If you’re an adult then sometime in the last two weeks or so you’ve probably seen or heard reaction to a report put out by the International Energy Agency entitled “Net Zero by 2050 – A Roadmap for the Global Energy Sector.” The takeaway that’s made the most news is the claim that in order to reach net-zero there must be “no new oil, gas or coal development” starting this year. Which, boy oh boy if that’s true then we are shit out of luck already. Just how out of luck? Well, according to this week’s Energy Charts from the ARC Energy Research Institute in Calgary, Canadian energy firms are reinvesting over $23-billion this year into conventional oil and gas and oil sands projects. Not to mention that they’re also going to complete the drilling of over 3,000 wells. And that’s just us here in Canada.
Over in Russia the scallywags formerly known as Communists are overhauling their coal export infrastructure to satisfy Asian demand. By ‘Asian demand’ one means Chinese demand which, despite all the flowers in the hair of folks on Vancouver Island, is not going to peak until at least 2026 according to big daddy Xi himself. So uh, what’s going on here?
Well, rather than signifying ‘the path forward’ in terms of energy policy, what the IEA’s report does is prove that there is still a significant portion of the population who is interested in reading French fiction. But in all seriousness, I don’t interpret the IEA’s report as being a roadmap towards a green future. Instead, it’s best to understand the report as pointing out the pure marketing babble that is ‘Net Zero 2050.’
As an example of the disconnect between rhetoric and reality, one can look to Japan where Prime Minister Yoshihide Suga promised a couple of weeks back that the country would cut emissions by 46% by 2030. This pledge sounds neat but, uh, it was made, according to The Financial Times, “with no consultation, little political debate and no analysis to confirm it is possible.” I shit you not the Japanese environment minister Shinjiro Koizumi stated that the 46% figure “just floated up.” Why? I don’t know, maybe just to see if anyone was listening to his speech.
This “current gap between rhetoric and reality on emissions” is stated upfront in the IEA’s report.1 It’s not as though folks such as these are unaware of the blue-sky scenario required to hit such a target. But the thing is, that the longer we waddle around pretending that we are going to hit these magically round numbers and dates, the starker reality is going to be when the future becomes the present. To give a sense of where the IEA sees a Net Zero 2050 taking us, below is The Financial Times’ take on the scenario.
Let’s start with the most pressing situation here which is that in order to completely overhaul existing infrastructure and industry so as to hit Net Zero 2050, an immense amount of raw materials are going to be required. That’s not an impossible task given that humanity is quite competent at digging things up out of the ground. Except for the fact that in ‘advanced’ jurisdictions such as Canada – let’s take Ontario as an example – it “takes ten to fifteen years of exploration, data analysis, planning and financing to bring a mine into production.”2 So if we’re going to get our hustle on and start finding all the lithium, cobalt, uranium, iron, copper, and rare earth metals we can get our hands on then we can expect to start building the future in . . . 2031-2036.
You will notice above that I included uranium in the list of materials we might just need to get this climate Boeing going. You see, I am one of these weirdos who thinks that if we’re going to kick coal and combined-cycle natural gas out of our energy grid then we are going to need nuclear. Why? Because sometimes we need electricity when the wind is not blowing and the sun ain’t shining. I can hear the statements now, “Oh but batteries ah durpa durrrr,” to which I say, see the mining timeline above. As for hydro folks out there, let me draw your attention to the fact that Site C in British Columbia has so far taken 40 years to get from proposal to construction. While it is true that a uranium major like Cameco has a number of mines that have been mothballed since 2016 and can come online to meet rising demand, it does not get around the fact that, according to the World Nuclear Association, construction [ignoring design and regulatory approval timelines] for a new nuclear power facility in a jurisdiction such as America takes around 8-9 years. So, we can start to phase out natural gas starting....next decade?
A recent hot-topic here in Canada around nuclear is the federal government’s roadmap for Small Modular Reactors which could eliminate industrial emissions. Back in 2018 when the roadmap first came out the optimistic estimate was that the likes of Canadian Nuclear Laboratories could “successfully demonstrate at least one SMR technology by 2026.”3 So that’s another 5-10 year timeline to get to a first-generation option. The timelines are getting better, but they’re still not ‘off the shelf’ solutions for hitting a given target like Canada’s Paris pledge to drop emissions by 30% relative to 2005 figures by 2030. For context, the Government of Canada has publicly acknowledged that based on policies as of September 2020, this fine nation can expect a single-digit decline in emissions relative to 2005 by 2030.4 So, uh, not a lot of time left to pump those numbers. But hey, we have a high school teacher at the helm of this ship, so how can you not have anything but confidence in the amorphous ‘plan?’
One could go on and on about single initiatives that would need to happen in order to hit the elusive net-zero by 2050 but which are nowhere to be seen, but at this point, it’s all a bit tedious. What matters is what’s happening here and now.
This past week, Chevron, Exxon, and Shell all got hit with either shareholder or legal developments aimed at reducing their emissions – and by extension – production going forward. These developments are what they are and I’m not in the business of defending large corporations [unless they want to hire me *hint hint big boys*]. But what it does is signal that the non-state-backed oil majors are in trouble.
If the oil majors have to pay increasing amounts for their emissions and step back on production, then their costs will rise and their output will drop. Based on the IEA report, OPEC countries will thank the Dutch courts and New York asset managers for their help and see their share of the oil market rise from around 35% today to over 50% by 2050. Yea, the overall amount of oil in this scenario would drop like 75% but OPEC would see their flows go from ~20 million barrels per day today to 10-15-million at mid-century. Not a bad racket for countries with low production costs.
Oh, and I should mention that in the IEA scenario, oil prices per barrel are supposed to be below $50/barrel from now until 2050 but right now Brent Crude is sitting at $69.02. Thus, the economic motivation is still there as long as non-OPEC producers are not priced out of the market – whether at the WTI, WCS, Edmonton Light, or whatever benchmark you want – by regulatory costs. Indeed, the IEA projection still expects to see non-OPEC producers operating into the second half of this century.
For most, it is probably not self-evident as to why the IEA has OPEC chugging along in terms of oil production while everyone else jumps off an output cliff. What you have to realize is that the two Venn Diagram circles of IEA and OPEC members do not touch. In fact, the IEA also does not count Russia, almost all of Africa, and most Latin American nations amongst its members. The following shows the organization’s membership [and is jacked straight from Wikipedia].
In terms of purpose, the IEA was founded so as to act as an energy advisory body to non-OPEC countries in response to the oil crises of the 1970s. That is to say, that the organization is just a group of wonks based out of Paris. So, maybe, hear me out, we don’t exactly give a lot of weight to the group’s opinions and thoughts. I’m sure they’re all fine and dandy people, but let’s not pretend like their report matters much in terms of forcing changes in behavior. Instead, we ought to treat the report for what it is – an attempt to show what it would likely take for major ‘advanced’ economies to reach their 2050 climate goals.
Side note: several countries such as Japan, Australia, and Norway – who are IEA members – have already come out against the organization’s proclamations.
Let’s circle back around here. What are the takeaways?
If we have to cease oil and gas exploration and development efforts starting this year in order to hit Net Zero 2050, then we are not going to get there.
If the future is batteries and brand new infrastructure, then we are not going to have the base-level raw materials needed until at least next decade.
If we need nuclear to provide baseload non-hydrocarbon power then we are already running behind schedule.
If our visions of the ‘clean’ future entail the end of oil, then we are fooling ourselves given that the great ESG promoting nations of the OPEC cartel are going to keep on keeping on.
The obvious question here is, ‘are we fucked?’ To which my nearly meaningless answer is, ‘maybe, maybe not, who knows?’ Prognosticating whether or not civilization is sitting pretty in 2075 is not what I set out to do here. Instead, my intention is to point out that government and corporate statements are out of step with reality. It takes a long time to stop a cargo ship and turn it about. Why are we imagining that overhauling the entire modern world would be any different?
We have – to use the technical term – dicked around for the last couple of decades when we could have been doing something to address the issues that we are now running into. That is what it is and there’s nothing we can do to change it. But something we can start doing today is admit that we are in rough-ass shape in terms of hitting targets set out by those with air conditioning in their homes and a new Benz in their yard. Is it not then about time that we started getting serious about what the future can look like?
p.3
https://www.oma.on.ca/en/ontariomining/mining101.asp
p.22.
Use the 2020 reference case found on page 15.