Publications: Notes at the Margin

Stranding Less Crude (November 28, 2022)


The 2022 United Nations COP27 climate change conference in Egypt ended in confusion. While an agreement for developed nations to provide financial aid to developing nations transitioning off fossil fuels was negotiated, the meeting produced little else. In particular, a proposal to include language that would call for burning less fossil fuel was left out of the final statement, as The New York Times explained:


In recent days, Saudi representatives pushed at the United Nations global climate summit in Egypt to block a call for the world to burn less oil, according to two people present at the meeting, saying that the summit’s final statement “should not mention fossil fuels.” The effort prevailed: After objections from Saudi Arabia and a few other oil producers, the statement failed to include a call for nations to phase out fossil fuels.


The NYT article details the Saudi efforts to keep oil “at the center of the global economy.” The country is spending billions on research and lobbying to slow or stop programs that will help reduce petroleum use, particularly in transportation. As the Times author adds, “It is a strategy at odds with the scientific consensus that the world must swiftly move away from fossil fuels, including oil and gas, to avoid the worst consequences of global warming.”


Such efforts by Saudi Arabia and other oil-exporting countries will probably prolong natural gas and coal use, leaving fewer tons of coal and cubic feet of natural gas in the ground. However, the attempt to keep crude oil reserves from being stranded will likely fail absent urgent cooperation between various industries, international agencies, and governments of oil-producing and consuming nations. The petroleum industry, ironically, is the weakest link in the fossil fuel industry.


Petroleum’s weakness lies in the industry’s fractured structure compared to those of natural gas and coal. Oil producers also confront a market for the products derived from their output in which consumers can choose alternatives they often view as more attractive. In some cases, regulators are pushing the substitutions. In other cases, firms in large industries unrelated to petroleum, such as maritime shipping, see using the replacements as a way to boost their market power and profits. As a recent Energy Intelligence commentary written by this author explains, “The forced symbiosis between oil producers and their downstream customers—refineries, airlines, ships, truckers, and individual motorists—will cease to exist as customers switch away from burning jet fuel, bunker fuel, diesel or gasoline.”


Oil producers urgently need to address the various micro issues that threaten to cut petroleum use quickly. There are steps that could slow or even stop efforts to curtail oil consumption. At this juncture, though, few seem to be in play. Here, we begin by explaining why oil is different from coal and natural gas. We then follow with some thoughts on how oil producers could prolong petroleum use.


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