Fossil fuels won’t be phased out anytime soon

Calls to end all investments in new oil and gas production, protests calling for the immediate suspension of oil production, and denunciation reports from environmental NGOs criticizing banks for their continued funding of fossil fuels have become a constant in life today in the West. But fossil fuels are not going anywhere, at least for the foreseeable future.

“The idea that we can turn off the taps and end fossil fuels tomorrow is obviously ridiculous and naive,” Standard Chartered CEO Bill Winters told CNBC in an interview this week. “Well, first of all, it wouldn’t happen and second, it would be very devastating.”

The reason why this didn’t happen should be obvious and can be gleaned from a quick look at any oil price chart. Global demand for oil is currently greater than the available supply. Hence the prices are high. What followed the loss of a relatively small portion of global supplies with anti-Russian sanctions should suggest what would happen if oil production were to stop completely.

However, the pressure on the oil industry remains and intensifies. Two years ago, the International Energy Agency said that investment in oil and gas exploration should be phased out by the end of 2020 because we won’t need more oil and gas in the future. And now the Secretary-General of the United Nations is Connection Oil-producing countries “dangerous roots” to increase fossil fuel production.

The International Energy Agency, for its part, has upended its calls to reduce oil and gas investments. In just a matter of months, the industry body has reversed its message: it is now calling on oil producers to produce more oil and gas. How long will it take for Antonio Guterres of the United Nations to join these calls for more oil and gas because prices have become unbearable?

Meanwhile, demand for oil remains strong despite environmental protests, despite decried reports, and despite calls for less investment in oil and gas. In its March Oil Market Report, the International Energy Agency said that oil demand in 2022 will rise by 2022 2.1 million barrels per day since last year. This, for example, is about the same as the combined oil production of Nigeria and Venezuela as of March this year, according to the latest Monthly Oil Market Report from OPEC.

However, oil demand is not stable, and this month the International Energy Agency revised downward its demand forecast 1.9 million barrels per day since last year. This is the same co-production of Libya and Algeria. OPEC also revised down its forecast for demand, although it still expects stronger demand growth from the International Energy Agency, at 3.7 million barrels per day.

The reason for the revisions is not the actions taken by climate NGOs and the European government to switch from oil to renewables. On the contrary, the reason for the revisions has nothing to do with climate-related matters at all. Rather, it is about inflation expectations.

The demand for crude oil is an inelastic type of demand. What is that Means is that this demand is fairly stable even when prices are rising or falling. The reason for this inflexibility is the global economy’s dependence on oil – a dependence that many organizations and governments have attempted to challenge for years with limited success.

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The longevity of oil demand is also supported by the emerging debate about making the energy transition one and only. A concept that has been out of the spotlight As students across Europe protest for urgent action on climate change, the idea of ​​a fair transition is finally starting to gain attention.

The idea, as described by Greenpeace, is to “transition to a more sustainable economy in a way that is fair to all – including people who work in polluting industries.”

Indeed, proponents of a fair transition focus on the most important aspect of the transition to less fossil fuel use from an individual’s perspective: that no one suffers negative consequences of the transition.

But besides “people working in polluting industries”, the idea of ​​a fair transition also concerns entire countries in the developing world. Unlike advocates of climate change in the so-called first world, these countries did not have the opportunity to reap all the economic and social benefits of oil-based economies that, according to many, have become industrialized and even post-industrial precisely because of their generosity. Fossil fuel use.

Advocates of transformation only argue that the developed world has no right to deny the developing world these benefits merely because it has reached a level where it is economically comfortable enough to address issues such as the effects of human activity on the environment.

It is the idea of ​​a fair transition that will help secure the future of fossil fuels for some time. For all the promotion of renewable energy as being cheaper than fossil fuels, the fact is that large, rich economies have Largest capacitywhile the poorer countries lag far behind, even in the European Union.

However, oil is ubiquitous – even in the poorest countries. And it will be there for decades.

By Irina Slough for Oilprice.com

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