Chart 1: Current Global Energy Mix
Global primary energy consumption by source
Primary energy is calculated based on the 'substitution method' which takes account of the inefficiencies in fossil fuel production by converting non-fossil energy into the energy inputs required if they had the same conversion losses as fossil fuels.
Source: Our World in Data.org, BP Statistical Review of World Energy
The chart above shows how our current energy load is provided for. Hydrocarbons account for nearly 65% of our daily energy consumption. Pre-pandemic oil demand was growing at approximately 1m-1.5mn barrels per day. Simultaneously, global oil reserves deplete at approximately 8% per annum – meaning we have to find approximately 8mn barrels per day per year to maintain current reserves. The Shale Oil revolution began in earnest in 2011, which initially contributed to a significant global weakness in crude prices, averaging 40 -60USD per barrel between 2014 and 2021. In fact, few realise that now the US is the biggest producer in the world – at nearly 10mn barrels per day, dwarfing Russian and Saudi daily output. However, that was before the ESG movement catalysed a massive curtailment in financial capital available to US shale oil projects, for which we are now beginning to feel the effects. As new supply projects have been shelved, due to little appetite on behalf of banks or investors, demand continues its inexorable push higher, and the markets have tightened.
If we were to simply stop drilling now, effectively go cold turkey, then within two decades we would need to find another 7 Shale Oil discoveries, or perhaps even more starkly, another 7 Saudi Arabia’s to fill the supply void. J. P. Morgan has just released a doomsday report pricing oil at 380 USD should Russian oil be sanctioned, which entails removing entirely 4.5mn or say barrels of crude per day from the market. Anybody with an electricity bill would shudder (or more likely shiver), if faced with energy prices resulting from an effective prohibition on all hydrocarbon based fuels.
Over the next decade the world is due to add 1.1bn people according to the United Nations, all of which will require more energy, rather than less. Electrifying the world – transitioning from molecules to power, will also bring significant transmission challenges. The capacity required will mean ultra efficient energy grids – whereas in the West, our current infrastructure would be charitably described as antiquated.