Key industry operators have realized that the global oil market saw a mismatch in supply and demand in 2022 due to focus on cutting greenhouse gases.
BP Plc’s Chief U.S. Economist Michael Cohen said the oil industry focused too much on cutting greenhouse gases last year thus eroding its ability to keep pace with demand.
“2022 taught us that too much focus on the decarbonization agenda led to a mismatch between supply and demand,” said Cohen in a Monday interview in Mexico City.
He likened the energy complex to a three-legged stool balancing energy security, affordability and a low-carbon future. “If you focus too much on one leg of the stool, you end up throwing the others off,” Cohen said.
Efforts by the European Union, UK and U.S. to reduce reliance on Russian oil and gas following the invasion of Ukraine laid bare the lack of affordable energy alternatives. U.S. President Joe Biden implored producers to pump more oil to bring down surging prices while countries like Germany burned more coal.
BP reported record profits last year after oil prices surged. Formerly considered a flag-bearer for transitioning to cleaner energy, BP has subsequently scaled back plans to reduce oil production to meet its net zero targets, a considerable about-face after announcing ambitious emissions reduction plans.
In February, the European producer reduced its goal to slash oil and gas output by 2030 to between 20 per cent and 30 per cent, from between 35 per cent and 40 per cent previously.
Oil consumption is heading for a record this year, according to the International Energy Agency, which advises major economies. Supply — buffeted by Russia’s invasion of Ukraine, a slowdown in U.S. shale growth and lackluster investment in production hasn’t kept pace.
BP’s estimates for oil investment requirements are lower than that of OPEC, with the Organization of Petroleum Exporting Countries expecting a need for $12.1 trillion to 2045. The European oil major anticipates that, at most, the sector will need slightly more than $400 billion a year until 2050.
OPEC, the IEA and BP’s estimates “vary widely,” Cohen said. “It’s not sensible to get bogged down in the details, what’s clear is we need to keep investing as we have been in the past.”
The company is also targeting investment in green hydrogen and biofuels.
It is focused on growing these areas in Latin America, said Angelica Ruiz, BP’s senior vice president for Latin America. “We are not only doing more, but we have acquired new companies that underpin this new growth engine that we believe is critical.”