Global energy transition and potential impact on the oil and gas industry

– the reason Exxon needs to ramp up production capacity

The global movement to transition to alternative sources of energy is a natural phenomenon owing to the global impact of climate change. Guyana is a signatory to both the United Nations Sustainable Development Goals, of which part of that goal is to transition to 100% renewable energy, and to the Paris Agreement. Notwithstanding, the practicality is such that it will take some years, perhaps another 30-50 years, to achieve these goals – especially in the case of Guyana, and not just from the global perspective.
To substantiate this view, let’s put this into context; that is, let’s examine an overview of the global energy transition and its potential impact on the future of the global oil and gas industry. The Global Transportation Sector is one of the main drivers of demand for crude over the next 30-50 years, and at least 40% of the world’s energy needs would have to be supplied by oil and gas by 2050. Let’s break this down.

Global Commercial Aircraft
• Global commercial aircraft fleet as at 2020 stood at 29,000
• Estimated to grow by 4% annually to reach 39,000 by 2028
• Annual production is 1000
• It takes 5-6 years on average to build an aircraft; in some cases, 10 years
• If we have to replace all the aircraft in the world, it would take 29,000/1000 = 29 years to build and replace, plus 10 years to develop electric planes. Total number of years to replace all the aircraft globally to electric would be approximately 39.

Global number of cars
• As at 2020, this figure is some 1.2 billion cars globally, of which 7.2 million are electric cars (6% of global cars are electric)
• Global average rate of production for electric cars is 2.1 million; which means it would take 57 years to replace all the cars in the world to electric cars
Global number of trucks/commercial vehicles
• As at 2020, the global number of trucks/commercial vehicles stood at an estimated 425 million, of which 27.2 million, or 6.4%, are electric commercial vehicles
• Annual average production rate of electric commercial vehicles is 6000, at which rate it would take 70,833 years to replace all the commercial vehicles in the world to electric. This means that to replace all the commercial vehicles, including trucks, in the world to greener vehicles in 50 years’ time, manufacturers would have to produce 8.5 million such vehicles annually, which is 142,000% greater than current global annual output for such vehicles. This is obviously impractical.

Global stock of ships
• As at 2019, total world fleet of ships stood at 95, 402
• It takes about 18 months to build a ship
• Ship orders per year is about 1,000
• Therefore, it would take 95 years to replace the world’s stock of ships to greener ships
Global Energy Transformation 2050 (29 years from now)
• Oil and gas are still forecast to meet more than 50% of the world’s energy needs by the end of 2040
• Renewable energy needs to be scaled up at least six times faster for the world to achieve the goals set out in the Paris Agreement, according to the International Renewable Energy Agency (IRENA, 2018).

Contextual Summary
• The Global transportation sector is one of the main drivers of global demand for crude oil products, and would remain that way for a relatively long period of time;
• Because if the world therefore stops extracting crude oil and should indeed leave all the fossil in the ground tomorrow, it would take 39 years to replace the global stock of commercial aircraft to electric aircraft; 57 years to replace all the cars in the world; 70,833 years to replace all commercial vehicles both light and heavy, which include trucks, or increase global output by 142,000 % to bring down the number of years to 50; and 95 years to replace all the ships in the world.
• By 2050, renewable energy can make up 60% of the world’s final energy consumption, provided that renewable energy investments are scaled up by at least six times (IRENA, 2018).
• Therefore, if the world economy fails to scale up renewables and other alternative sources of energy by six times, it will take more than 100 years for the world economy to transition to at least 60-70% alternative sources of energy, and over the next 100 years to fully transition to 100% clean/alternative sources of energy.
• This means that for the next 30-100 years, at least 40% of the world’s energy needs might need to be supplied by oil and gas.
Against this background, it can be safely concluded that the global oil and gas sector has another 20 years as a safe window, where the industry is likely to remain commercially viable. After 20-30 years, the industry can become unsustainable – unless oil companies manage to develop such innovative technologies that can lower the cost to produce one-barrel of oil to US$15 – US$20 from a current average of US$35. This is not impracticable within 20 years’ time; and, if achieved, can extend the industry’s life to another 20-30 years before the world economy is fully transitioned into 100% renewables/alternative sources of energy.

About the Author: JC. Bhagwandin is an economic and financial analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected]