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Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise
07/16/2024![Renewable-Efforts-Lag-as-Global-Oil-and-Gas-Demand-Continues-to-Rise](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall.
Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends.
This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.
Global Oil Demand is Not Just Holding Steady
BP's latest analysis shows a clear split in how energy is used around the world. Developed nations, who've been pushing hard for an energy shift, are slightly cutting back on oil and gas, mostly because they're scaling down on industry. But in developing countries, where even basic energy was a luxury, economic growth is boosting energy use rapidly, and it’s expected to keep climbing until it eventually levels off.
This situation puts a dent in the popular theory of the energy transition: the idea that everyone can easily switch to renewable energy and enjoy plenty of cheap power. In reality, traditional energy sources like oil and gas are still filling the gap, proving that they're not going away anytime soon.
Because of this, global demand for oil is driven up by developing countries, even as richer nations try to use less and not always successfully. BP predicts that oil and gas will remain big players in the energy market for a long time, thanks to better energy efficiency rather than a complete switch to alternatives. Even with significant increases in wind and solar power expected by 2050, these will only make up about 25% of the world's energy.
This shows there's a big mismatch between ambitious green energy goals and the actual changes happening. Agencies like the International Energy Agency have been saying we need to speed things up and put more effort into this transition.
Despite all the investments and efforts in wealthier countries, which are impacting their economic growth, poorer nations are getting richer by using more oil and gas—and they're happy about it. This is why oil and gas are set to keep dominating the global energy scene, driven largely by the growing needs of the developing world.
Steady Increase in Oil Demand
BP has observed a steady increase in oil demand, growing by about half a million barrels each day since 2019. However, this trend is expected to reverse, with demand projected to gradually decline over the next few decades. Initially, BP anticipated a significant drop, but the new forecast predicts a slight decrease to 97.8 million barrels per day by 2035, a modest dip from today's consumption of around 100 million barrels daily. This number could even increase if demand strengthens in the latter half of this year.
This projection suggests that our global reliance on hydrocarbons won't be easily diminished by simply switching to alternative energy sources. The overall demand for primary energy continues to rise, with hydrocarbons poised to meet much of this need for the foreseeable future.
The key to a successful energy transition lies in reducing overall energy consumption, not just replacing sources. Alternative energies currently face challenges like lower energy density and high storage costs, which complicate their ability to fully replace hydrocarbons. If governments and businesses can provide substantial financial and regulatory support soon, BP's Net Zero scenario indicates that energy demand could peak next year. However, under the more likely Current Trajectory scenario, energy demand is expected to keep rising until the mid-next decade before it reaches a peak and levels off, largely due to the increasing needs of the developing world.
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Renewable Energy and Decarbonization: From Renewable Diesel to Electrofuel, Biofuel and Geothermal Power
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Renewable diesel, a cousin to traditional petroleum diesel, stands out as a standalone fuel and a blendable option. In 2022, it accounted for about 8% of all U.S. biofuel production and 9% of its consumption. For decades, diesel has been the stalwart choice for both shippers and carriers, valued for its reliability. Yet, as sustainability becomes a priority, these industries are now navigating the complex world of alternative fuels. This shift has its challenges; the array of choices comes with varying information about availability, cost, performance, and environmental impact. Amidst these options, renewable diesel is gaining traction.
The race for landmark CCS project: North Dakota approves Class VI well for Red Trail Energy
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New standards for carbon capture have been set in North Dakota earlier this month as NDIC greenlights Red Trail Energy’s project. The company will now be able to commercially capture, compress, and inject 180,000 tons of carbon dioxide per year into the Broom Creek Formation on its property for permanent geologic CO2 storage. This ensures that carbon dioxide can be stored safely for generations to come.
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The United States government has announced a significant investment of $7.3 billion from the 2022 Inflation Reduction Act (IRA) to support clean energy initiatives led by rural electric cooperatives. These projects aim to reduce energy costs, enhance reliability, and promote sustainability for rural communities, where energy costs tend to be higher than in urban areas. This investment marks a substantial effort toward decarbonizing rural America while supporting job creation and infrastructure improvements.
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The U.S. oil and natural gas rig count experienced a slight decline, falling by four to a total of 633 rigs for the week ending August 21. Despite this modest drop, industry analysts have noted a surprising resilience in both oil supply and natural gas prices as the year progresses, suggesting that the market may be more robust than previously anticipated.
Investors remain strongly bearish on petroleum prices, even as confidence grows that the U.S. Federal Reserve will cut interest rates to boost consumer and business spending. Last week, fund managers returned to selling oil futures and options, as the brief rally from the previous week quickly lost steam and negative sentiment took hold once again. Hedge funds and other money managers offloaded 48 million barrels across the six major futures and options contracts in the week ending August 20. This marks the sixth time in seven weeks that funds have been sellers, reducing their positions by a staggering 346 million barrels since early July, based on data from exchanges and regulators.