We Will Need Oil For Much Longer Than 10 More Years

During President Biden’s 2023 State of the Union Address, he told an anecdote that I believe explains his stance toward the oil and gas industry. At first, he stayed on the script with his prepared remarksclaiming:

“You may have noticed that Big Oil just reported record profits. Last year they made $200 billion in the midst of a global energy crisis. It’s scandalous. They invested too little of that profit to increase domestic production and keep gasoline prices low. Instead, they used those record profits to buy back their own shares, rewarding their CEOs and shareholders. »

As I noted earlier, oil companies dramatically increased their capital budgets last year as oil prices rose. The number of oil rigs has risen sharply and US oil production last year reached the second highest level on record. But, President Biden — who strongly believes we need to reduce our climate emissions — doesn’t think we’re investing enough in producing more oil, even though 2023 could set a new record for U.S. oil production.

But then President Biden went off the script.

He said he lobbied oil executives on the issue of increased investment, and he said they told him, “We’re afraid you’re shutting down all the wells anyway. oil and all the oil refineries, so why should we invest? in them ?

President Biden said he responded, “We’re going to need oil for at least another decade.” The chamber burst out laughing, then Biden quickly added, “and beyond that.”

I think this attitude explains the apparent disconnect in the president’s stance toward oil and gas companies. He and some of his advisers really believe that we are going to eliminate oil quickly. He sees this as absolutely necessary to combat climate change. So in his mind, the relevance of the oil industry will soon fade, so there is no harm in using them as a foil by blaming their high profits for high gas prices.

The reality is that we will need oil for much longer than another decade. It doesn’t matter that there’s nothing in the pipeline that’s going to displace air traffic a decade from now. There may then be a slight drop in the oil used in maritime traffic, but most ships will continue to run out of oil a decade from now.

But the widespread perception seems to be that electric vehicles (EVs) will significantly replace combustion vehicles within a decade. This view is also unsupported by facts.

Share of electric vehicles in the United States reached 6% of all new vehicle sales Last year. The objective is to reach 50% by 2030, that is to say in just seven years. But these are new car sales. The number of electric vehicles on the road in 2022 was only about 1%.

Take Norway as an instructive example. Norway is one of the most aggressive electric vehicle markets in the world. In 2014, the country’s share of electric vehicles on the roads reached 1%. In 2020, sales of new electric vehicles accounted for 54% of new car sales in the country. That would be roughly in line with the US timeline. In 2021, more than 20% of cars on Norwegian roads were electric vehicles, and in 2022, this number reached 25%.

What impact has this had on the country’s overall oil demand? According to BP’s 2022 Statistical Review, in 2014 – the year Norway achieved a 1% share of electric vehicles on the road – the country’s oil demand was 216,000 barrels per day (BPD). By 2021, with a 20% EV share, that number had fallen to 199,000 BPD. (Final figures for the full year 2022 are not yet available, but preliminary numbers show a decrease of 0.4% compared to 2021).

This is a drop of less than 8% in seven years. There’s no doubt that’s a good thing, and it’s probably mostly down to the country’s adoption of electric vehicles. But that doesn’t translate into a major reduction in oil demand either. When the president says, “We’re going to need oil for at least another decade,” I think he’s looking at much bigger drops than that over the next decade.

Today, the United States consumes about 20 million BPD of petroleum products. A 10% drop in that number would bring consumption back to what we’re consuming around 2012. A significant reduction, yes, but our transportation infrastructure would still run primarily on oil.

So make no mistake about it. We won’t just need oil in a decade. We will still be massively dependent on oil in a decade. Our energy policies must reflect this reality.

Go ahead and aggressively try to accelerate this transition, but also recognize that oil will remain our most important commodity a decade from now; probably even in two decades. The Biden administration should recognize this and end its hostility to this critically important American industry.