OPEC PREDICTS

OPEC's annual report predicts soaring oil and coal consumption over the coming decades despite expected uptake of electric cars.

A driver looks at the price as he fills the tank of his car at a gas station in Shanghai, China November 17, 2017. REUTERS/Aly Song


This week we have disappointing news for environmentalists around the world.

According to the Organization of the Petroleum Exporting Countries (OPEC), increased use of electric cars in the coming decades will barely affect oil consumption.

This will be more than offset by the rapid growth of air travel and freight. Further, coal and oil will continue to be primary sources of fuel for power generation, particularly across emerging markets. For the second year in a row, OPEC has reviewed its estimate for global oil demand by 2040 upwards, now standing at 112 million barrels of oil per day, up 4.5 million when compared to last year's prediction.

If this forecast is accurate it means that global demand will grow by over 1 million barrels per year each year.

By 2040, OPEC expects demand growth to progressively slow down, but not to peak.

Most of the increase in consumption will come from developing nations that will continue to rely on hydrocarbon-based forms of fuel to power their growing industrial parks.

Despite great advances in the competitiveness of solar, wind, and hydro power technologies, in many parts of the world, coal, oil, and gas continue to far outperform renewables in terms of pricing for power generation and other purposes.

Petrochemical industries will also severely contribute to the growth of demand in the years to come.

In emerging and developed markets, these indicators promise a longer lifetime for their oil industries, and more time to adapt their economies to the long prophesied and never fulfilled end to the global oil hunger.
On the other hand, these predictions also present dismal prospects for the fulfilment of the Paris agreements and the future of the environment.

The truth is that, despite all the promises and billions invested in programs aimed at reducing carbon emissions across the world, nearly every region of the planet has raised its carbon emissions in recent years.

Big emerging markets like India and Indonesia for instance, saw their carbon emissions grow by 4.4% and 5.5% respectively in 2016, despite its Paris agreement commitments. China and the US, particularly under the current pro-coal and pro-oil leadership, have also been responsible for the worsening of the situation.

But so has Europe. The old continent, for all its environmentalist rhetoric and promotion of green sources of power and electric cars, saw its emissions rate grow by 2.5% on average in 2017, almost a full 1% higher than the global average growth of 1.6%.

The oil price crisis of 2014 could have had an impact on these figures, as oil has become much cheaper and therefore more appealing as a form of fuel.

However, the oil crisis seems to have come to an end this month, with the Brent and the WTI benchmarks recording four-year price highs above USD80 per barrel, following a year and a half of an OPEC and Non-OPEC agreement to cut production in order to bring the price of the barrel to a manageable level.

If the success and historical importance of the agreement are unquestionable, its future is less certain.
At USD80 per barrel, a number of oil fields will again become commercial. Particularly for the high-intensity oil fields of the North American shale formations.

This could again put downward pressure on the price of a barrel if new supply flushes the market.

To add to the uncertainty, US President Donald Trump started quite the debate at the United Nations General Assembly this week when he accused OPEC nations of “ripping off" the rest of the world with high oil prices. He stated that the world needs cheap gasoline in order to continue to foster growth, before describing the US as the world's leading energy producer and a country ready to export oil, natural gas, and “clean coal."

The truth is, the future is cloudy for the energy industry right now. On one hand, a dissolution of the OPEC and Non-OPEC member agreement could dramatically push prices down again as production ramps up in Nigeria, Saudi Arabia, Russia, and others.

On the other hand, selling fewer barrels at a higher price might be better business than the reverse, particularly for oil dependent nations like Angola or Venezuela that have suffered greatly with the oil price collapse. The one thing that seems abundantly clear is that the world is nowhere near as close to ridding itself of oil dependence as one might wish, or as the planet might need.