INSIGHT: War, AI, hijack energy transition; world pivots to fossil fuels

HOUSTON (ICIS)–Conflict has caused nations to adopt energy policies that favor security, affordability and reliability over sustainability as they seek to meet rising energy demand for artificial intelligence (AI) among developed countries and rising populations among developing ones.

• Energy security was brought to the fore by the war between Russia and Ukraine and the subsequent shock to EU industry, according to comments made at the CERAWeek by S&P Global energy conference.
• Executives at CERAWeek were exuberant about the prospects of rising demand for energy, particularly natural gas.
• Global demand for oil could reach a plateau by the middle of the next decade, although it could continue to rise as populations grow in emerging economies.

RISING ENERGY DEMAND
Following demand shocks such as war and COVID, governments want  sources of energy that are secure, reliable and affordable.

“Energy realism is taking center stage,” said Sultan Ahmed Al Jabr, CEO of the Abu Dhabi National Oil Co. (ADNOC). He made his comments at CERAWeek. “Sustainable progress is not possible without access to reliable, affordable and secure sources of energy.”

Murray Auchincloss, the CEO of BP, noted that every government to which he spoke after his appointment stressed the need for affordable and reliable energy.

At the same time, the world will need more energy because of population growth, adoption of middle-class habits in emerging economies and AI.

Applications like ChatGPT use up to 10 times the energy of a simple web search, Al Jabr said. By 2030, demand for power from data centers in the US will triple, accounting for 10% of consumption.

ADNOC is putting money behind its predictions by establishing XRG, an energy investment company with an enterprise value of more than $80 billion.

ADNOC and others expect LNG will play a large role in meeting growing demand for reliable and affordable power. Between now and 2050, LNG demand should rise by 65%, according to XRG. In fact, international gas is one of XRG’s three platforms.

US energy producer ConocoPhillips is also optimistic about the prospects for LNG, said Ryan Lance, CEO. He sees a growing market shipping low-cost natural gas from North America to higher cost regions in Europe and Asia.

OIL HITS PLATEAU
Under current trends, global demand should continue growing slowly until reaching a plateau in the mid-2030s, said Helen Currie, chief economist of ConocoPhillips.

In the industrialized world, oil demand is declining, said Eirik Warness, chief economist of Equinor. He expects oil demand to reach a plateau by the end of the decade.

One factor behind tapering oil demand is China. It is weaning itself off of petroleum-based fuels in favor of nuclear and renewables for security reasons, said Jeff Currie, chief strategy officer for Carlyle.

While these sources of energy have higher upfront costs, they have much lower operational costs when compared with fossil fuels, and they provide a secure source of energy.

PROSPECT FOR US OIL PRODUCTION
CEOs at ConocoPhillips and Occidental Petroleum expect US oil production to reach a plateau later in the decade. After that, it should slowly taper using current technology.

But energy companies have demonstrated a track record for innovation. If successful, they could extend the production life of US oilfields.

Occidental is conducting pilot tests to determine whether it can use carbon dioxide (CO2) in unconventional oil fields like shale, said Vicki Hollub, CEO. The goal is to double oil recovery rates to 20% from 10%.

Using CO2 in enhanced oil recovery is already an established technique in conventional fields, and Occidental is building a business around it using direct air capture (DAC).

IMPLICATIONS FOR US CHEMS
US ethylene plants rely predominantly on ethane as a feedstock, and its cost tends to rise and fall with that for natural gas. At the least, rising gas demand could establish a floor on prices for the fuel and potentially lead to spikes as supply struggles to keep up with demand.

At the same time, prices for petrochemicals tend to rise and fall with those for crude oil.

Flat or falling demand for oil could set a ceiling on prices for petrochemicals.

CERAWeek by S&P Global runs through Friday.

Insight article by Al Greenwood

(Thumbnail shows an LNG tanker. Image by Xinhua/Shutterstock)