Can the world kick its oil habit?
We’ll send you a myFT Daily Digest email rounding up the latest Life & Arts news every morning.
A 45-minute helicopter ride over aquamarine waters, 240km west of Abu Dhabi, brings you to the Ruwais refinery. Perched along the coast, the labyrinth of pipes and columns that form the vast oil processing complex seems to emerge directly out of the sand.
The United Arab Emirates, which has some of the world’s cheapest-to-extract crude oil, produces about three million barrels a day (b/d), making it one of the world’s biggest producers (the US, at number one, produces 13 million).
Most of the UAE’s output is piped to oil tankers, which criss-cross oceans to deliver barrels to customers. But about a quarter is refined domestically, at places such as Ruwais, where crude is distilled into products that have become vital to our modern existence: petrol for cars, diesel for trucks and jet fuel that propels aircraft.
The world runs on oil. The dark, often viscous liquid is the single biggest contributor to the world’s energy mix, at 34 per cent of consumption, followed by coal at 27 per cent and natural gas at 24 per cent. But the fossil fuel has also quietly seeped into other aspects of our lives: from paint, washing detergents and nail polish to plastic packaging, medical equipment, mattress foams, clothing and coatings for television screens.
Last year, global demand reached a record 100 million barrels a day, driven in part by the needs of rapidly industrialising emerging markets. This is why Sultan Al Jaber, head of the Abu Dhabi National Oil Company (Adnoc) that operates Ruwais, is spending $45bn to expand the country’s refining and petrochemical capabilities.
“We are doubling our refining capacity,” Jaber told foreign oil executives and reporters at the company’s headquarters last year. “No one in the region or in the industry at large is undertaking such a massive expansion.”
Even as our thirst for oil seems insatiable, it is becoming politically and environmentally toxic. As the world wakes up to the catastrophic impact of climate change, from rising sea levels and drought to wildfires and crop failure, scientists have warned of a need to rapidly shift away from fossil fuels.
Yet when it comes to oil demand, there is little sign of this happening. Our usage has jumped 62 per cent over the course of a few decades — up from 61.6 million b/d in 1986. The International Energy Agency (IEA) forecasts that if governments continue with current policies, global demand will reach 121 million b/d by 2040.
How the world can provide abundant energy supplies while dramatically reducing emissions has become one of the defining issues of our time. The challenge is huge. In order to keep global warming “well below” a 2C increase, the IEA says the world would need to stomach a fall in oil consumption to 67 million b/d by 2040. Environment analysts argue that we need to learn to survive on far lower levels — about 10 million b/d — and ultimately remove it from our energy system entirely.
Governments are beginning to take some action, from incentivising the purchase of low emissions vehicles to funding cleaner energy research. But the climate protesters scaling oil rigs, defacing energy company headquarters and denouncing the banks that fund crude production face considerable opposition.
While coal and gas are starting to be displaced by lower-cost renewables in electricity generation, oil has a stranglehold over the transport sector, and the petrochemicals industry is a fast-growing consumer of refined products.
Aside from the commercial interests of oil-producer nations and corporations, there is a practical question: how will the world function without a material on which we depend so deeply? Do alternatives exist for its myriad, and often invisible, uses? And can any drop in oil usage happen quickly enough?
“The whole of human prosperity and wealth has been based on our exploitation of oil and other fossil fuels, so it is an almighty undertaking. To just remove them from our energy system within a decade or two is completely fanciful,” says Kingsmill Bond, an energy strategist at think-tank Carbon Tracker, which is calling on governments and financial institutions to align themselves with a low-carbon economy. “The problem is absolutely immense. But humanity is capable of spectacular achievements.”
Throughout history, energy has been at the heart of how civilisations have prospered. For centuries, people burnt wood for warmth and for cooking. In the 19th century, coal emerged as the preferred fuel and enabled industrialisation. But it was in the early 20th century that crude oil — plants and animals that lived millions of years ago, compressed deep underground — propelled the mass transit of people and goods, fostered modern lifestyles and enabled higher standards of living than ever before.
Yet humanity’s improved wellbeing has come at the expense of the planet’s. The earth has warmed by 1C since pre-industrial times and is likely to heat up by another 2C by the turn of the century — overshooting the targets of the 2015 Paris climate agreement.
A 2018 UN Intergovernmental Panel on Climate Change report showed warming beyond 1.5C risked irreversible changes — from the mass extinction of species to extreme weather and ecosystem changes that threaten global stability.
History does not inspire confidence in humanity’s ability to wean itself off particular energies. Even after the world began moving from coal to other fuels, coal did not disappear. With the emergence of each new source, we have simply added it to the mix rather than replacing old ones.
“It usually takes 70 years for energy transitions, such as the one from wood to coal, to happen at a natural speed. We need to see a greater magnitude of change, in fewer than 30 years,” says Nick Stansbury, head of commodity research at Legal & General Investment Management, where he helps oversee $1.3tn in funds.
“We need to make a bigger change, twice as fast as it has ever happened before. This is no way going to be easy.”
Climate activists argue that, unlike before, it is now a matter of urgency. Yet the IEA — the industry standard-bearer, which itself has been criticised for being too fossil fuel-friendly — has warned that even if governments meet existing targets, carbon emissions are set to rise through to 2040.
Greta Thunberg, the 17-year-old Swedish activist, argued last month that commitments by companies and cities towards “net” zero emissions in several decades’ time were useless. They needed to fall, not break even. “We need real zero,” she said.
Nick Mabey leads a London-based climate think-tank called E3G, which is pushing to accelerate the green transition. He attributes the difficulty in displacing oil to its entanglement with major industries, from defence to energy and finance, and its deep links to geopolitics: “A government will need to transition to cleaner fuels but also maintain arms sales and keep auto workers on side. Unravelling this requires deep structural change.”
Tucked away in the English countryside an hour’s train journey west of London, teams of scientists are trying to decipher the future of transportation. Behind a glass screen, a robot sits on a motorbike as its wheels spin over a rolling road used to simulate real life. Performance data is collected as different formulas of fuel are used.
This is BP’s fuel research and development centre in Pangbourne, near Reading, where the UK oil and gas company is testing the fuels and lubricants used for cars, trucks and motorbikes. The goal is to develop high-performing products with lower oil intensity that release fewer emissions.
The fastest way to begin curbing oil consumption would be to start with the easiest to eliminate areas. Displacing the roughly 4 per cent of demand used for power generation is seen as low-hanging fruit given more cost-effective — although not necessarily emissions-free — alternatives already exist, such as gas and renewable electricity.
Another quick win would be to use oil more efficiently. “We have to get ahead of the game,” says Anne-Marie Corr, BP’s fuels technology director and a 32-year veteran at the company (she retired in December).
As she speaks, her eyes scan the cars parked in the showroom. One contains an internal combustion engine — representing the system she has spent most of her career working on; another is a hybrid, and the third an electric vehicle. “We need to understand what we need to develop . . . 2040 seems far away but it takes time to develop these products.”
Cars, trucks and other road vehicles make up more than 40 per cent of global oil usage. When you add in aircraft, ships and trains, transport accounts for about 60 per cent. So any attempt to reduce our oil habit hinges on this sector.
In the UK, petrol and diesel already contain up to 7 per cent biofuels but, given growing concerns about climate change and air pollution, governments are expected to enact stricter fuel standards. A 5 per cent improvement in the average efficiency of new European internal combustion engine vehicles would lead to an annual reduction in carbon dioxide emissions of 1.8 million tonnes, says Corr, equivalent to replacing one million new cars with battery-operated ones.
Yet environmentalists say that striving to create the next hydrocarbon superfuel is merely tinkering around the edges of the problem. “Fuel efficiency will do nothing to change the fleet,” says Mabey. He points to Daimler’s plans to stop developing internal combustion engines altogether.
Electric cars are an alternative — but they are not yet a panacea. Their use may have grown rapidly over the past decade, but last year they still accounted for just 2 per cent of new cars sold. Even if every new car was electric from now on, analysts say it would take 15 years to overhaul the so-called global car parc, which now numbers some 1.3 billion vehicles.
To accelerate electric car use, governments need to send the right economic signals. The UK this month announced plans to ban the sale of petrol, diesel and possibly hybrid cars by 2035. States would also need to bring down costs, incentivise research into advanced battery technology and roll out more charge points. And the environmental benefits will only be truly realised if electric cars are powered by renewable electricity from wind or solar, rather than coal or gas-fired generation.
Predicting how soon the world’s fuel habits will change is something that energy chief executives such as Ben van Beurden at Royal Dutch Shell are agonising over. “You could have one scenario that says, oil and gas is going to very quickly peak now,” he says.
“It will become a diminishing percentage of the energy mix . . . but you can also go too early and too fast in investing in the [alternative] energy of the future.” He believes that prematurely giving up on oil and gas “is just not a smart strategy”.
Growing demand for oil could be dented by electrifying two-wheelers, vans for “last mile” parcel deliveries and commuter buses, as well as increased ride-sharing. But displacing it in, say, heavy-duty trucks is harder. Oil’s unique qualities give it a stubborn advantage when it comes to engines, providing much greater energy density than lithium-ion batteries.
Shipping and aviation — barometers of global trade — are other oil-guzzling industries where technological breakthroughs face cost and scalability challenges. For shipowners, liquefied natural gas still presents an emissions problem while battery power and alternative fuels such as ammonia and hydrogen bring their own issues.
In aviation, there are high hopes of electrifying small and medium-sized aircraft, but for long-haul jets the challenge is greater. The potential use of biofuels is also controversial.
More than 15 per cent of oil demand goes into non-combusted uses, including petrochemicals. A hefty chunk of this is for single-use plastics, found in packaging and drinking straws. Even if this falls thanks to plastic bans and wider recycling, huge investments are still being made in developing complex plastics and petrochemical substances.
Two other sectors that account for significant oil use are buildings and industry. This includes heating and cooking as well as oil used for construction vehicles and industrial processes.
Some of these are easier to displace than others. Oil might be better than gas for an industrial boiler as it has a higher energy density, while the diesel in a forklift truck is easier to eliminate.
“We have a sense of the order in which we want to go — from easiest-to-reduce emissions to the hardest-to-abate,” says Jason Bordoff, who heads the Center on Global Energy Policy at Columbia University. For the most difficult to displace sectors, part of the answer might be massive investment in carbon capture technologies and offsets such as planting trees.
“Ultimately, the world has to make value judgments about what temperature target it wants to hit,” Bordoff adds. “If we can stabilise warming at 2C it will be one of the greatest achievements in human history. But it’s not enough.”
BP started life in 1908 with an oil discovery in what was then Persia. Today, the company is rolling out electric charge points, sees itself as a player in renewable power and this week announced an ambition to reach net-zero emissions by 2050 or sooner. But for now it still generates the bulk of its profits from, and funnels most of its cash into, its legacy businesses.
In August, even as pressure in the west mounted for BP to demonstrate its low-carbon credentials, the company announced it had agreed to form a petrol station network and aviation fuels business in India with Mukesh Ambani’s Reliance Industries. Bob Dudley, BP’s then CEO, said: “India is set to be the world’s largest growth market for energy by the mid-2020s.”
BP is not alone in pursuing new oil consumers in developing countries as demand begins to stagnate elsewhere. France’s Total and the state energy giant Saudi Aramco are among foreign companies seeking a foothold in India as they bank on the country’s swelling middle classes to drive consumption.
This points to a broader dilemma. Should countries that have not yet fully industrialised — where hundreds of millions of people endure poverty and a lack of basic infrastructure — not enjoy the same fossil-fuelled development that the west took advantage of? How much of the burden of reducing our oil habit should these markets be expected to shoulder?
The monsoon season in India last year saw some of the worst rainfall in decades. Climate change is disrupting seasonal cycles — first bringing heatwaves and droughts, then floods and landslides. Hundreds of people died and the military airlifted food packages to stranded villages.
Yet despite experiencing some of the worst effects of climate change, India’s access to affordable fossil fuels remains a priority for its government. While the country has one of the most aggressive renewable power capacity roll-out programmes worldwide, it also needs cheap oil, gas and coal to meet energy demand that is forecast to more than double by 2040.
“In India, solar energy and other renewable sources of energy are becoming increasingly competitive,” says Dharmendra Pradhan, the country’s petroleum minister. But oil and gas, he adds, are commodities “of necessity — whether for the kitchens of marginalised populations or the globetrotting privileged classes . . . It would be difficult for us to give up fossil fuels completely at this stage of our developmental cycle — our per capita carbon emissions is low compared to the world average.”
India buys foreign crude for more than 80 per cent of its oil needs, which is why Pradhan believes the world’s third-largest oil consumer could be the “golden goose” for big Middle Eastern producers.
Indeed, the prospect of rising demand in Asia and Africa partly explains why the UAE’s Adnoc aims to increase production capacity to five million b/d by 2030. The company is also part of a consortium developing a $70bn oil refinery project in the Indian state of Maharashtra.
The world’s addiction to oil is often compared with tobacco. But while smoking is something people can choose to do, using energy is not. Mohammed Barkindo, secretary-general of Opec, the oil exporters’ cartel, said in a recent speech: “The almost one billion people worldwide who currently lack access to electricity and the three billion without modern fuels for cooking are not just statistics on a page. They are real people . . . Nobody should be left behind.”
Some oil analysts, such as Christyan Malek at US bank JPMorgan, believe the reduction of tens of trillions of dollars in new oil investments amid a backlash against fossil fuels could create an “acute shortfall” in supplies and set oil prices on course to hit $100 a barrel.
“The cost of energy will escalate if we can’t replace it with renewables and other non-oil sources quickly enough,” he says. “This will hurt western consumers . . . and, not least, emerging-market countries that can’t function without low-cost energy.”
Yet the cost of climate change could be far greater — and the world is running out of time. The IEA’s “sustainable development scenario” charts a way for the globe to avoid a temperature rise of more than 2C while simultaneously guaranteeing widespread access to energy. But the agency is clear: this outcome would require “rapid and widespread changes across all parts of the energy system”.
Who, or what, will prove most effective at driving such change is yet to be seen. When the titans of global business and politics gathered in Davos last month, climate change was top of the agenda. Yet few could say how exactly the transition away from oil and other fossil fuels would take place.
Instead, US president Donald Trump used his speech to assail environmental “alarmists”. The demands of climate advocates, he told reporters, were “unrealistic, to a point you can’t live your lives”.
Despite the challenges, not everyone feels hopeless about the world’s chances of transforming its energy future. Christiana Figueres was the Costa Rican diplomat who brought the leaders of 195 countries together in 2015 to sign the Paris agreement.
The image of her in a roll-neck sweater and checked blazer, holding raised hands with then UN secretary-general Ban Ki-moon, marked a high point for multilateral efforts. Figueres, who was the UN’s top climate change official between 2010 and 2016, remains relentlessly positive. (She even leads an environmental organisation called Global Optimism).
Although the 2019 climate talks in Madrid ended in disarray, she believes the prospect of cleaner air, better health outcomes, more liveable cities and energy security will be enough to encourage governments to keep the deal alive. “I don’t demonise anyone,” she says by phone from a hotel in Davos.
The blame game, she argues, is not helpful; countries that are dependent on the use of, or income from, fossil fuels are in a tougher place. “The important thing is: how quickly do you move beyond your starting line?”
In London, some fund managers — such as Natasha Landell-Mills — believe investors have a vital role to play in prodding corporations and governments. Last year, Landell-Mills’s company, Sarasin & Partners, which invests on behalf of charities, private clients and institutions, sold just over 20 per cent of its shares in Shell.
In a letter to Shell’s chairman, she said its plans to grow oil and gas production were not aligned with global climate goals: “It cannot be in the interests of the millions of people whose long-term savings are invested in your company, for you to produce fossil fuels in such volume that planetary stability is threatened.” Sarasin has since sold a further 30 per cent.
Diverting investment away from the fossil fuel industry — despite some companies being the biggest dividend payers in the world — is one way to curb its use and shift attitudes. The energy sector’s share of the S&P 500 today is already down to about 4 per cent, from more than 11 per cent in 2010. While pressure has largely been on the producers of fossil fuels, difficult-to-decarbonise industries, their financiers and auditors are also under scrutiny.
“I ask companies, ‘Can you commit your business to aligning with net-zero emissions by 2050’? More often than not the answer is, ‘How do we do that when the future is so uncertain?’” Landell-Mills says. “Yes it is uncertain, but climate change is accelerating. So we all have a responsibility to act . . . Capital should flow towards solutions to climate change rather than causes.”
Figueres argues that while it is not up to governments to find the technologies to decarbonise the world, it is up to them to incentivise their development — particularly carbon capture and storage solutions.
She believes states will be key to rolling out new energy infrastructure and increasing taxes on carbon-intensive fuels. “If governments place a price on carbon and this is increased over time, this is a very important incentive to decarbonise,” she says.
Around the world, individuals are taking to the streets and risking arrest to demand climate action, but their impact will depend on states and industries taking a lead. Figueres is encouraged by the signs that investors and corporations are beginning to act. “Governments have lost their mojo and have fallen behind compared to where companies are,” she says.
She notes that Larry Fink, chief executive of the world’s largest fund manager, BlackRock, wrote in his January letter to clients of the need to assess the impact of climate change on investment risks.
“I believe we are on the edge of a fundamental reshaping of finance,” he wrote, announcing plans to increase the group’s sustainable assets tenfold from $90bn today to $1tn within a decade.
“Every day we see more and more companies and financial institutions that understand the risk of high-carbon assets,” says Figueres. “No matter where you look, the movement is in that direction.”
Anjli Raval is the FT’s senior energy correspondent
Follow @FTMag on Twitter to find out about our latest stories first. Listen to our culture podcast, Culture Call, bringing you behind the scenes of FT Life & Arts journalism. Subscribe on Apple, Spotify, or wherever you listen.
Get alerts on Life & Arts when a new story is published