of haves and have-nots,” Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, told viewers.
For an idea of how that world appears, look at the famed National Geographic 2004 Earth at Night image or, more immediately, at the composite picture above. The pictures, built from photos taken by NASA satellites, show where people use energy—and where they don’t.
“If you look, for example, at sub-Saharan Africa, it is not dark at night because there are no people,” Medlock said. “It is dark at night because those people lack access to modern energy services. In that part of the world, we’re talking about over 1 billion people. So, almost as many people as exist in the OECD (Organization for Economic Cooperation Development), but over 1 billion people that do not have access to modern energy services. That is staggering.”
OECD, based in Paris, is comprised of 38 developed countries that are said to represent about 80% of the world’s trade and investment. The white dots of light on the map are predominantly in OECD countries such as those in North America and Europe, and others like Australia, Japan and South Korea. Members’ total population was about 1.36 billion in 2019, according to the World Bank, compared to global population of about 7.7 billion. It’s easy to see where people live in OECD countries on the map because that is where the lights are on.
“Now, will that be the status quo that is acceptable going forward? I can tell you, it’s not,” Medlock said. “It’s definitely not. And so that has ramifications for growth and energy demand going forward.”
The Asia-Pacific area, home to about 3.4 billion people, is mostly made up of countries that have grown at rapid rates since the 1990s, he said, but are at different points of development and have different demand levels for energy. Demand in OECD countries, by contrast, has flatlined over the last two decades—typical for post-industrial countries.
“The non-OECD … has really been the driver of all of the growth we’ve seen for the last roughly 50 years in the global oil market,” he said. “So, when we look forward to 2050 or 2040 or 2030, our eyes should wander to the non-OECD, not the OECD.”
But that’s not necessarily where discussions around the impending doom of oil are focused. Much of the discourse, Medlock said, concerns policy activity in OECD economies. For example, those policies target broader electrification, electric vehicles and bans on internal combustion engine vehicles. Those policies, he said, will likely have an impact on oil demand in those countries.
However, given that growth is driven by non-OECD countries, those discussions may not matter. China and India, for example, are big drivers of global oil demand. So, the world is experiencing a redistribution of oil demand and, with it, continued growth of CO2 emissions in the developing world.
That is a critical point: emissions concerns dominate climate change discussions in developed countries, but developing countries need to be part of those discussions. Will non-OECD countries respond to climate change pressures by examining existing paradigms of energy delivery systems and supply chains to move away from oil or rethink how oil is consumed?
Medlock said that remains to be seen.
“It certainly requires a lot of capital investment,” he said. “It requires some tremendous innovation and adoption of new technology, so it’s important to note that, while that may seem a little more clear in terms of a path forward in the developed world, in the developing world, it is anything but.”
Energy Density is Key
As emerging economies develop, how will the energy demand for turning on lights in sub-Saharan Africa, for example, be met? Electricity alone? A combination of electricity and fossil fuels? Medlock predicts the latter.
“Quite frankly, there’s very little to convince me that it will be anything different because of the capital intensity in the energy density associated with delivering fuels or energy in different ways,” he said.
Many of the areas looking to grow have very little energy access and would require greenfield ventures to generate power. But energy density, or the amount of energy in a given mass or volume, is important. Greenfield ventures require financing, and when choosing a fuel, officials in those countries have to consider how much energy density can be obtained at what cost. Oil, gas and coal may not be as clean as renewables but they possess higher energy density and they are cheaper.
The U.S. and European Union may have shown reluctance to finance fossil fuel infrastructure, but China has not. The Chinese are financing construction of 150 gigawatts of coal generation capacity outside of China. That presents a geopolitical risk to the U.S. and other Western countries if developing countries become more reliant on Chinese capital and expertise, Medlock said.
The fact is, the bright lights of industrialization on the map represent development and movement of goods with energy-dense sources, specifically oil, gas, coal and nuclear.
“None of that stuff was driven by wind and solar,” he said. “I’ve had conversations with folks in sub-Saharan Africa leadership. They’ve all actually made that exact argument to me.”
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