July 12, 2024 - 10:00am
There is a saying ascribed to the statistician Nassim Nicholas Taleb that captures what is currently happening in global energy markets: “I have seen gluts not followed by shortages, but I’ve never seen a shortage not followed by a glut.” After the energy crisis of 2022 following Russia’s invasion of Ukraine, we are now most likely entering a period of a “staggering oil glut” as the Financial Times reported last month.
While the “geopolitical risk premium” keeps prices elevated, BP has just issued a profit warning based on weak trading, at the same time as pressure rises on shares of Shell and TotalEnergies. Investors are clearly worrying about future returns as the companies reduce oil and gas production.
Not all companies, however, are reacting in the same way. While we see a scaling back in Europe, like BP is doing at its Gelsenkirchen refinery in Germany at a cost of $2 billion, we are witnessing an expansion of economic activity in the US. American oil companies are on a mergers-and-acquisitions spree, positioning themselves for the inevitable post-glut price surge.
This is mainly due to these companies knowing how commodity markets work. As with everything, the price of oil rises and falls over time. When prices surge, demand usually decreases, prompting new investments in supply. Conversely, when prices plummet, new markets for oil emerge, particularly in developing nations.
This means that, unfortunately for consumers, any oversupply is most likely to be short-lived. The long-term demand for hydrocarbons is still steadily climbing in a gently oscillating upward trend, despite the Net Zero fixation. Equipped with this knowledge, oil companies are generally prepared to increase output over time, but they will also attempt to do so in the most profitable way possible, which means retaining a level of scarcity.
The expectation in the United States is that the domestic reserves of oil and gas will continue to be exploited, and that a slowdown in demand and an excess in supply is at best temporary. Given the long-term nature of capital investments in oil and gas infrastructure, even at times of low profitability investments are likely to pay off, especially if Donald Trump and his pro-drilling policies make a comeback in the White House.
In Europe, however, expectations are the exact opposite. Just take a look at the new British government under Keir Starmer, which plans to increase windfall profit taxes on the oil and gas industry, end the issuance of new exploration licenses for the North Sea, and significantly expand wind, solar, and energy storage projects. Add the Left-wing governments of Germany and possibly France into the mix and there really is no incentive left for oil and gas companies to make massive capital investments in energy infrastructure in these countries.
This should be a warning for everyone who believes that there will not be a future energy crisis. Contrary to what optimistic green Europeans might believe, prices will rise again because the underlying global trend is one of increased, not decreased fossil fuel demand. We have not even reached the global peak of fossil fuel demand, which is expected to take place before 2030.
From AI to data centres to the developing world attempting to catch up economically, many advancements are extremely energy-intensive. Google’s energy consumption has increased by nearly 50% in the last five years due to AI alone. If European companies scale back production, then European countries will be forced to import energy at a price over which they have no control.
The green energy transition may turn Taleb’s maxim on its head, at least for European countries on the warpath to Net Zero: after this glut, a costly shortage could follow.
Ralph Schoellhammer is assistant professor of International Relations at Webster University, Vienna.
Raphfel
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That’s what happens when you get Politicians with little grasp of science & math begin to virtue signal. The climate is changing and we can work to address that but the Global South will not stop using the cheapest fossil fuels they can find to increase their standard of living. Whatever the UK or EU do in terms of emission reduction will be dwarfed by the increase from the Developing World. And they are tired of being lectured by the Developed Worlds that used FF to build their standard of living and caused the change in climate. Search for the video of the BBC reporter grilling the President of Guyana on their oil drilling & CC to see how that goes…
Is the word ‘math’ a new fashion? for as long as I can remember it has always been ‘maths’.
Maths in the UK. Math in America.
They say it correctly in the UK, incorrectly in the States
American use of the word ‘math’ is a profound error
Even to say it will be ‘dwarfed’ is an exaggeration. It will be utterly meaningless.
Thank you for the info about this stupid BBC reporter
At least when the West developed its population grew in tandem with higher energy use and increasing standards of living.
Unfortunately, the developing world got very high population growth at the cost of a low standard of living.
Catching up to developed countries living standards, starting with large populations will put higher stresses on the environment.
The pity is that much of the developing world could have had more modest rates of population growth, higher per capita energy use, higher standards of living, and a better environment. Countries like Ethiopia are starting from a position that makes the challenges more daunting; large and still rapidly growing population, very poor, and a clapped out environment.
Here’s a question: Europe taxes fossil fuels and increases regulation. Trump grants drilling rights all over the place and deregulates, creating a cheap energy, high growth economy. Where will every spare penny available for investment in the UK and Europe go, even without the massive head start that the US has in A1?
It’s a no-brainer, isn’t it?
The long-term demand for hydrocarbons is still steadily climbing in a gently oscillating upward trend, despite the Net Zero fixation.
Yet the fixation will continue, driven by people who believe managing the climate is within their purview, damn the consequences to the little people who would be harmed along the way. The sad reality is that everything outlined in this article, including the insatiable appetite of the AI machine, is either news to the climate cult or an inconvenient truth that is best ignored.
BP just predicted that oil demand will peak in 2025, being one of the largest oil companies in the world you would think they have a pretty good idea. Even if it doesn’t happen then, it will peak soon afterwards, no matter what the fossil fuel industry wishes. Getting the world less dependant on fossil regimes in the middle east , Russia and elsewhere from this ungodly destructive and manipulated commodity which is a global cause of conflict and environmental destruction will be the best thing that can happen to the human race in the coming decades. If it it doesn’t happen and you have children, be very worried about their future.
Yet BP is divesting itself of wind and solar projects to concentrate on oil production, as are almost all the major oil companies. Funny that. Even the International Energy Agency, which has been captured by the cult of climate alarmism, doesn’t predict peak use of fossil fuels until 2030.
And this is based on some laughable assumptions.
• Almost 10 times as many electric cars on the road
• Renewables’ share of the global electricity mix jumping from 30% to almost 50%, with a surge in solar PV
• Heat pumps and other electric heating systems outselling fossil fuel boilers
• Three times as much investment going into new offshore wind projects than into new fossil fuel power plants
China presently is doing 2/3 of the global renewable energy investments, the US is way behind the 8 ball, better get going soon or your economy will be falling behind big time. Also the global auto industry in China, Japan and Europe are surging ahead with full array of EV choices. Other than Tesla, GM and Ford are way behind, better start catching up soon or those auto companies will need bailouts again. There are big improvements in battery technology in the cards making EVs even more efficient. Countries that refuse to make the transition, their economies will be left in the dustbin of history, and will remain at the mercy of Opec and other corrupt regimes that depend on fossil fuels. If you want to make the middle east irrelevant, convert, otherwise remain at their mercy. As for climate alarmism, you ain’t seen nothing yet, you better believe it.
Wow. There is a lot to unpack here. China is certainly building a lot of wind and solar. It is also building more coal plants than the rest of the world combined. China uses coal fired power plants to build solar and wind products that it sells to Europe and America.
EV sales are actually declining. It’s not that they are rising slower than expected, they are actually declining. EVs are too expensive and unreliable. No one would build these things if govt mandates were not in place. That’s why Ford has cut $12 billion in EV spending. That’s why GM has dropped plans to build 400,000 EVs in 2024.
Solar and wind are the most expensive forms of energy. That’s why countries with the highest penetration of wind and solar, like Denmark, Germany and Britain, have the highest energy prices in the world. No one wants to invest in countries with high energy costs.
Histrionic climate alarmists have been preaching end times for literally 35 years now. Yet here we are – business as usual. The list of failed predictions, like the collapse of agriculture, island nations being swallowed up by the sea, is so long that it’s absurd by now.
The problem is that the US is moving too slowly, they need to upgrade the electric grid which is a mess, they need to put the charging infrastructure in place, they need to increase electricity capacity, look at nuclear power again in addition to solar and wind. It’s not true that electric cars are too expensive when they will be mass produced, battery technology is improving all the time as well. Why are the world’s largest auto companies going there? Toyota, Honda, Volkswagen, BMW, etc, they will all have a full array of ev’s, there will hundreds of models on the market by 2030 at all kinds of prices. China already has a huge ev industry, India and other countries are getting going. Permanent dependence on fossil fuels is suicidal, reserves are diminishing and new sources are getting more expensive to tap. You will be at the mercy of rising oil prices and geopolitical risk from those oil producing forever, and the middle east shitshow. Without even getting into the environmental catastrophe that this will cause future generations, which by the way is slow moving but accelerating, if you are still around in 30 years you won’t recognize this world and the trillions it will cost to contain the damage.
I’m totally on board with nuclear energy. The problem is that histrionic climate alarmists are not. They insist on wind and solar. I suppose this is shifting somewhat, but it is still dwarfed by expensive and unreliable wind and solar.
By the way, Toyota has never invested in EVs in a meaningful way. It has become the world leader in hybrids, a much more sensible alternative.
The demand for fossil fuels will go on rising. Air conditioning in homes and factories is transforming the lives and economies of people in the hot countries – just as it did in the US Deep South in the seventies – and there’s a long way to go before the increase in that demand will even begin to taper off. Try telling then they can’t have it.
Whilst renewables have a place in society, such as electric vehicles in big cities, a 100% renewables dream does not have a place. It is unfortunately being promoted by people with little understanding of the technical challenges and associated cost.
When challenged, these elites use the catch all justification, that without such changes we are all doomed. Unfortunately the climate data still does not support this conclusion .. nor the IPCC reports actually …. Fortunately more courageous scientists are coming forward to say just this.
Fundamentally the elite are are bullying the less well off, through taxation, virtue signalling and policies, into paying for a revolution that the less well off cannot afford and is destroying their livelihood. It is morally indefensible. For me it is almost criminal.
I believe that in the next 10 years, when the climate catastrophe mania dies down, a more educated view will emerge as to where renewables would be appropriate.
Nuclear and also the “ungodly and manipulated commodity” will still play an important role, unless of course, the small minded luddites manage to wipe out entire economic assets in which case we can go back back to using hand tools.
It’s an “ungodly destructive and manipulated commodity which is a global cause of conflict”, because no one can do without the stuff.
Even if you managed to power your country without oil (no one has come close anywhere in the world, let alone in an advanced industrial economy) where do you think the raw materials for pharmaceuticals, and the plastics in virtually every item we use come from?
You are deeply naive.
It’s about reducing over time, not eliminating, there will always be a need for fossil fuels for petrochemicals, plastics, etc. Plastics is another issue that is out of control, subject for another day. What is naive is that fossil fuels are a limited resource, which is depleting, start dealing with that now because the transition will take decades, or face the consequences of much higher prices in the future and being at the mercy of petrostates. Never mind the environmental catastrophe that burning it all will cause.
Ah, so it’s all going to plan, isn’t it?
We haven’t even reached peak wood or coal, let alone oil and gas.
Every single policy European politicians come up seems specifically designed to impoverish and otherwise ruin the place. These people are idiots.