The story of the last barrel of oil has gained traction in recent years as nations across the world, including parts of the Middle East and North Africa, scramble to curb emissions and transform entire societies in order to avert a crisis resulting from a warming planet. It is a fascinating exercise to try to predict where, and when, the last barrel of oil will be sold, if only to map out how the global economy will manage to wean itself off fossil fuels after a century-long dependence.
However, should current trends persist, the story of the last barrel of crude will be a familiar tale of divergence, contradictions, uncertainties and uncomfortable truths. The world may never see its last barrel of oil. If anything, that last barrel will result from the depletion of fossil fuel reserves, and not because we managed to turn off the taps, and completely eradicate coal, oil and natural gas from the global economy.
It is a similar story when it comes to impending energy transitions that are expected to end dependence on oil and gas in the world’s advanced economies and also its poorest — often the most vulnerable to climate change.
Wealthier economies remain well-placed, despite pandemic challenges, to begin transitions that will temporarily shrink gross domestic product, push unemployment upwards, and possibly result in inflationary pressure due to initially high costs of energy. Most of the world’s developing economies, on the other hand, are unable to even guarantee equitable access to inexpensive energy for most of their populations — a predicament that is worsening and has become the root cause of a raft of socioeconomic ills.
Such “gaps” create a different mix of priorities in this make-or-break decade for climate change mitigation, as seen with the somewhat disappointing conclusion to the Glasgow climate summit. For the moment, and possibly well into the next decade, the developing world will have to continue relying on, and possibly increase, its consumption of fossil fuels — first, to restore pandemic-battered economies and, second, to build resilience into societies ahead of what will likely be painful transitions.
At the same time, most countries in the Global South will have to pursue long-overdue reforms likely to be made preconditions for accessing climate finance.
After all, despite the push for renewables, cheap oil, coal and natural gas will remain highly attractive sources of energy, even beyond 2050, for most of the world’s low and middle-income nations. By their calculations, relying on unscaled, untested renewables that will need to be integrated into existing, fossil fuel-dependent power grids and transportation networks is extremely risky and politically expensive.
Ending fossil fuel subsidies, as seen across parts of the Middle East and North Africa region, as well as trying to phase out coal and implement carbon pricing schemes, will only add enormous, almost subversive pressure on already vulnerable societies and economies. Additionally, certain sectors, such as aviation and shipping, are exceedingly challenging and expensive to electrify. This also applies to certain types of manufacturing that require industrial heating, such as production of steel, cement, chemicals, ceramics and glass.
No amount of political capital could ever “justify” shrinking economies, rising joblessness, inflation, entire sectors grinding to a halt, and currencies rapidly losing value, simply to embark on green revolutions that even the world’s biggest polluters so far have resisted.
To add insult to injury, these same advanced economies are yet to fulfill their own pledges to set aside as much as $100 billion in climate finance to subsidize the shift to renewables across the developing world. Thus, while pressure on low-income countries is ratcheting upwards, industrialized nations responsible for most of the world’s emissions are either delaying assistance or making access to the paltry $10.3 billion in climate finance currently available highly challenging.
As a result, this necessary fixation with access to relatively cheap energy among oil-importing states will have almost as much influence on fossil fuel permanence, well after 2070 and into the 2100s, as the need to maximize returns from hydrocarbon sectors among oil exporters. Thus, for MENA producers, there is very little rationale in working with hyperbolic assumptions and planning for a world that will no longer need the region’s oil.
So far, consensus views are yet to emerge regarding the precise point when the world will arrive at peak oil. The Organization of Petroleum Exporting Countries predicts oil demand will continue to rise at least until 2045, followed by a relative decline in oil’s share of worldwide energy of just 2 percent — contrary to the International Energy Association’s expectations for fossil fuel demand to drop by 75 percent between 2020 and 2050.
In fact, before we even arrive at that future, the advanced economies are in the midst of energy crises due to rising oil and gas prices, compounding inflation worries, and diminishing political will to implement contractionary climate policies when the pandemic is still wreaking havoc. Therefore, a collapse in demand beginning in 2023 is highly unlikely, not least because of the surge currently driving prices higher. A number of new projects are coming online across the globe — from Norway to South Africa, Brazil to Japan, and even the US, where shale oil production is estimated to reach its peak in the late 2020s.
Beyond 2030, petrochemicals, which are widely used in everyday products, will account for almost half of global oil demand. Petrochemicals are also used in the production of the solar panels, batteries, wind turbines, electrical vehicles and thermal installations that are essential to the green economies of the future.
Across the Gulf capitals, expectations are that global demand for crude will continue to rise, and considering Saudi Arabia’s extremely low production cost of roughly $4 per barrel, the region will likely continue pumping oil well into the 2100s, even if demand from the developed world and middle-income nations drops substantially. Essentially, the longer it takes to arrive at peak oil, the better off the region’s economies will be, for consumers and producers alike — but not the planet.
On the other hand, the sooner the last barrel arrives, the better off the planet will be, while disruptions in energy supply and access will have more adverse effects on fossil fuel-dependent Arab world economies and societies. Thus, projections for when the last barrel of crude will be produced and where it will be sold might simply end up as thought exercises for generations facing dwindling crude reserves far into the future.
Regardless, that last barrel will likely come from the MENA region, given its low production costs and declining break-even prices for new oil projects. However, this assumption is built on extreme forecasts of potential, climate-inspired changes on the supply side, disregarding a complex array of factors needed to achieve a mythical “zero oil” world.
- Hafed Al-Ghwell is a senior fellow with the Foreign Policy Institute at the John Hopkins University School of Advanced International Studies. Twitter: @HafedAlGhwell
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