GALVESTON, Texas — Peak oil demand is not imminent, and hydrocarbons will be a necessary component in the energy mix for some time, according to Rice University’s Kenneth B. Medlock III, Rice University’s James A. Baker III and Susan G. Baker Fellow in Energy and Resource Economics.
Oil demand growth continues to rise as fuel demand shifts internationally, Medlock said during the IADC/SPE International Drilling Conference and Exhibition on March 5.
Annually, demand has grown at a rate of about 1 MMbbl/d since 2000, and many assets are being developed to meet that demand.
“This is a growth story,” he said.
Demand in the Organization for Economic Co-operation and Development (OECD) countries is slightly down relative to 20 years ago— due to efficiency improvements, slower economic growth, aging populations, adoption of electric vehicles (EV) and policies, he said. At the same time, economic growth, industrialization, consumerism, demographic changes and energy shifts in non-OECD countries has grown, he said.
As long as non-OECD demand growth is larger than OECD decline, Medlock said, a near-term peak is unlikely.
With 67% of oil production at least partially owned by nations that benefit from the money generated from that production, he said it is unlikely that countries will move to cut off the taps in the next decade.
“It is incredibly important for the budgets, the social programs of these governments. It’s not disappearing. Will they look to diversify? Absolutely. Will they seek to capture new margins of growth? Absolutely. And that’s exactly what you’re seeing. But will they completely cut this off in the next 10 years? Absolutely not,” Medlock said.
He noted that supermajors including ExxonMobil, Chevron, Eni, TotalEnergies, Shell and BP produce about 10% of the global output in 2022, and that together they produced less than the world’s largest national oil company, Saudi Aramco.
Supply and demand is governed not by politics, but by economics, he said.
“The system’s going to continue to evolve without a doubt, and politics will play a role, but at the end of the day, economics will drive, ultimately, what happens,” Medlock said.
Energy transition is complex
Medlock noted rationality and economics are rarely part of the conversation around the energy transition. And what the transition looks like in more developed countries will be vastly different from less developed countries, he added. Sustainability is multifaceted and a number of factors come into play, including supply chains, infrastructure and another transition — that of materials.
“Nobody knew what a supply chain was until 2020” when the Covid-19 pandemic disrupted supply chains globally, he said.
Beyond that, infrastructure is fundamental to everything. In fact, he said, the need for infrastructure buildout is the Achilles heel for a lot of recent U.S. legislation that has been adopted.
Moving away from hydrocarbons is complicated, he said, and many haven’t recognized that hydrocarbons are fundamental to all of the materials people use on a daily basis.
“You have to get into a discussion about materials transitions as well, and that extends the time horizon. It brings in a lot of complexities that a lot of people, quite frankly, don’t often internalize,” Medlock said. “Hydrocarbons are embedded in everything we do.”
Terry Palisch, vice president of technology and engineering for CARBO Ceramics and the 2024 SPE president, said there are realities about energy that need to be understood.
First, the world population continues to grow, with the world expected to support 2 billion more people by 2050.
“That’s going to push energy demand,” he said.
And with 60% of the population living in “some form of energy poverty … it’s either not accessible or it’s not affordable or it’s unreliable or it’s not secure. We have a lot of work to do,” Palisch said. “We have yet to transition away from anything, including wood and biomass. So I think that we have a lot of running room in our industry.”
The world needs accessible and affordable energy that is reliable and secure as well as green and decarbonized, he said.
“People call it a trilemma because I think a lot of people think you can’t have all three. But I think that this is actually the opportunity for our profession and for those of us in our industry,” Palisch said.
Coal use up and down
With oil, gas and coal providing a large part of the energy mix, Medlock said, the world is still very much a hydrocarbon-powered world. And countries will use the resources most at their disposal, he…
Read More: ‘Growth Story’ for Oil: Rice’s Kenneth Medlock on Demand Trends