Climate change: why is oil production growing? – 12/21/2023 – Market

The newspapers are full of texts about the increase in oil production in the world. But they are also full of quotes from world leaders promising to increase subsidies in renewable energy to invest in the energy transition. The situation may seem contradictory, but analysts explain that this is not the case.

The production of both, both oil and low-carbon energy, has been growing, but the available quantity of the latter is not yet capable of replacing the former. Even more so in a world at war, where energy security has become more important than the energy transition.

According to the International Energy Agency (IEA), by 2028 the demand for oil will grow 1% compared to last year’s production, which represents 5.9 million more barrels per day in the world. According to the entity’s report released this month, global oil production this year will be 101.7 million barrels per day (mb/d).

It’s a lot of oil; It’s the largest amount ever seen. And in 2028 demand will be 105.7 million barrels per day. To give you an idea, in the past the oil industry emitted 11 billion tons of greenhouse gases into the atmosphere. In comparison, all of Brazil emitted 2.3 billion.

Global investments in oil and gas exploration, extraction and production are expected to reach their highest levels since 2015 this year, growing 11% per year to US$528 billion (R$2.6 trillion).

At the same time, investment in sustainable energy broke a record in 2022 – according to the AIE itself, it was US$1.7 trillion (R$8.25 trillion). And it should continue breaking records. At COP28, for example, more than one hundred countries committed to tripling the installed capacity of renewable energy in the world by 2030, reaching around 11 thousand gigawatts.

Furthermore, the IEA estimates that global oil production will begin to fall in the next decade, although analysts point out that the pace of this decline is still uncertain.

The reasons for the acceleration in current demand for this fossil fuel are mainly in Asia (China and India) and emerging markets. More specifically, the petrochemical and airline industries are mainly responsible for the increase.

The IEA predicts, for example, that only North America and Europe will reduce their demands by 2028, having decreases of 0.8% and 0.6% respectively. The first should reach 23.5 mb/d by the end of this decade and the second, 14.3 mb/d.

Asia will increase its demand by 2.4% (41.3 mb/d), Africa by 2% (4.8 mb/d), South America and the Caribbean by 1.5% (7.2 mb/d /d) and the Middle East by 1.3% (9.8 mb/d).

“India is a country that is growing at very high rates and is a large importer of energy; they import 80% of the oil they consume. This is the reason, for example, why in 2019 oil consumption was in the range 100 mb/d today we are in the range of 102 mb/d, and could reach 104 mb/d in 2025”, says Roberto Ardenghy, president of the Brazilian Institute of Oil and Gas.

According to a June report by the IEA, the petrochemical industry will be primarily responsible for the increase in oil demand over the next decade. The agency predicts that chemical inputs will represent 2.3 mb/d of about 40% of total oil demand growth from 2022 to 2028.

China has been installing new petrochemical plants on its territory and the country will account for 51% of all new olefin capacity and 48% of incremental consumption of petroleum-based olefin feedstocks by 2028. “This will have a significant impact on distribution petrochemical activity and oil consumption for feedstock over our forecast period,” the report states.

The airline, naval and automobile industries are also pushing for oil production, although they have been making efforts to increase their energy efficiency and enable the use of sustainable fuels. For this reason, the use of oil for transportation fuels is predicted to decline after 2026.

War highlighted energy security

“The world needs energy because without energy there is no economic growth. And, before the pandemic, there was the idea that it would be possible to make an energy transition very quickly”, says Adriano Pires, director of the Brazilian Infrastructure Center.

“But, from the pandemic until now, the world has had a health crisis (Covid-19), a geopolitical crisis (wars in Europe and the Middle East) and an economic crisis (high interest rates) and the conclusion was reached that to do The energy transition is not enough to be concerned about sustainability; it is also necessary to be concerned about the security and reliability of supply.”

Safety and reliability, according to him, today still come mainly from oil, gas and coal – fossil fuels that have driven the economy for years.

Brazil is one of those who bought this idea. According to the Energy Research Company, oil production in the country should reach its peak in 2029. But the deadline could extend for decades if the government obtains authorization to explore the equatorial margin – the MME treats the matter as a priority, despite of the risks that possible exploration at the site would bring to the Amazon region.

Analysts point out that it is precisely due to the possibility of expanding oil exploration areas that it is not yet possible to increase when the demand for oil, in fact, will begin to fall drastically.

“The current trend is for all fossils to continue. At some point, this expansion of fossils will reach its limit; in the case of oil, by the beginning of the next decade. But when the curve will decline will depend on the political economy and the technology; today this is totally uncertain”, says Eduardo Viola, professor of international relations at the Institute of Advanced Studies at USP and FGV.

He points out that political lobbying by the oil industry around the world continues. In Brazil alone, for example, the value of subsidies given to the production and consumption of fossil energy rose by 20% in 2022. In Europe, subsidies, mainly for oil, have also increased since the Ukrainian War.

Amid apparent contradictions, Pires summarizes: “Oil has been the protagonist for 150 years, it is not possible to change a business like that by snapping your finger.”