The world has significantly changed its attitude toward fossil fuels since the Organization of Petroleum Exporting Countries imposed an embargo against the United States for its decision to resupply the Israeli military during the 1973 Arab-Israeli War.
This embargo acutely strained a U.S. economy that had grown increasingly dependent on foreign oil. Because OPEC also cut production, oil quadrupled in price from $3 to $12 per barrel.
During the 20th century, oil was the preferred energy source, the lifeblood of industrial and consumer life. Securing oil was a national priority. The deleterious impact of burning fossil fuels on the environment did not receive significant attention until the 1980s.
The world has made a 180-degree turn. Finding enough storage space in 2020 became a priority because the coronavirus-related lockdowns wiped out around a third of global oil demand.
Today, because of “fracking,” the United States is the world’s largest oil producer. The use of hydraulic fracking has inspired opposition groups. Fracking critics claim it can destroy drinking water supplies, pollute the air and contribute to the greenhouse gases that cause global warming, and trigger earthquakes.
The “keep it in the ground movement” seeks to block fracking operations to push the economy toward more renewable energy, such as sunlight, rain, tides, waves and geothermal heat.
OPEC has repeatedly reduced the forecast of the demand for oil. It now sees demand increasing to 109 million barrels daily in 2045 from 2019 levels of 99.7, an increase of 9.7%. During that same time period, forecasters predict world population to grow 21%.
OPEC expressed concern that the demand for oil in the U.S. and other wealthier countries has peaked. Since 2013, oil demand in developing countries has surpassed that of wealthy nations.
Over the next 25 years, forecasters project that the Gross Domestic Product (GDP) will grow to $258 trillion from approximately $121 trillion in 2019, up 213%. Evidently, there exist many other factors than fossil fuel that trigger growth.
OPEC remains confident that oil would remain the largest contributor to the energy mix through 2045. It projects that fossil fuels (oil, gas and coal) will contribute a total of 72%. Since hydrocarbons are energy dense, portable and stable and they have many byproducts that create thousands of spin-off jobs, there is no simple way to move from oil, coal and natural gas to “renewables.”
OPEC projects that renewable energy (solar, wind and geothermal) sources will modestly increase to 8.7% in 2045, up from 2.1% in 2019.
The coronavirus pandemic has hampered global energy demand. Faith Birol, executive director of the International Energy Agency, argued that this year was the worst in history for the oil markets. Furthermore, unless a vaccine against COVID-19 is developed, demand for oil will remain lackluster.
In response to the pandemic, on a worldwide basis, countries have enacted massive stimulus measures. Many of these efforts have targeted support for “green” projects to reduce greenhouse gas emissions.
The turnaround in the fortunes of oil can best be reflected in the diminished status of Exxon. In 2013, Exxon’s market cap was the largest in the world. In 2020, Exxon was removed from the Dow Industrial Average.
Although America enjoys record production levels, oil and gas extraction contributed a mere 1% of U.S. GDP last year, according to the Bureau of Economic Analysis.
Climate change is one of the greatest challenges of our time. Just as important is the need to ensure access to energy for quality of life and for economic development. Therefore, in combatting climate change, we need to encourage price reductions and technological advancement of wind generators, solar energy and geothermal. A breakthrough in cost-effective technology would shift primary energy mixes substantially.
