OPEC Sees Oil and Electrification as an Inseparable Duo for the Future of Global Energy Supply
In the current debate about the future energy supply, electrification is often portrayed as the big opponent of oil. The increasing pressure to reduce CO2 emissions and make the energy supply more sustainable has led many to view the use of oil as obsolete. But Haitham Al Ghais, Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), disagrees with this simplistic view and emphasizes the indispensable role that oil and its derivatives play in the global energy landscape.
A general view of the Vienna headquarters of the Organization of the Petroleum Exporting Countries (OPEC). / Picture: © Wikimedia Commons / DALIBRI / CC BY-SA (https://creativecommons.org/licenses/by-sa/3.0)
In a recent statement published on the OPEC website, Al Ghais addresses the widespread myths that characterize the relationship between electrification and oil. It is wrong to believe that these two forms of energy are in a zero-sum game, where the gain of one means the loss of the other. Instead, they should be seen as complementary parts of a diverse energy mix that is necessary to meet the growing global demand for energy.
The underestimated role of oil in electrification
Al Ghais points out that oil products are crucial in many areas of power generation and transmission. For example, various types of plastic derived from crude oil are essential for the insulation of cables used in the transmission of electricity. These cables, which are often laid underground or underwater, require insulating materials such as cross-linked polyethylene, polyvinyl chloride, and cross-linked ethylene-propylene polymer. These materials often account for up to 40 percent of a cable's weight and are essential for the safe and efficient transmission of electricity, particularly in offshore wind farms that need to be connected to the grid.
Another example of the importance of oil in electrification is the use of transformer oil. Transformers are key components in power transmission as they adjust the voltage to the correct level to ensure a safe and efficient power supply. These transformers rely on special oils derived from mineral oil to insulate their coils and cores and keep the temperature stable. According to a report by the International Energy Agency (IEA), transformer oil and insulating materials account for almost a quarter of the weight of a large power transformer, underlining their importance to the entire system.
#OPEC #Oil pic.twitter.com/nucTakmNUw
— OPEC (@OPECSecretariat) August 16, 2024
Challenges and opportunities in the expansion of electricity grids
The urgency to reduce global CO2 emissions has led to ambitious plans to massively expand electrification. To achieve the climate targets, global electricity generation would have to increase from around 30,000 terawatt hours (TWh) at present to up to 130,000 TWh in 2050. This corresponds to a threefold to fivefold increase in current electricity production within less than 30 years.
To achieve this, an unprecedented expansion of the global electricity grid would be required. The IEA estimates that around 80 million kilometers of new high-voltage lines and underground cables would have to be laid by 2040 - the equivalent of 100 trips to the moon and back. Such a massive expansion will pose considerable challenges, particularly in terms of the supply chains for the materials required.
Al Ghais emphasizes that many of these materials rely on oil products, which is often overlooked when talking about the future of energy. While the discussion often emphasizes the risks associated with the supply of critical minerals, the importance of a stable supply of petroleum products is largely overlooked. OPEC has repeatedly pointed out that the security of the oil supply - and therefore security of the supply of key oil products - can only be ensured through appropriate and timely investment in the oil industry. Without such investment, supply bottlenecks could occur that could jeopardize the implementation of electrification plans.
Oil remains an indispensable part of the global energy future
Despite the growing importance of renewable energies and electrification, oil remains a central pillar of the global energy supply. Al Ghais emphasizes that oil should not be viewed in isolation. It is an integral part of many industries that could not function efficiently without petroleum products. This includes not only the obvious sectors such as transportation and heavy industry but also power generation and transmission, which are critical to achieving global electrification goals.
OPEC expects global demand for oil to continue to rise in the coming years. According to the latest forecasts, global oil demand will increase by 2.25 million barrels per day in 2024 and by a further 1.85 million barrels per day in 2025. These increases will be driven primarily by industrial, construction, and agricultural activity in non-OECD countries, which remain heavily reliant on oil.
Critical consideration of the argumentation
However, a critical examination of this argument is necessary. As the representative body of the oil-exporting countries, OPEC has a clear self-interest in emphasizing the importance of oil. This could influence the objectivity of the statements. There is a risk that the long-term alternatives and innovations in the fields of renewable energy and materials science, which may be less dependent on oil, are undervalued. In a world that is increasingly focused on sustainability and climate protection, alternatives could be developed that significantly reduce oil consumption.
Another critical issue is the overemphasis on oil dependency in electrification infrastructure. While it is currently true that many materials are based on oil products, this focus could lead to a delay in investment in more sustainable alternatives. There are already developments aimed at reducing or even eliminating the use of petroleum products in infrastructure. This progress should not be ignored.
Furthermore, arguing in favor of continued dependence on oil could be seen as a delaying tactic to postpone the transition to a low-carbon economy. It is important not to lose sight of the long-term challenges and opportunities in the transition to a sustainable energy future.
A balanced energy mix is the key to the future
In an ever-changing global energy landscape, Al Ghais argues that the narrative of competition between oil and electrification should be overcome. Instead, these two energy sources should be seen as complementary components of a comprehensive and sustainable energy mix. Such a mix is essential to meet future energy needs, achieve global climate goals, and at the same time ensure energy security.
By emphasizing the importance of oil in the future energy supply, OPEC is calling for a realistic and pragmatic approach to the energy debate. But this approach should also recognize the need to invest in alternative technologies and sustainable materials to reduce dependence on fossil fuels. Only by recognizing the interdependence of oil and electrification and encouraging innovation can a sustainable and secure energy future be shaped that meets both the demands of climate protection and the needs of the global economy.