“Oil is no longer an energy security challenge – it’s going to be gas, electricity, predominantly minerals,” Saudi Arabia’s energy minister said this month. From a certain perspective, this sounds like a death knell for oil as we know it—the commodity that drives the global economy. On the other hand, it’s an admission we have become even more dependent on hydrocarbons, just more of them.
The fact that the world relies on petroleum in order to function was made clear quite recently when oil prices jumped on the news that the outgoing Biden administration had announced one parting round of sanctions against Russia’s energy industry; specifically oil and gas exports. Had oil demand been really weakening under the weight of all those electric vehicles on Chinese roads and in European showrooms, the effect of the sanctions on oil prices would have been negligible. But it wasn’t.
Not only that, but now there is talk about a tightening oil market where a month ago, everyone—with rare exception—talked about a surplus. Energy market analyst John Kemp just last week warned that “U.S. crude oil inventories have depleted much faster than normal since the middle of 2024,” which has to date put them at the lowest for this time of the year since 2015.
Meanwhile, oil inventories in the member states of the Organization for Economic Cooperation and Development are also on the decline. Global stocks as a whole have been declining, and they have been declining much faster than the International Energy Agency had been predicting in its monthly reports. As a result, the IEA now sees a much smaller surplus in crude oil this year. The fact it still sees a surplus is either an expression of hope or failure to learn from one’s own mistakes.
The world, then, still very much runs on oil. But in the past decade or so, growing parts of it have started running on gas, too. For evidence of that, we need look no further than Europe and its winter supply woes while it struggles with an increasingly limited pool of affordable supply amid its central government’s push to reduce purchases of the most affordable available gas: gas from Russia.
Last year, the EU’s leadership kept insisting on member states cutting off imports of the commodity from Russia. Yet member states kept buying Russian LNG—for a record total for the year. This year, the trend has continued, even as the new chief of the EU’s diplomatic department, Kaja Kallas, has insisted that the bloc imposes sanctions specifically on Russian gas. Politico reported on that earlier this month, citing cargo-tracking data from Kpler, writing that the EU had bought over 800,000 metric tons of Russia LNG in just the first two weeks of January.
The squeeze continues, meanwhile, with Europe’s gas in storage levels falling across the bloc with a few exceptions, approaching dangerously low levels due to strong demand. That demand is perfectly normal during winter. It also proves that so-called critical minerals may be more important today than they were 20 years ago, but they have yet to reach the vital status of oil and gas.
Critical minerals are called that because they play a role in most transition technology. Wind, solar, EVs—the all require certain amounts of these minerals. Incidentally, Saudi Arabia has certain reserves of some critical minerals and would very much like to develop them. Yet Abdulaziz bin Salman also had a word of caution to those eager to make it big with critical minerals.
“Today some of these countries, they have, as a country, 50% of the ownership of some of these required minerals and critical minerals ... countries are racing to access critical minerals and secure their own supply chain,” he said, as quoted by CNBC last week. “Rushing to secure access to resources will ultimately lead to higher emissions, higher metals costs and higher energy prices.”
This is because extracting all these critical minerals that the energy transition needs requires hydrocarbon power regardless of all the mining companies boasting about their brand new battery-powered machinery. Mining is powered by oil and gas. The more you need to mine—and process—the more hydrocarbon energy you would be using, with the respective emissions footprint. It is a truly vicious circle that there is no way out of, no matter how many wind turbines this increased mining leads to. Because when the wind is down, it’s natgas all the way.
The cherry on top of the current energy cake is, of course, artificial intelligence. Bin Salman was quite succinct on that. “More AI [artificial intelligence] and data centers means more energy,” Bin Salman said. “You’ll have AI, data centers, mining, crypto mining ... can you imagine what will happen to energy demand? Can you imagine the race between mining to create energy, and energy to create mining and the growth of these economies?”
Some will continue to claim that oil is no longer a matter of energy security and that it has been replaced by gas. But with oil demand set to rise yet again this year, it really looks more like oil has been joined by gas as the ultimate critical commodity.
By Irina Slav for Oilprice.com
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