On the path to the presidency, Joe Biden wasn’t one to mince words with regards to his plans for the oil and gas business. When he was on the campaign trail, he vowed not to approve new drilling for oil and gas on federal lands. Indeed, he quickly proved he meant business by suspending new oil and gas leasing and drilling permits on public lands shortly after he ascended into the Oval Office.
But those were the halcyon days before hard reality, including the aftermath of Covid and Russia’s war in Ukraine, struck. Biden would be forced to go against his core ethos when he famously urged U.S. oil producers to ramp up production amid record crude and gas prices. Democrats were then forced to make a major concession when pushing the IRA bill by including a provision that requires the government to offer specified acreage of federal onshore and offshore holdings for oil and gas leasing in a bid to allow for onshore and offshore renewables development. But that’s not all. Back in March, the Biden administration confounded and infuriated environmentalists after it issued the green light for ConocoPhillips’ (NYSE:COP) long-disputed $8 billion Willow project in Alaska. Activists described the project as a “carbon bomb” and totally incompatible with U.S. climate goals saying it will make it almost impossible for the country to meet its goal to cut C02 emissions in half from 2005 levels by 2030. ConocoPhillips remains the largest producer in Alaska, with extensive holdings in the National Petroleum Reserve-Alaska (NPR-A) and Prudhoe.
But now some climate and environmental experts are saying that Biden should never have been so hell-bent on cutting U.S. production of fossil fuels in the first place. The Energy Security and Climate Initiative at Brookings (ESCI) has released a new paper arguing that curbing oil demand rather than production is the best strategy to fight climate change. The thinktank points out that if the U.S. cut production significantly, other global producers would simply pick up the slack by increasing their production. Meanwhile, the United States would lose energy security while greenhouse gas emissions would simply be shifted to another country. ESCI says that as long as there is oil demand, someone will produce it. For instance, the Tilenga project in Uganda and the Eridu project in Iraq are poised to come online soon, with production capacities of 190,000 and 250,000 barrels of oil per day, respectively, the latter ~40% more than the Willow project. Oil demand has rebounded from pandemic lows, with the International Energy Agency revealing that global oil demand reached an all-time high of 103mn barrels a day in June. According to the global energy watchdog, robust demand was driven by better than expected economic growth in OECD countries, surging oil consumption in China, particularly for petrochemical production and strong summer air travel.
ESCI has hailed the EV transition as one of the more effective ways to lower oil demand. The transportation sector is responsible for nearly 60% of global oil demand, with passenger vehicles and trucks guzzling the lion’s share. EV sales are surging thanks to a combination of new compelling models from automakers, improvements in battery technology, policy support and more charging infrastructure. Electrification is also beginning to spread to new segments of road transport.
That said, it’s going to be a long road considering there are only 26 million EVs globally, of 1.4 billion light vehicles. According to BNEF, just over half of passenger cars sold in the U.S. will be electric vehicles by 2030. Forecasts for the penetration of EV by more than a dozen experts see total passenger car sales by 2030 ranging from 11% at the low end to 63% at the high end while projections for 2050 range from 31% to nearly 100%. In carbon constrained forecasts, BNEF has predicted that passenger vehicle oil demand will fall from about 25 million barrels per day today to 3–6 million barrels per day by 2050. However, most other forecasts are much less bearish and see passenger vehicle oil demand clocking in at 10 million to 20 million barrels per day by 2050.
Finally, the recent move by the EU to move to green aviation fuels might also play a big role in lowering emissions considering the global aviation industry consumes ~15% of global oil production. On Wednesday, EU lawmakers approved new rules that require at least 2% of jet fuel used by airlines to be sustainable as of 2025, with that share to increase every five years to hit 70% by 2050. Wider adoption of such measures could prove decisive in the fight against climate change. However, it’s likely to come at a heavy price with a large proportion of travelers likely to be priced out due to the high cost of sustainable aviation fuels.
By Alex Kimani for Oilprice.com