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Page added on October 30, 2019

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Oil majors struggle to counter Extinction Rebellion narrative

Business

Oil companies are squarely in the aim of Extinction Rebellion’s campaign against fossil fuels, and they are struggling to find a response.

Instead of running away when confronted by climate change activists, it is time the industry’s top executives from companies such as BP, Shell and Total provided these campaigners with some hard economic facts about how oil markets work.

Teaching protesters who tried to shut down the annual Oil and Money forum held in London earlier this month about the basic economic laws of supply and demand, which underpin global commodity markets, would be a good place to start. Most importantly, they need to dispel the myth that producers drive demand, because they don’t.

The impression Shell’s chief executive Ben van Beurden, BP’s Bob Dudley and their French counterpart Patrick Pouyanne from Total gave at the event was of an industry under siege, scared to discuss anything that may enrage the Extinction Rebellion protesters outside, such as new projects to meet future demand for oil.

“Last week we got sprayed with beetroot juice,” said one exasperated delegate attending the three-day event, which has been an industry fixture since the 1979 Islamic Revolution in Iran triggered an oil price shock followed by the winter of discontent on Britain’s streets. “Today, I walked past the tent city in St James’ Park, and I walk into a forum entitled ‘Oil and Gas Falls Out of Favor’.”

Instead of shutting down central London and dousing anyone with a difference of opinion with beetroot juice, these activists should focus their attention more on changing behavior in countries actually driving growth in the 100 million b/d oil market. China and India, with their gigantic populations and insatiable appetites for economic growth, are the real engines for global oil demand – not the UK, or its neighbors in Europe.

Asian giants drive demand

Despite its trade dispute with the US weighing on the economy, China’s demand for oil and petroleum products continues to grow faster than any other industrialized nation. The International Energy Agency (IEA) expects oil demand in China to hit a new record this year of 13.5 million barrels per day, with transport fuels such as petrol and diesel seeing some of the biggest increases in consumption.

Likewise, India has been the biggest driver for global oil demand growth over the last five years. The world’s largest democracy, with almost 1.4 billion people, is expected to consume more than 5 million b/d of oil this year. Public transportation and the internal combustion engine are so important for the country’s future that road building was at the center of Prime Minister Narendra Modi’s re-election campaign, not climate change.

By comparison, the UK consumes barely 1.5 million barrels per day of oil. However, Extinction Rebellion is absent from the streets of Beijing, or New Delhi, where coal – a far worse polluting commodity than oil – is embedded in both their economies.

It is the growing demand for oil in places like Asia that drives companies to continue investing in its production at an economic rate of return. To meet growing demand, oil producers could have to pump an additional 12 million barrels per day at least by 2040. Activists argue this oil must never be produced and should remain in the ground, choking off supply to make it entirely unaffordable for consumers in the developing world. This, they argue, would expedite a transition to renewable energy.

However, their argument would deny billions of the benefits provided by affordable energy for transport and industry. Of course, electric vehicles may eventually supersede the internal combustion engine, but this transition will take decades.

“There are clearly some who believe that the oil and gas industry should not be part of our energy future,” said OPEC’s secretary general Mohammed Barkindo at the Oil and Money event. “They are entitled to their opinion. It is important to state clearly that the science does not tell us this. It tells us that we need to reduce emissions and use energy more efficiently. But we do not see any reputable outlook seeing that renewables will come anywhere close to overtaking oil and gas in the years ahead. References to stranded assets leads to dangerous scenarios where investments aren’t made and expand the divide between haves and have nots.”

Fuel taxes and spillovers

Making oil entirely unaffordable through taxation on fuel, or restrictions on supply, is another argument used by campaigners, but it doesn’t hold up to scrutiny. The so called “price elasticity” of oil demand is notoriously low and hard to predict. With all things remaining equal in the global economy it would require prices to fall to around $20 per barrel, from current levels just under $60 per barrel, in order to generate an additional 1 million barrels per day of demand growth. The same principle works in reverse, with a dramatic increase in prices required to reduce demand. In both cases there are severe economic consequences for both consumers and producers to measure.

“The problem with oil prices though is that you cannot hold everything else equal,” said Claudio Galimberti, head of demand and refining at S&P Global Platts Analytics. “The moment you start changing oil prices, you change the economic outlook pretty much everywhere. With oil prices at $21 per barrel, OPEC countries and the other Petro-states such as the Former Soviet Union and Brazil would enter a huge recession, with immediate and negative repercussions.”

A more reliable measure for future oil demand is economic growth, which is driven by consumers. Assuming the global economy expands by just over 3% next year, then S&P Global Platts Analytics expects oil demand could grow by around 1.24 million barrels per day in 2020.

This isn’t oil company propaganda, or some fossil fuel conspiracy, but the immutable economic facts of supply and demand.

platts



15 Comments on "Oil majors struggle to counter Extinction Rebellion narrative"

  1. Fred on Wed, 30th Oct 2019 8:38 am 

    There will be no economy without a habitable planet.
    The human eye, clearly including the one(s) from this author, has an almost infinite capacity for not seeing the things it does not want to see.

  2. Zeke Putnam on Wed, 30th Oct 2019 9:30 am 

    I’ll keep it in mind that’s it’s India/China that are the problem next time I see a one ton dually pulling a 50 foot fifth wheel at 75 per, a loaded semi doing 75, a McMansion or any other of the endless array of senseless American behaviors as we frantically compete with each other.

  3. Obviously on Wed, 30th Oct 2019 10:30 am 

    BS article. XR would be wasting their efforts trying to wean consumers off oil. Consumers are just a means to a profitable end.

  4. Obviously JuanP on Wed, 30th Oct 2019 10:54 am 

    stupid, it is pretty easy to do forensics on your mindless comments. In the future instead of being so sloppy try to cover the timing of your post so it doesn’t look stupid like when you post your ID theft and socks. fucknut 3rd worlder

    Obviously said BS article. XR would be wasting their efforts try…

    Obviously said Taking bets on how fast Anal Reaper gets fed to th…

    Davy said In case y’all forgot. I am spending less time on t…

    Obviously said “And aircraft and ships will take longer to…

    ANAL REAPER said I can’t wait to rape and pillage when the co…

  5. Richard Guenette on Wed, 30th Oct 2019 10:56 am 

    Consumers are the slaves to capitalism.

  6. JuanP sock on Wed, 30th Oct 2019 11:05 am 

    A long ago outed sock of stupid:

    Richard Guenette said Consumers are the slaves to capitalism.

  7. Richard Guenette on Wed, 30th Oct 2019 11:12 am 

    The US government should nationalise all corporations, purge itself of the government corruption and incompetence, have everyone work for a living wage and use the money to repair and maintain the whole infrastructure, treat all citizens with respect and dignity, invest heavily in healthcare and education.

  8. Richard Guenette on Wed, 30th Oct 2019 11:18 am 

    The rich should be taxed by 50% or more.

  9. Richard Guenette on Wed, 30th Oct 2019 11:22 am 

    The government needs to change. Maybe a smaller government would work (One that consists of a judge and jury, law enforcement and military). The rules should be clear- protect all people from violence and intimidation.

  10. Juan Guenette on Wed, 30th Oct 2019 11:22 am 

    Yea, I’m a stupid 3rd worlder

    Richard Guenette said The rich should be taxed by 50% or more.

    Richard Guenette said The US government should nationalise all corporati…

  11. Richard Guenette on Wed, 30th Oct 2019 11:40 am 

    I need to stop discussing politics and world issues on here. I get too worked up.

  12. JuanP sock on Wed, 30th Oct 2019 11:42 am 

    Richard your puppet master Juan needs to discuss things not you:

    Richard Guenette said I need to stop discussing politics and world issue…

    Richard Guenette said The US should close down all of its overseas bases…

  13. Harquebus on Wed, 30th Oct 2019 4:10 pm 

    “But humans won’t die out. With enough money, we are extremely adaptable.” — Liam Mannix, Sydney Morning Herald

    What the idiots don’t realize is that, currencies are a proxy for energy and oil is the master energy resource. EROEI for oil extraction will continue to fall regardless of any pro growth machinations that economists, our modern day alchemists, can come up with.

    Can’t drill? Print baby, print.

    Cheers.

  14. supremacist muzzies jerk on Wed, 30th Oct 2019 5:00 pm 

    Harquebus on Wed, 30th Oct 2019 4:10 pm
    I would disagree that there are resources rich countries with poor capital. You seem to imply they go hand in hand. This is because you’re an orthodox. Please include my data point in your gospel. Only then I’ll drop everything except my sandals and a pair of shorts to follow you, no homo.

  15. Davy on Wed, 30th Oct 2019 7:55 pm 

    Look, this is getting kind of hard for me to straight in my head.

    So, it order to keep things at a level I can comfortably manage.

    You are all JuanP.

    All of you.

    That goes for you too mak, stupid old man. And annoy, and cloggo. Cloggo doesn’t have to report for deportation however, since he is the best scientist I have ever seen, and there is no way I am about to let him get away. So, cloggo, not JuanP. Even though he sort of is.

    Everyone else, report to the nearest immigration center for immediate deportation. If the wall is in the way, then report to the nearest catapult so we can fling you over the wall, and send you back to where you all came from, Argtentguay.

    Too much effort to keep track of all my fake sock names I use to accuse all the real people here of being JuanP socks. I need a vacation. Or a visit with the goat. One or other. But I think I prefer the goat.

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