The End of Oil?
It’s Friday. It’s 8th May.
I’m Anthony Day and this is the Sustainable Futures Report.
Hostage to Fortune
I’ve called this episode “The End of Oil” and that’s a hostage to fortune for two reasons. First, I’m no oil expert, I’m just a commentator. Secondly, I know at least one oil industry expert listens to the Sustainable Futures Report. I chose the title because it’s the title of a book by Paul Roberts. I read it back in 2005, and it set me off on the sustainability and environmental route which I’ve followed ever since. It inspired me to write my own 2007 book, “Will Climate Change Your Life?” Don’t look for it - it’s totally out of date!
Things have changed fundamentally since 2005. At that time Paul Roberts’ message was that we were running out of oil. The global economy, based on oil products, was facing collapse as oil reserves were being used up faster than new ones could be found. Those that were being found were frequently classed as “stranded assets” - in areas so remote and hostile that it was certainly uneconomic and close to impossible to get them out.
The came the American shale revolution and the US became the world’s largest oil producer. There’s so much oil around that when demand fell last month by 30% or 40% as a result of the COVID19 lockdown the price not only collapsed but went negative. Faced with no customers and nowhere to store their oil, producers paid investors to take it off their hands. The price has come back to positive but in the mid $20s it’s significantly lower than the $65 at the start of the year.
The end of oil is no longer something we’re afraid of because it might happen, leaving us with a stalled economy and global depression. The end of oil is now something we want to happen - at least an end to the burning of oil - which produces unsustainable pollution and greenhouse gases. Oil as a feedstock for chemicals and plastics will probably be with us for years to come. But how truly realistic is an end to oil?
News from the IEA
In its April Oil Market Report the International Energy Agency states:
- Global oil demand is expected to fall by a record 9.3 mb/d year-on-year in 2020. The impact of containment measures in 187 countries and territories has been to bring mobility almost to a halt. Demand in April is estimated to be 29 mb/d lower than a year ago, down to a level last seen in 1995. For 2Q20, demand is expected to be 23.1 mb/d below year-ago levels. The recovery in 2H20 will be gradual; in December demand will still be down 2.7 mb/d y-o-y.
- Global oil supply is set to plunge by a record 12 mb/d in May, after OPEC+ forged a historic output deal to cut production by 9.7 mb/d from an agreed baseline level. As April production was high, the effective cut is 10.7 mb/d. Additional reductions are set to come from other countries with the US and Canada seeing the largest declines. Total non-OPEC output falls could reach 5.2 mb/d in 4Q20, and for the year as a whole output may be 2.3 mb/d lower than last year.
“Looking beyond the immediate imbalances in the market”, the IEA pointed out to the G20 energy ministers that, “although low prices might appear to be attractive to consumers, they are of little benefit to the approximately 4 billion people living under some form of COVID19 lockdown. Also, low prices impact the livelihood of millions of people employed along the oil industry’s extensive value chain, and they damage the economies of weaker producing countries where social stability is already fragile.”
They continued, “Low prices threaten the stability of an industry that will remain central to the functioning of the global economy. Even with demand falling by a record amount this year, oil companies still face the challenges of investing to offset natural production declines and to meet future growth. Global capital expenditure by exploration and production companies in 2020 is forecast to drop by about 32% versus 2019 to $335 billion, the lowest level for 13 years. This reduction of financial resources also undermines the ability of the oil industry to develop some of the technologies needed for clean energy transitions around the world.”
The IEA (International Energy Agency) has also released its 2020 Global Energy Review, taking a broader perspective.
“This is a historic shock to the entire energy world. Amid today’s unparalleled health and economic crises, the plunge in demand for nearly all major fuels is staggering, especially for coal, oil and gas. Only renewables are holding up during the previously unheard-of slump in electricity use,” said Dr Fatih Birol, the IEA Executive Director. “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”
The Global Energy Review’s projections of energy demand and energy-related emissions for 2020 are based on assumptions that the lockdowns implemented around the world in response to the pandemic are progressively eased in most countries in the coming months, accompanied by a gradual economic recovery.
The report projects that energy demand will fall 6% in 2020 – seven times the decline after the 2008 global financial crisis. In absolute terms, the decline is unprecedented – the equivalent of losing the entire energy demand of India, the world’s third largest energy consumer. Advanced economies are expected to see the biggest declines, with demand set to fall by 9% in the United States and by 11% in the European Union. The impact of the crisis on energy demand is heavily dependent on the duration and stringency of measures to curb the spread of the virus. For instance, the IEA found that each month of worldwide lockdown at the levels seen in early April reduces annual global energy demand by about 1.5%.
Changes to electricity use during lockdowns have resulted in significant declines in overall electricity demand, with consumption levels and patterns on weekdays looking like those of a pre-crisis Sunday. Full lockdowns have pushed down electricity demand by 20% or more, with lesser impacts from partial lockdowns. Electricity demand is set to decline by 5% in 2020, the largest drop since the Great Depression in the 1930s.
At the same time, lockdown measures are driving a major shift towards low-carbon sources of electricity including wind, solar PV, hydropower and nuclear. After overtaking coal for the first time ever in 2019, low-carbon sources are set to extend their lead this year to reach 40% of global electricity generation – 6 percentage points ahead of coal. Electricity generation from wind and solar PV continues to increase in 2020, lifted by new projects that were completed in 2019 and early 2020.
“Resulting from premature deaths and economic trauma around the world, the historic decline in global emissions is absolutely nothing to cheer,” said Dr Birol. “And if the aftermath of the 2008 financial crisis is anything to go by, we are likely to soon see a sharp rebound in emissions as economic conditions improve. But governments can learn from that experience by putting clean energy technologies – renewables, efficiency, batteries, hydrogen and carbon capture – at the heart of their plans for economic recovery. Investing in those areas can create jobs, make economies more competitive and steer the world towards a more resilient and cleaner energy future.”
So the energy market will be much changed, but oil will still be with us. There are still millions of cars in the world which run on petrol or diesel, and many people coming out of lockdown will no longer have the resources to buy a new car as they might have wished, and certainly not an electric car which of course doesn’t use oil. At the moment electric cars are more expensive to buy although very much cheaper to run. I read that the car makers are doing everything to get back to production as soon as possible, but will the demand be there? In April a total of 4,327 new cars were registered in the UK, a drop of 97% from April last year and the lowest level since 1946. Hardly surprising since car dealers were locked down like everyone else for the whole of the month: in fact it’s surprising that any were sold at all, but will demand really come back? While existing cars are retained for another year or more there will still be demand for petrol and diesel, although working from home may persist after lockdown, cutting commuting miles and depressing fuel demand. On the other hand, as more and more goods are home-delivered there may be an upturn in demand for diesel.
Global road transport accounts for over 50% of global oil demand. By the end of March, activity was almost 50% below the 2019 average. Aviation accounts for about 6%, and by the same time flying declined by some 60%. In some areas of Europe aviation activity has declined by as much as 90%. April’s figures will probably be worse.
At the moment British government overseas travel advice is to avoid all but essential travel and its country-specific pages concentrate just on ways to get home. Even if you can set off, countries have restrictions on who can enter. It’s difficult to see how quickly air travel will get back to normal, if ever. Well-known investor Warren Buffett has sold all his holdings in airlines, even though he had to sell at a loss. Presumably he thought that losses could only get bigger. It’s difficult to see oil demand from aviation reviving any time soon.
Airlines are petitioning governments for support - one is even offering a tax-haven island as collateral - but environmentalists are lobbying equally hard to stop taxpayers’ money going to to a polluting industry
So are we seeing the end of oil?
Of course not. There are far too many vested interests riding high in the background. An interesting angle comes from Canada courtesy of listener Mac Einarson over there in Nova Scotia.
News from Canada
I’ve mentioned the Alberta tar sands several times in the past, as well as the controversy over the pipeline needed to get the product to the coast. It’s by no means plain sailing once the tankers leave Vancouver. You may remember the amazing video showing the narrow and hazardous passage from the port out to the Pacific. I’ve put the link on the blog.
Mac has brought me up to date with a statement from the Canadian government which starts like this:
“The Prime Minister, Justin Trudeau, today announced that the Government of Canada has approved the Trans Mountain Expansion (TMX) and that every dollar the federal government earns from this project will be invested in Canada’s clean energy transition.
“The environment and the economy go hand-in-hand. When we create prosperity today, we can invest in the clean jobs, technologies, and infrastructure of the future — and help Canadians benefit from opportunities presented by a rapidly changing economy.
“The key to creating prosperity is finding new markets for our businesses to sell their products and services. Nowhere is the need to diversify greater than for our energy sector, where 99 per cent of our conventional resources are sold to one market — and often at large discounts. Canadians understand that we need to open up new international markets, in order to get a full and fair price, support workers and their families, and foster competitiveness.”
The background to all this is the need to transport the oil from the tar sands in Alberta to Vancouver in British Columbia so that it can be exported to markets in Asia. At present Canada has no option but to export to the US, and with no alternatives the US can largely set the price. The solution is the Trans Mountain Expansion, a new pipeline from Edmonton in Alberta to Burnaby in British Columbia. Work started on this pipeline by private investors but was strongly opposed by the government of British Columbia. A major concern was that the pipeline would pass through the lands of indigenous peoples who were concerned that these lands would be damaged by construction and possibly devastated by a spillage. There were also concerns that the hazardous sea passage from Vancouver to the Pacific presented unacceptable risks of shipwreck and spillage. (See the video I mentioned - it doesn’t look like a video to start with - link on the blog.) After continued opposition from the BC government the developers decided to walk away. At that point the federal government chose to buy the pipeline, to overrule the BC government and complete the project. Initially it was stopped by legal action but that was overturned and BC’s latest legal challenge was rejected in February of this year.
The Prime Minister’s statement makes much of the good jobs that will be created and that every dollar the federal government earns from this project will be invested in Canada’s clean energy transition.
According to World Pipelines there are continuing discussions on the final route of the line, but Pipelines International reports that work continues on all sections despite the ongoing coronavirus pandemic. It looks as though the infrastructure is well on the way to allow Asian customers to burn Canadian oil for many years to come.
I cannot see the morality of this. Isn’t it a bit like selling cocaine to fund your rehab?
And if governments like Canada are promoting the consumption of oil in the face of the evidence of dangerous pollution from oil consumption what hope is there of any country achieving even net zero by 2050?
The Petersberg Climate Dialogue is an established annual meeting that enables countries to have constructive exchanges in an informal atmosphere on the most pressing issues regarding international climate action.
The 2020 Petersberg Climate Dialogue took place online last week. It was the first major climate ministerial meeting of the year, bringing together ministers from 35 countries within the United Nations Framework Convention on Climate Change (UNFCCC) and chaired by Alok Sharma, UK Business Minister, in his capacity as president of COP26. Federal Chancellor Angela Merkel and UN Secretary-General António Guterres also took part.
In his closing statement Sharma said,
“I can tell you that as incoming COP Presidency, our promise from the UK … is that our teams will work night and day to raise the ambition on climate change.
“This does mean more ambition to reduce emissions, more ambition to build resilience, and more ambition to cooperate with each other, as we have done and shown today…
“I do believe we owe that to ourselves and of course to future generations.”
Well, we have the words. Let’s look out for the actions!
The problem is that since the Paris Accord to cut emissions back in 2015, CO2 has actually been rising - although there's currently a blip in the trend thanks to the Covid recession. But that blip is not a reduction in CO2 levels, it’s only a slowing of the rate at which CO2 in the atmosphere is growing. This may seem strange given that we are in lockdown, the streets are silent and far fewer buses, planes and trains are running. Actually transportation accounts for only 20% of global CO2 emissions. The rest comes from electricity and heating- 40%, manufacturing, industry and construction - 20% and 20% from agriculture and other sources. According to Shannon Osaka writing in Grist, the world needs to reduce emissions by 7.6% every year to achieve the 1.5℃ Paris target. The present blip is likely to be a temporary reduction of only 5.5%.
Many people are talking about coming out of the COVID19 lockdown to a greener future. China is easing its lockdown and already emissions are rising.
Planet of the Humans
Michael Moore, well known for controversial documentaries like Fahrenheit 9/11 and Bowling for Columbine, has a new film out. Planet of the Humans has caused outcry among environmentalists demanding it be withdrawn, as it describes renewables as failed technology and accuses the environmental movement of being in the pay of big business. In fact much of the footage and interviews is at least 10 years old and some dates from 2005. The revolution in renewable energy technology has been exponential over that time. Nevertheless, millions of people have seen the film and millions will believe the story it claims to tell. Another one for the denialist lobby! The price of freedom, they say, is eternal vigilance. Eternal vigilance, too, seems to be the price of truth these days.
Dave Borlace has issued a detailed rebuttal of the film. He accepts a couple of points as fair comment but shows how most of it is based on out-dated facts and information which is either wrong or misleads by omission. Dave warns people not to believe what anyone says - even him. So do your own research, although his video is a good starting point.
You’ll find links both to the film and to Dave’s response on the blog, which I’m sure by now you know is at www.sustainablefutures.report.
Well, that's about it for this week. Thank you for bearing with me while I had a week off last week. There will be another Sustainable Futures Report next week on the 15th of May.
I’m Anthony Day.
Thank you for listening; thank you for supporting.
I leave you this week with a short audio clip. It’s the soundtrack from a video shared by Zoe Cohen. The words were spoken by UK Prime Minister Boris Johnson and naturalist Sir David Attenborough back in February at the launch of the UN’s COP26 Climate Conference, originally scheduled for November this year. If you find the link on the blog you’ll see that the video shows the destruction of ancient woodlands in preparation for the construction of the HS2 railway. Compare this with the words. Work continues despite the pandemic. It will cost over £100bn of taxpayers’ money and involve damage to over 100 ancient woodlands along the route. It may achieve Net Zero, but not for at least 120 years.
Have a good week.
End of Oil
Petersburg Climate Dialogue
Planet of the Humans
HS2 and Boris
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