A lack of oil demand growth still means a lot of future hydrocarbon development

Have you seen the story circulating the web of a guy at a gas pump trying to put gasoline in a Tesla? I don’t mean to mock him; I’d be the biggest joke on the internet if someone followed me around every day and recorded my antics. What makes this guy’s befuddlement so funny though is that it exquisitely captures the problem with energy education, or the lack thereof.

This poor dude’s ignorance was singled out and amplified only because it was caught on film. But his energy ignorance is a victimless crime, so to speak; only his ego is in tatters. What makes it unfair is that the web is startlingly full of energy ignorance, and the purveyors of such are forcing dangerous policy shifts that may have massive repercussions for years.

Take, for example, the throng of people that consider themselves energy realists, but hate hydrocarbons. They recognize that we are going to be using them for a long time yet, but they demand “no more oil and gas development” for environmental reasons. It’s not hard to find such people who then make the leap that flattening oil production – that is, no more demand growth – is synonymous with “no new hydrocarbon development”. One example: “…we, as over 400 civil society organizations from more than 60 countries, representing tens of millions around the world, call on world leaders to put an immediate halt to new fossil fuel development,” bleats one website.

Not only do these fantasies go unchecked, but politicians tend to treat them as some sort of reasonable policy option. People are free to believe anything they want, but when ignorance so powerful that it borders on pungent guides public policy, somebody’s got to jump up and down and shout bullshit.

Anyone that’s ever been involved with oil or gas can see the problem with that line of thinking. The “no more hydrocarbon development” people’s argument gets wiped out by a single word: depletion.

Over the past few decades, global oil consumption has risen by something like a million barrels per day, every year. Natural gas consumption has been rising even faster as the world moves to cleaner burning fuels (compared to coal especially). So a goal of many activists is to halt this growth on the grounds that if demand stops rising, we won’t need to spend another nickel developing oil and gas.

That’s where the concept of depletion comes in, quite forcefully. Let’s say global oil consumption stayed flat at around 100 million barrels per day for the next decade (and it will bounce right back there post-coronavirus; we’ve already jumped most of the way back and the world’s travel business remains in the ICU). Natural decline rates on petroleum wells/fields is a minimum of about 3 percent and, for new technology like shale fields, something more than twenty percent. Let’s be fairly conservative and say that global decline rates are 7 percent.

On a 100 million b/d base, that would mean that the world would need to add 7 million b/d of production after just one year to keep production flat. Over two years, the petroleum industry needs to add 13.5 million b/d to keep production flat at 100 million b/d.

Does anyone out there in policy-land know what that means? It means that every two years the world needs to add the equivalent of more than a new Saudi Arabia, just to keep production flat. The vaunted US shale revolution? It barely covers one year of global declines.

Let’s go crazy and say that the climate movement had its way and we reduced global oil consumption by two percent per year, which would be a massive feat considering the trajectory of much of the world’s population’s consumption habits (hint: 3 billion people in India and China want to live like we do, and there’s no stopping them..and that ignores Africa, large swathes of South America, etc.). We’d still need to add millions of barrels per day of production, equivalent to, say, Canada’s oil sands, to keep production high enough to meet demand. We’d have to add the equivalent of the oil sands every two years, and that’s assuming that demand actually falls, which it is loathe to do except in exceptionally odd years like this one. Remember, those 3+ billion people all want to live like we do, and consume like we do…

Because wells and oil fields deplete over time, new ones must be developed just to keep the treadmill going. As old fields are depleted, new ones must be discovered, drilled, plumbed in, pipeline-connected, and put on stream. That means new pipelines, new wells, and new infrastructure, all just to keep from falling behind.

Mainstream media pundits by and large have no clue about these realities. “No new hydrocarbon development” is a media fiction that is not a realistic possibility. Those that say it is are no better off than the poor sap trying to put gasoline in a Tesla.

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