News | Economic / Social Policy - Socio-ecological Transformation - COP28 Heading In the Wrong Direction

As the world oil market bounces back, fossil fuel usage continues to skyrocket



Uwe Witt,

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In order to limit global warming to a maximum of 1.5 degrees above pre-industrial temperatures, the Intergovernmental Panel on Climate Change (IPCC) estimates that global net emissions must be reduced to zero by 2050. Yet the path to achieving that goal keeps getting narrower.

Uwe Witt works on climate change and structural transformation at the Rosa Luxemburg Foundation in Berlin.

Even the International Energy Agency (IEA), which for a long time was primarily concerned with the future availability of fossil fuels, reached this conclusion in its 2021 report Net Zero 2050. The report states that, to achieve net zero by 2050, no new oil or gas fields, and certainly no new coal mines, should have been approved starting in 2021. Because if all known fossil fuel reserves were exploited and burned, they would release 3.5 billion tonnes of CO2, defeating all climate goals.

Growth, Not Contraction

A study from University College London finds that maintaining a 50 percent likelihood of keeping global warming within a 1.5° C limit would probably require leaving nearly 60 percent of all the oil and gas reserves and 90 percent of all coal currently regarded as economically recoverable untouched. In 2021, Shell announced that it would reduce oil and gas production by 1 to 2 percent per year until 2030.

As ambitious as these scenarios are, the reality is sobering in equal measure. While coal mining is subject to growing criticism in industrialized countries, and more and more of them are setting phase-out dates, the same can in no way be said of petroleum, the world’s most critical fossil fuel. The oil market is not shrinking. After short-term convulsions linked to the COVID-19 pandemic and the Russian invasion of Ukraine, it is growing again, albeit at a slower pace.

In a June 2023 study, the IEA calculated that global oil production increased by 5 percent, to 105.5 million barrels per day (mb/d), between 2022 and 2028, largely due to the prolonged expansion of the petrochemical industry and increased air traffic. The study says that the demand for aviation fuel at the start of 2023 was still 13 percent below 2019 levels due to these crises, but that the dip would be compensated for by 2027. At least for fuel, the trend is expected to reverse by 2026, due to a turn towards lower-emission fuels in the transport industry during the global energy crisis, as well as improvements in energy efficiency and rapid growth in electric vehicle sales.

Apart from that, however, the worsening climate crisis shows no signs of abating. Shell is no exception here: the corporation has backed down from the reductions it promised in 2021. This is no surprise, given that exploding oil and natural gas prices, as well as the war in Ukraine, caused its annual profits to double in 2022 — to roughly 40 billion US dollars.

Thus, reductions do not appear to be an option. Of course, that is not the justification that Shell CEO Wael Sawan offers. He says that reducing fossil fuel production would be “dangerous and irresponsible” because it could cause “the cost of living … to shoot up again”.

Net profits from oil export for OPEC member states also rose significantly over the past year, increasing by almost 50 percent compared to the previous year. That is despite the fact that crude oil prices are back below pre-war levels.

Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC) from 2010 to 2016 and a major architect of the Paris Agreement, supported the idea that fossil fuel companies also had to have a seat at the table in climate negotiations for a long time, arguing “We need all hands on deck”. In an article published by Al Jazeera, she says she has now come to realize that the fossil fuel industry will continue to fight against climate protections.

Her mind was changed by what fossil fuel companies chose to do with their unprecedented profits over the previous 12 months. Instead of investing them in decarbonization, these companies pulled back on their commitments to reduce emissions and reorganize the economy. “On top of that”, Figueres writes, “the industry as a whole is making plans to explore new sources of polluting fossil fuels and, in the United States, intimidating stakeholders who have been moving towards environmental, social and governance responsibility.”

Numerically, the IEA says that global investments in oil and gas exploration and extraction will likely increase by 11 percent to 528 billion dollars. Capacity-building plans in the intermediate term are also moving upward. That trend is not being driven by OPEC and its allies, such as Russia, but rather by oil-producing countries outside of what is known as the OPEC+ alliance, led by the US, Brazil, and Guyana, which are planning to increase the supply by 5.1 million barrels of crude oil per day by 2028.

Within OPEC+, Saudi Arabia, the United Arab Emirates (UAE), and Iraq are taking the lead in capacity building, while, according to the IEA, African and Asian members struggle with prolonged downturns, and Russian production will likely decline due to sanctions. As a result, net capacity growth for the 23 OPEC+ members is only 0.8 million barrels per day.

Only the demand for heating oil has declined significantly in Germany over the last 25 years, dropping by two thirds. Consumption of other oil products has gone down by 9 percent during that period.

One of the few bright spots is Ecuador. On 20 August of this year, a majority of the country’s electorate voted to protect Yasuní National Park against further oil exploration. This marks the first time that a government has been obligated by its people to leave petroleum in the ground.

Another glimmer of hope: if we look further back, comparing 2023 with 2013, for instance, global investment in oil exploration has declined significantly. Investment in solar energy is growing and currently equals investment in oil, which declined by 42 percent during that period. However, the newest IEA report darkens even that ray of light. Under present conditions, worldwide demand for coal, oil, and natural gas will peak by 2030, but oil and gas consumption (unlike coal) will then decline only slightly by 2050, which is not nearly enough to achieve global climate goals.

Oil for Germany

Because Germany can only meet two percent of its energy needs through its own oil fields, it is almost completely dependent on imported crude oil and oil products. Given that it has no more oil from Russia, its main suppliers are currently Norway, the US, the UK, and Kazakhstan.

Those supplies come via pipelines and tankers. In 2022, Germany imported 88 million tonnes of crude oil, an increase of 8.5 percent over the previous year, in addition to 35 million tonnes of oil products (upstream products for diesel or heating oil, as well as finished products like diesel, benzene, aviation spirit, and lubricants). Given that Germany also exported 27 million tonnes of oil products, oil and net oil-product imports amounted to 96 million tonnes.

About half of the 100 million tonnes of petroleum-based products sold domestically in Germany are used for petrol or diesel fuel — an amount that has hardly changed in the last 25 years. It is thus little that the small dip in average fuel consumption per 100 kilometres driven has largely been eaten up by Germany’s steadily growing fleet of cars. About 9 percent of domestic sales are used for aviation fuel and 11 percent for domestic and heavy fuel oils. Roughly another 13 percent is used by the chemical industry as petroleum for further processing.

Overall, only the demand for heating oil has declined significantly in Germany over the last 25 years, dropping by two thirds. Consumption of other oil products has gone down by 9 percent during that period. In all, consumption of petroleum-based products only fell by 25 percent between 1995 and 2022. As a result, Germany still finds itself enormously dependent on petroleum.

According to energy expert Steffen Bukold, Germany has national and commercial oil reserves of over 267 million barrels (about 35 million tonnes) — enough to meet the country’s supply needs for 117 days amidst constant consumption. The national reserves are administered by the Erdölbevorratungsverband (Petroleum Stockpiling Organization, EBV) and stored in 58 caverns in four locations in northern Germany, stocked primarily with crude oil, as well as 130 aboveground fuel depots nationwide, mostly stocked with oil products, often in or near refineries.

Russian Oil and Sanctions

In response to Russia’s war of aggression against Ukraine, the EU imposed sanctions on energy resources and refinery products, including a ban on exports of certain crude oil refinement technologies, a ban on maritime imports of Russian oil starting on 6 December 2022, and a ban on transfers or sales of refined petroleum products made from oil imported by pipeline to other countries as of 5 February 2023.

Lastly, the G7, the EU, and Australia reached an agreement in early December 2022 regarding a 60-dollars-per-barrel price cap for seaborne crude oil from Russia, effective 5 December 2022. Once the Price Cap Coalition was established, important services for Russian oil exports could only be performed legally if the price of the exported oil did not exceed the price ceiling.

According to the Centre for Research on Energy and Clean Air (CREA), Russia’s revenues from oil, gas, and coal sales worldwide declined significantly in December 2022 and, for the first time, were below what they were before the start of the war on Ukraine. Revenues from exports to the EU shrank by an even greater amount: in March 2022, they brought in almost 700 euro million per day, but by the end of that year, that figure had been reduced to 200 million. That is not only less than half what it was at the start of the war, it is also well below the rate as of September 2021.

According to some estimates, the sanctions on Russian petroleum-based products that went into effect in early February 2023 have had an even stronger negative impact on the Russian economy than the oil restrictions. In the refinery sector, which is the largest sector in the processing industry, Russia’s industrial production has declined by 15 percent.

According to German newspaper Die Tageszeitung, the Russian state’s oil and gas revenues were also 41 percent lower between January and July 2023 than during the same period in the previous year. Yet profits have risen again in recent months, at least in the crude oil industry, due to the fact that the markdown was reduced to other crude oil prices on the global market, which Russia had to tolerate in its search for new buyers since the start of the war. Moreover, global oil prices have gone up overall. The shadow fleet of tankers sailing under the Russian flag, which can avoid sanctions like the oil price cap, may also have contributed to the additional income.

Russian Oil in Germany

In 2020, Germany imported 34 percent of its petroleum from Russia. It was easier to find alternative sources for crude oil and refinery products than for gas, simply because established alternative transport routes by sea already existed. Still, even this required a transitional period — ultimately, one third of the crude oil consumed in Germany came from Russia.

The case of the Schwedt refinery shows that this kind of substitution does not happen with the flip of a switch. Contracts have to be re-signed, conveyor equipment ramped up in other countries, and infrastructure rebuilt or reinforced.

While 12 companies have seen their profits increase by 75 percent in the past year, 92.7 percent of their investments that same year went to fossil fuel projects and only 7.3 percent to renewable energy.

Of course, oil consumption could have been pared back more intensively than it was, for instance by imposing a speed limit, which the Free Democratic Party (FDP) continues to block. In spring of last year, analyst and author Steffen Bukold worked with a team from Greenpeace under the motto “No Oil for War” to develop ten measures to reduce oil consumption in the near future. They range from the aforementioned speed limit or car-free Sundays to increasing rail and bicycle traffic.

Fossil Profits

The way energy markets are organized today regularly generates excess profits without any additional output, particularly in the event of external shocks like the war in Ukraine and the resulting sanctions. That is ultimately because, when supplies run low, the prices that most stakeholders can obtain are not determined by their expenditures. On the contrary, the shortages set the prices. As a result, most electricity producers and refinery operators are not only the only ones making enormous profits from the energy crisis — private companies in oil- and gas-producing countries like the US and national energy suppliers in Norway are also rejoicing over billions in additional revenues.

In 2022, the US-based ExxonMobil Corporation had the highest profits in its history with 55.7 billion US dollars, 140 percent more than the previous year. Norway’s state-owned petroleum company, Equinor, surpassed even that, netting profits of 78.8 billion dollars — 2.3 times more than the previous year.

Last September in Brussels, the Council of the European Union established minimum requirements, which, together with the guidelines for price caps and absorption of excess profits in the electricity market, were supposed to determine how their temporary, one-off profits were to be proportionately collected. Yet the regulations turned out to be extremely weak: this year and next, companies that work with fossil fuels will be allowed to keep profits that are 20 percent above the average for 2018 to 2021. That is lavish, but given the uncharted legal territory, perhaps understandable. All profits above that level are only to be taxed “at least 33 percent”. Why not 60, 80, or 100 percent?

The argument often arises that the companies need these financial resources to manage the transition to a fossil-free economy. In reality, this is a smoke screen. As Steffen Bukold shows in his newest study for Greenpeace, “The Dirty Dozen”, excessive profits are all but never invested in renewable future technologies, but rather in the old, climate-destroying business.

In his analysis, Bukold looked at the official 2022 annual reports of 12 European oil corporations. His conclusion: renewable sources make up only 0.3 percent of these companies’ energy production.

That will not change in the foreseeable future. For while the 12 companies that he studied have seen their profits increase by 75 percent in the past year, 92.7 percent of their investments that same year went to fossil fuel projects and only 7.3 percent to renewable energy. BP, Equinor, Wintershall Dea, and TotalEnergies even reduced their investments in renewable energy production in 2022 as compared with the previous year. According to the analysis, most of these companies wanted to keep exploitation of oil and gas reserves steady until at least 2030 — or even increase them.

Facts and Figures

Petroleum currently provides about 30 percent of the world’s primary energy. Coal and natural gas are next, at about 27 and 24 percent, respectively.

In 2019, about 34 percent of all carbon dioxide emissions worldwide came from oil. Even more — 40 percent — came from coal consumption, 20 percent from natural gas, and the remaining 6 percent from cement manufacturing and other sources. Unwanted gas is deliberately burnt off in the process of extracting petroleum. Only 91 percent of this gas is burnt off, however, which means that crude oil extraction causes methane — a highly impactful greenhouse gas — to be released into the atmosphere, and at higher volumes than were previously assumed.

The two most important trading venues for crude oil are the New York Mercantile Exchange (NYMEX) and the electronic trading platform Intercontinental Exchange (ICE) in London. At those sites, the two most significant types of crude oil — namely Brent (North Sea oil) and WTI (West Texas Intermediate, oil from the Gulf Coast and the Midwest of the United States) — are traded in US dollars. That said, more than 30 types of oil are available around the world. For example, Dubai Fateh (or Dubai crude) means oil from the Gulf States, while petroleum from Russia is known as Urals. Crude oil is quoted by the barrel, and one barrel contains 159 litres.

OPEC is an association currently made up of 13 oil-exporting countries: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, the Republic of Congo, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. Its objective is to control oil extraction and sale on the global market. About 40 percent of the oil extracted worldwide is produced by OPEC countries. That share means that they have a strong influence on global market prices through cartel-like practices. Twice a year, their ministers assess the situation in the oil market and set both a price ceiling for oil and production amounts for individual OPEC member states. Through scarcity or increases in the crude oil supply, they keep oil prices within a determined and profitable target-price range.

OPEC+ is the term for OPEC’s cooperation with non-OPEC states like Russia, Kazakhstan, Mexico, and Oman

Until it invaded Ukraine, Russia was the world’s largest exporter of oil (including petroleum-based products) and the second largest crude oil exporter after Saudi Arabia. In 2022, the US produced about 19 percent of the world’s crude oil and Saudi Arabia produced 13 percent, both ahead of Russia’s 12 percent. Due to the sanctions, and the fact that Western investors and lenders have largely abandoned the country’s oil industry, the IEA predicts that Russia’s oil supply will decline until 2028, but only by six percent.

With regard to the demand for oil, which amounts to nearly 100 million barrels per day (mb/d), the consumption rankings are variable. According to World Population Review, the biggest consumer in 2023 was the US at 19.7 mb/d, ahead of China (11.7 mb/d), India (4.5 mb/d), and Japan (4.0 mb/d). After that came Russia, with 3.6 mb/d, and Saudi Arabia, at 3.2 mb/d. Germany came in ninth, with 2.4 mb/d.

Translated by Joseph Keady and Anna Dinwoodie for Gegensatz Translation Collective.