ANARCHY OF THE MARKET

Activists Demand An Immediate End To Oil Production

Editor OilPrice.com
Thu, December 30, 2021

Europe may be in the grips of an energy shortage and forced to reopen retired coal plants to cope but climate activists insist that it is time to part company with fossil fuels, the sooner, the better. According to them, this is a simple solution to the world’s emission problems.

“It is overflowing with too much carbon. The world can’t absorb any more,” said Tom Goldtooth, an activist and the executive director of the North American Indigenous Environmental Network on the sidelines of COP26, as quoted by CNBC. “The simple solution, that we are still demanding, is the world has to turn the valve off.”

Yet the solution of turning off the valve appears to not be as simple as it may sound. Goldtooth is neither the first nor the last activist to call for an immediate end to oil and gas production. Earlier this year, following the release of the latest report of the Intergovernmental Panel on Climate Change, the very head of the UN, Antonio Guterres slammed oil and gas.

"This report must sound a death knell for coal and fossil fuels before they destroy our planet," he said, adding "Countries should also end all new fossil fuel exploration and production, and shift fossil fuel subsidies into renewable energy."

Also earlier this year, the International Energy Agency published a roadmap to net zero, in which it called for the end of all new oil and gas exploration. Only a few months later, the IEA called on OPEC to boost new oil and gas exploration in order to ensure an adequate supply of hydrocarbons amid fast-growing demand.

The IEA’s contradictory stances are a perfect illustration of how challenging the “simple solution” of turning the oil taps off is in reality. Shell’s chief executive put it succinctly in comments on the historic court ruling that obliged the supermajor to cut its carbon footprint substantially.

Related: U.S. Oil Industry Warns Of Sharply Higher Costs

“Imagine Shell decided to stop selling petrol and diesel today,” Ben van Beurden wrote in a LinkedIn post. “This would certainly cut Shell’s carbon emissions. But it would not help the world one bit. Demand for fuel would not change. People would fill up their cars and delivery trucks at other service stations.”

It is the demand side of the hydrocarbon equation that climate activists regularly appear to choose to overlook, focused with laser precision on the production side. When the pandemic started last year, many, including BP, claimed we are already past peak oil demand. As lockdowns eased, however, reality reasserted itself and it turned out that demand for oil has not, in fact, peaked at all.

Now, investment banks, the International Energy Agency, and the U.S. Energy Information Administration are all forecasting greater demand still next year. Investment banks are also projecting higher oil prices because they expect demand to be greater than supply after the first quarter. In fact, some are forecasting much higher prices for oil. What this means, aside from market speculation, is that the supply of oil is expected to remain too tight to meet expected demand for most of 2022.

What this context suggests for calls to turn off the valve is not exactly a better world, although it would certainly be a lower-emission world, for a while. Global emissions fell last year while hundreds of millions stayed home during the lockdowns. As soon as the lockdowns were over, people got out and emissions began to rise. It is hardly a wonder that the idea surfaced that we needed the equivalent of the 2020 Covid-19 lockdowns in order to cope with emission control.

This idea may yet gain traction amid activist calls for an end to oil and gas. Activists—and scientists, by the way—warn that the Paris Agreement targets are impossible to achieve with current efforts. In fact, scientists have estimated that we need to put a lot more effort into reducing emissions, halving current levels over the next eight years, in order to have a chance of meeting the Paris Agreement goals and chiefly the goal of reducing the global temperature rise to 1.5 degrees Celsius by the end of the century.

To be fair, the 1.5-degree scenario was until recently commonly referred to as the more ambitious and therefore less likely to succeed scenario. The 2-degree scenario was the one recognized as more within our powers. Now, it appears that the 1.5-degree scenario is the one we should strive for, whatever it takes.

And whatever it takes might include national lockdowns and, if activists get heard at a high enough level, cuts in oil and gas production, which, as IHS Markit’s Daniel Yergin warned earlier this year, would lead to more energy crunches like the one currently ravaging Europe. Because demand for energy is going nowhere. In fact, demand for energy on a global scale is set to increase substantially in the coming years. Policy-makers and activists both need to refocus their attention on that part of the hydrocarbon equation.

By Irina Slav for Oilprice.com