The New Energy World Order Amid Transition, Security
In November 2022, the global population reached 8 billion individuals, marking a significant “milestone in human development,” as reported by the United Nations (UN). This figure surged from an estimated 2.5 billion people in 1950. Projections from the UN suggest an impending increase of nearly 2 billion individuals over the next 26 years, escalating from 8 billion to 9.7 billion by 2050, with a potential peak of approximately 10.4 billion by mid-2080
Notably, more than half of the anticipated global population growth between now and 2050 will transpire in Africa, a continent grappling with energy poverty.
“The world population is anticipated to reach 8.5 billion in 2030, further escalating to 9.7 billion in 2050 and 10.4 billion by 2100. However, inherent to any form of projection, uncertainty surrounds these latest population estimations.
The figures are derived from the medium projection variant, assuming a decline in fertility in regions where large families persist and a slight upturn in fertility in countries with an average of fewer than two children per woman,” elucidates the UN.
The surge in Africa’s population, projected to double by 2050 in sub-Saharan Africa, accentuates the ongoing global challenge of the by 2050, the International Energy Agency (IEA) has delineated several pivotal milestones, including halting approvals for new oil and gas field development and ceasing new coal mine approvals or extensions from 2021 onwards.
Additionally, the IEA envisions electric vehicles accounting for 60 percent of global car sales by 2030 and nearly 70 percent of global electricity generation sourced from solar and wind by 2050. This endeavor has precipitated substantial reductions in investments in the upstream sector of the oil and gas industry.
However, notwithstanding a considerable $3.8 trillion investment in renewable energy sources over a decade, global fossil fuel consumption only witnessed a marginal decline, from 82 percent to 81 percent, during the same period, as highlighted by Jeff Currie, the Global Head of Commodities Research at Goldman Sachs in 2022.
In its Global Outlook 2050, ExxonMobil anticipates that energy supply from oil and gas will continue to constitute more than half of the global energy mix between the present and 2050. Energy derived from solar and wind is projected to reach a mere 11 percent during this period, with electricity growth expected to reach 80 percent. According to ExxonMobil, all forms of energy are essential for improving living standards and mitigating emissions, necessitating sustained investments to counteract depletion, given the natural decline of production by 5-7 percent per year.
In elucidating their stance, ExxonMobil states, “Energy from solar and wind is projected to more than quintuple, from 2 percent of the world’s supply to 11 percent. Coal will increasingly be displaced by lower-emission sources of electricity production – not just renewables but also natural gas, which has about half the carbon intensity of coal. Overall, electricity use will grow 80 percent by 2050. Oil and natural gas are projected to make up still more than half of the world’s energy supply.” They emphasize the unmatched utility of oil and natural gas, being energy-dense, portable, available, and affordable, serving as essential raw materials for numerous contemporary products
Considering the persistent role of oil and natural gas in the global energy landscape until 2050, ExxonMobil underscores the imperative of sustained investments to counteract production decline, particularly emphasizing the continued necessity of oil in industrial processes and heavy-duty transport, notwithstanding asignificant anticipated decline in personal transportation oil use by 2050. They posit that even if every new passenger car sold worldwide in 2035 were an electric vehicle, oil demand in 2050 would still be 85 million barrels per day, akin to levels around 2010.
Global Oil Demand
OPEC envisions a surge in global oil demand, projecting it to reach 110 million barrels per day (bpd) by 2045, constituting approximately 29 percent of the global energy landscape. This outlook was emphasized by OPEC’s Secretary General, Haitham Al Ghais, during his address at the Energy Asia Conference 2023 in Kuala Lumpur, Malaysia. Ghais highlighted the necessity for energy expansion as the global economy doubles, with the world’s population anticipated to reach around 9.5 billion by 2045.
“In OPEC’s World Oil Outlook (WOO), we anticipate a 23 percent increase in global energy demand through 2045. Addressing this demand requires utilizing all available energy sources, with energy market stability as a guiding principle. While renewables will play a more significant role, OPEC Member Countries are already investing substantially in this domain. Gas, hydro, nuclear, hydrogen, and biomass will also expand.
However, it is evident that oil will remain a vital component, with our WOO projecting global oil demand to rise to 110 million barrels a day by 2045, maintaining a share of about 29 percent in the energy mix,” affirmed Ghais.
He underscored the imperative of a substantial energy expansion to accommodate the anticipated global economic growth and population increase, recognizing the critical need to provide modern energy services to those lacking primary energy access.
Despite emphasizing meeting future energy demand, Ghais acknowledged the importance of ongoing efforts to reduce emissions and decarbonize. He emphasized that achieving the dual objective of meeting future energy needs while curbing global emissions would necessitate significant investment and collaborative efforts.
Furthermore, the International Energy Agency (IEA) predicts global oil demand to reach 105.7 mb/d in 2028, reflecting a 5.9 mb/d increase compared to 2022. The petrochemical sector is anticipated to be the primary driver of global oil demand growth, with liquified petroleum gas (LPG), ethane, and naphtha accounting for over 50 percent of the rise between 2022 and 2028, and nearly 90 percent compared to pre-pandemic levels.
The IEA highlighted that the majority of the increase in global crude and condensate production will originate from the Atlantic Basin, with the Western Hemisphere, mainly the Americas, beingthelargestincremental supplier of oil to global markets, projecting exports to rise by 4.1 mb/d by 2028.
However, the IEA’s “Oil 2023” report underscores a significant shift, with the demand for oil from combustible fossil fuels, excluding biofuels, petrochemical feedstocks, and other non-energy uses, expected to peak at 81.6 mb/d in 2028. Growth is anticipated to reverse after 2023 for gasoline and after 2026 for transport fuels. These trends are attributed to a shift towards lower- emission sources prompted by the global energy crisis, a policy focus on energy efficiency improvements, and the rapid growth in electric vehicle (EV) sales.
Energy Security
The reverberations of Russia’s invasion of Ukraine in February 2022 continue to exert a profound impact on global energy supplies, triggering ongoing geopolitical tensions as nations grapple with the imperative of securing their energy needs. Russia, previously responsible for approximately one- third of Europe’s oil supply and 40 percent of natural gas supplies, now confronts diminished production outputs due to the sanctions imposed by the Western world, resulting in a constricted supply of energy products.
In response to this energy crisis, countries, particularly in Europe, have opted to reactivate mothballed coal-fired plants and nuclear power facilities, underscoring a strategic prioritization of energy security over pursuing net-zero targets. The current landscape reflects a complex balance between environmental aspirations and the immediate need for a stable and secure energy supply.
Wael Sawan, the Chief Executive Officer of Shell Plc, articulated this nuanced perspective, emphasizing the enduring importance of oil and gas in meeting global energy demands. In an interview with Times Radio, as reported by Bloomberg, Sawan asserted, “I am of a firm view that the world will need oil and gas for a long time to come.” In light of the fragility exposed in the energy system throughout 2022, Sawan underscored the potential adverse consequences of curtailing oil and gas production, stating, “To see prices start to skyrocket, that’s not healthy for anyone, particularly consumers.”
Shell’s stance aligns with that of BP, a majorplayerintheenergysector, which recently announced a recalibration of its carbon emissions reduction plans. Initially at the forefront of oil majors committing to achieving net-zero emissions by 2050, BP had pledged to reduce emissions by 35 to 40 percent by 2030. However, the company has now revised this commitment, adopting a more modest target of a 20-30 percent emissions cut. This shift underscores the recognition within the industry that sustaining investments in oil and gas remains integral to meeting the world’s growing energy demands, even as the imperative to address climate change persists.
In essence, the current dynamics underscore the delicate balance between immediate energy security concerns, the enduring role of traditional energy sources, and the global commitment to a sustainable and low-carbon future. The intricacies of this interplay between geopolitical events, economic realities, and environmental aspirations underscore thecomplexity oftheenergylandscape in the face of ongoing disruptions and the imperative to adapt to a rapidly changing world.
Upstream Investment
The Oil and Gas Outlook report jointly published by the International Energy Forum (IEF) and IHS Markit in 2022 underscores the mounting challenges in the investment landscape for the oil and gas sector. Unprecedented uncertainty and risks, encompassing record price volatility, evolving government regulations, diverging long-term demand narratives, and non-standardized Environmental, Social, and Governance (ESG) criteria, contribute to a complex environment.
The report’s executive summary highlights the enduring impact of a six- year lower-price cycle and protracted debates on long-term demand, which have heightened investment hurdles and increased the cost of capital for long-cycle oil projects. This has led to a climate of “pre-emptive underinvestment,” where investments lag behind robust demand for oil and gas supply.
To ensure market balance despite slowing demand growth, the report advocates for a sustained increase in upstream investment to near pre- COVID levels of $525 billion through 2030. In 2021, upstream investment in the oil and gas sector was notably depressed at $341 billion, almost 25 percent below 2019 levels, despite oil and gas demand nearing pre-pandemic highs and expected to continue rising, particularly in developing countries.
The IEF and IHS Markit propose intensified sanctioning and capital allocation towards new projects between 2022 and 2023 to ensure a steady oil and gas supply stream in the next 5-6 years.
Deloitte’s 2024 oil and gas outlook predicts that the global upstream industry will maintain its 2023 hydrocarbon investment level of about $580 billion, representing an 11% year-over-year increase. This strength is attributed to the industry’s robust financial position and high oil prices, enabling it to finance investments and dividends. Deloitte anticipates over $800 billion in free cash flows in 2024. However, the continued financial strength is expected to raise expectations among stakeholders, prompting a heightened focus on emission reduction, increased investments in low-carbon energies, and amplified returns for shareholders.
Similarly, Statista forecasts a rise in investments in the gas and liquefied naturalgas(LNG) market to$171 billion in 2024. This surge is attributed to the European Union’s recent classification of some gas as clean energy within its Fit for 55 green transition package. The decision reflects how certain governments continue to rely on gas while simultaneously accelerating coal and oil usage reductions, particularly in response to the energy supply crisis experienced in late 2021.
In summary, the oil and gas industry is navigating a complex landscape marked by evolving demand, regulatory uncertainties, and heightened expectations for sustainability. The projections indicate a nuanced approach, balancing the need for increased investment in traditional energy sources with a growing emphasis on emissions reduction and investments in low- carbon alternatives.
Energy Poverty
Africa, endowed with approximately 125 billion barrels of proven oil reserves and around 600 trillion cubic feet of proven gas reserves, grapples with a paradox: despite these significant energy resources, the continent faces pervasive energy poverty. This pressing issue is accentuated by staggering statistics from the International Energy Agency (IEA), indicating that over 970 million people lacked access to clean cooking facilities in 2021, and approximately 568 million individuals in Africa were without electricity. Sub-Saharan Africa’s share of the global population without electricity rose from 71 percent in 2018 to 77 percent in 2020.
Nigeria, one of Africa’s prominent nations, mirrors this challenge. Mele Kyari, the Group CEO of the Nigerian National Petroleum Company (NNPC), reveals that around 70 percent of Nigeria’s population lacks access to clean cooking fuel, and over 50 percent lack access to electricity. Kyari underscores the interconnectedness of energy access with vital sectors like agriculture, emphasizing that energy scarcity hampers agricultural processes, market access, preservation, and export capabilities.
The global push towards energy transition poses a dilemma for Africa, as articulated by Engr. Victor Okoronkwo, the Group Managing Director of Aiteo Eastern E&P Company. The challenge lies in striking a balance between producing affordable and reliable energy essential for economic development and poverty alleviation while aligning with the global net-zero targets.
Okoronkwo contends that Africa’s resource-rich reserve base, estimated at over $15 trillion, risks being stranded if the continent hastily follows the global trajectory towards net zero. He points out that more than 50 percent of Sub-Saharan African governments’ revenue is derived from hydrocarbon sales, making it a vital source for funding development initiatives.
The projected financial burden for Africa to achieve net-zero targets by 2050 is estimated at $28 trillion. Okoronkwo raises a crucial question about Africa’s ability to mobilize such substantial funding and financing to participate in the global shift towards cleaner energy. He advocates for a gradual transition, contrasting with the Western world’s expedited approach, and underscores the need for revenues from oil and gas to address economic challenges, combat poverty, and facilitate a strategic shift to cleaner energy sources.
Angola’s President Joao Lourenco echoes these sentiments, cautioning against hastily succumbing to foreign pressure to abandon fossil fuels in favor of energy transition. Lourenco emphasizes that saving the planet should not impose additional hardships on countries dependent on oil revenues, stressing the potential negative economic implications of a hurried shift away from fossil fuels.
In essence, the plight of energy poverty in Africa intertwines with a delicate balancing act between harnessing valuable energy resources, meeting immediate developmental needs, and navigating the global imperative for sustainability. The discourse underscores the complex decision- making that African nations face in charting a course that aligns with both their developmental aspirations and global environmental goals.
New Energy Order:
In the quest for economic stability and sustainability, the global energy landscape iswitnessing atransformative shift towards a new order characterized by security, transition, and finance themes. This shift is encapsulated in the 2024 Nigeria International Energy Summit (NIES) theme scheduled in Abuja: “Navigating the New Energy World Order: Security, Transition, and Finance.”
As the momentum for the 2050 net-zero goal intensifies, inclusive energy transition emerges as a crucial element to ensure no country is left behind. Carbon Capture Utilisation and Storage technologies are anticipated to be pivotal in facilitating this transition.
OPEC Secretary- General Ghais emphasizes the pressing need for increased investment across all energy sectors, noting that $12.1 trillion, equivalent to $500 billion annually, is required in the oil industry alone between now and 2045. Ghais underscores the chronic underinvestment in the energy sector, across all forms, as a threat to the viability of the entire energy system. He advocates for collaborative efforts and a conducive investment climate that works for producers and consumers, as well as developed and developing countries.
In the face of calls to end financing in oil projects, Ghais cautions against such a move, asserting that it would lead to energy chaos. He advocates for “energy clarity, not energy chaos,” emphasizing the importance of facts over fantasy in navigating a just, inclusive, and realistic transition.
Ghais points out that while scenarios are projecting a drop in global demand to around 80 million barrels per day by 2030, the world is also expected to see an influx of half a billion people into cities during the same period as the global economy continues to expand.
The theme of NIES 2024 aligns with the challenges and opportunities in the global energy sector. It underscores the importance of securing energy infrastruc ture amidst rising geopolitical tensions and cyber threats. The conference recognizes the need for nations to invest in physical and digital security measures, diversify energy sources, and combat energy poverty.
Addressing energy poverty requires collaborative efforts from governments, the private sector, and civil society and implementing a comprehensive strategy encompassing all energy sources, from fossil fuels to renewables. Additionally, the challenge of financing energy projects necessitates sustainable investments and collaboration between governments and financial institutions.
In summary, the new energy order revolves around security, transition, and finance pillars, focusing on navigating the challenges and opportunities that define the evolving global energy landscape.
