Last year, in the middle of an energy crunch, European governments called on their citizens to consume less energy. They also lashed out at Big Oil for making billions from the squeeze.
Now, Big Oil is the one calling for a reduction in energy consumption. Essentially, supermajors have suggested that people should use less of their products. But they don’t want to slash production.
The seemingly paradoxical message came out earlier this week from a conference in Vienna, where OPEC leaders met with their Big Oil counterparts from BP, Shell, and other oil companies to discuss the future of global energy.
As might have been expected in this day and age, the message to come out of the gathering was that everyone is committed to a net-zero world in the future but that right now, everyone was committed to ensuring there is enough energy for those who need it, regardless of the source.
What was, perhaps, less expected was the reported call from Big Oil for governments to focus on demand reduction rather than supply limitation as a means of enabling that net-zero world. OPEC officials, meanwhile, focused on the importance of energy security as they have done before.
“We must do everything we can to reduce emissions, not to reduce energy,” OPEC secretary-general, Haitham al Ghais said, as quoted by Euronews. “There is a misconception going around about reducing production and reducing investment in oil and gas, we do not agree with that message.”
One would assume the reason OPEC disagrees with this message is that it would lead to lower profits for its members. But according to Big Oil, the motive for switching from a focus on supply to one on demand will avoid even higher profits for oil producers. Not that the executives put it quite this way.
The report on that call comes from Reuters, which was once again refused access to the conference but quoted sources present there. And that call follows statements made by Big Oil executives that they will slow down with their pivot away from their core business.
From an activist perspective, Big Oil is trying to justify its renewed focus on oil and gas at a time when oil and gas are making record profits. From an energy security perspective, it is difficult to argue that reducing the supply of a commodity while leaving demand unchanged could only have one result: a sharp rise in the price of that commodity.
Of course, there is a case to be made that right now, despite stable and growing demand for oil, prices are depressed—but this is because factors different from oil’s fundamentals are running the show, as it were. These factors include GDP growth in big consumers, inflation, and central bank monetary policy. But there is also the perception that there is an abundant supply of oil that has contributed to the pressure on prices.
So, what Big Oil executives are basically saying is that governments—and activists—have got the wrong end of the stick: they are trying to reduce the supply of oil and gas without addressing demand. And that is an approach that is doomed to failure, as we saw last year when the same governments that berated Big Oil for its profits subsidized the consumption of Big Oil’s products to avoid riots on their hands.
Meanwhile, at another recent event, other Big Oil executives dared speak a truth that few leaders in the West would even acknowledge in private. That truth amounts to the fact that oil and gas are going nowhere in the next few decades, no matter what green transition plans governments are making.
“We think the biggest realization that should come out of this conference … is oil and gas are needed for decades to come,” is how Hess Corp.’s John Hess put it. “Energy transition is going to take a lot longer, it’s going to cost a lot more money and need new technologies that don’t even exist today.”
Naturally, this would be a welcome opportunity for a climate advocate to argue that Big Oil is trying to save its bacon when the world is turning vegan, but even that climate advocate would be hard-pressed to explain why, if the world’s moving away from hydrocarbons, China is building coal plants and India is building refineries.
The truth is that the world is not moving away from hydrocarbons. Demand for oil has hit 102 million barrels daily. Demand for gas is soaring, too, notably from transition poster continent Europe. U.S. oil consumption is also growing after a drop in 2020—the lockdown year.
There may be something, then, in a call for addressing demand for oil and gas instead of calling for less production. But addressing demand with a view to essentially discouraging it will be tricky—and also highly unpopular among voters. Germany is a good example worth studying by other transition-minded countries. It shows that forcing the transition down people’s throats does not usually yield the expected results.
By Markets Insider, July 31, 2023
