The latest ExxonMobil Global Outlook shows that demand for oil since the year 2010 has risen steadily from around 80 to 100 millions of barrels per day. (There was a downward blip during COVID.) The report also projects that demand for oil will remain steady at around 100 million barrels per day through the year 2050.
But the supply picture is a different story. The report has two projection lines ― one with no ongoing investment, and the other with investment in existing fields. The production rates for these two scenarios by the year 2050 are about 15 and 30 million barrels per day respectively. In other words, even the best case scenario shows an astonishing 70% drop in supply in just 25 years.
The report shows these projections in a chart. We have reproduced the data in the following rough sketch.
The report’s message is remarkable for the following reasons.
It was published by ExxonMobil (XOM) ― the world’s largest publicly traded oil company. Even within the oil and gas industry, ExxonMobil has a reputation for conservatism.
In spite of the investment in alternative energy sources in recent decades, the demand for oil has risen steadily. The alternative energy sources are supplementing, not replacing, oil and the other fossil fuels.
According to the projections, oil supplies plummet starting around the year 2026 (that’s just a year and a half from now). The report does not go into detail as to why there is such a sharp drop off. It may be due to a downturn in shale/tight oil, along with a general decline in conventional fields.
Report’s Executive Summary
The report starts with the following statement.
The number of people in the world is expected to increase from 8 billion today to nearly 10 billion in 2050. With 2 billion more people on the planet, the world will need new ways to:
Produce more reliable, affordable energy
Drive global economic growth to raise living standards, particularly in the developing world
Further reduce greenhouse gas emissions
Investment Requirements
Starting at the the year 2026, the chart shows three scenarios.
No Investment
Investment in existing fields
New resources and projects needed
1. No Investment
The first scenario ― ‘No Investment’ ― is unrealistic. Were the supply of oil to drop to 30 million barrels per day just a few years from now, society as we know it would grind to a halt. Oil products are crucial to our way of life. For example, we need bunker fuel, diesel and jet fuel to keep our ships, trains, trucks and airplanes moving.
2. Investment in Existing Fields
The second scenario ― ‘Investment in existing fields’ ― is what is happening now. Companies and governments throughout the world continue to invest in exploration and production of oil and other fossil fuel projects (hence the ever increasing concentration of greenhouse gases in the atmosphere).
But, in spite of these investments, the chart projects that oil production plunges from 100 to 30 million barrels per day just a generation from now.
3. New Resources and Projects
The report includes the following statement,
Reducing emissions in “hard to decarbonize” sectors such as aviation, cement, steel, and others with unique energy needs will require the world to rely on the expansion of biofuels, carbon capture and storage and hydrogen, among other technologies.
The ‘big three’ industries that are crucial for our society are cement, urea (nitrate fertilizer) and steel. All of them need fossil fuels (oil and natural gas) for their manufacture. To say that these industries are ‘hard to decarbonize’ within just a few years is disingenuous. It is, in fact, an enormous challenge. Moreover, massive quantities of steel and cement are needed to build out the alternative energy sources such as solar farms and wind turbines.
The three newish technologies mentioned in the report ― biofuels, carbon capture and hydrogen ― face their own challenges. It is unlikely that they will close the 70 million barrels per day gap in the short amount of time available.
The XOM report projects a 25% reduction in global CO2 emissions by the year 2050, so the new energy sources will have to be mostly renewable (supplemented by a massive increase in the deployment of Carbon Capture & Storage technology).
Precedent
We seem to be faced with a dilemma. However, there is a precedent for the challenges that we face.
Sixteen years ago the United States Energy Information Administration (EIA) published a similar chart to the one in the ExxonMobil report.
Like the ExxonMobil report, the EIA called for very large investments in ‘Unidentified Projects’. And that is what happened. Those projects were the development of tight oil resources (fracking) in the United States.
Maybe something similar will happen now.
