The recent oil price crisis has accelerated — but not created from scratch — the debate on the future of oil and the global energy market. The oil era will not end overnight. Just as every era came to a close with technological advances, the age of oil will fade globally as more efficient and economically sustainable energy sources are found and implemented

What About ‘Peak Oil’?

Several times the alarm has been raised about a prospective depletion of the wells but, as Rivista Energia points out, “the reserve replacement rate was higher than the production growth rate (1.2% vs 1% between 2007 and 2017). And this was the case despite the fact that oil consumption has in the meantime grown abundantly, almost breaking through 100 million barrels a day.” The economy will dictate the final downturn in the curve.

The current anemic market could lead to a million unemployed in the oil sector according to the CEO of ENI Claudio Descalzi. This is indeed extremely dramatic. Oil was already experiencing a slow decline in energy mixes, given that its share predicted by many analysts for 2020 was 32% of the global energy requirement compared to 46% in 1970. “Forecasts”, StartMag points out, “show that the share of oil will drop to almost a quarter by 2040, almost on a par with gas. The share of renewable energies is also expected to rise to 14% in 2040 from practically zero in 2000.”

The Reality of the Decline of Oil

Oil is in decline but it is a decline that looks like being a protracted process involving slow and gradual steps. The thirst for oil in the large fast-growing economies of East Asia is too strong and the geopolitical importance of areas such as the Persian Gulf, Venezuela and the Russian Arctic — as matters currently stand — is too great to make oil a mere memory of the past. Any resource that replaces oil on the global market as a key energy resource must be exploited in a versatile manner and have: the ability to create around itself a market and a frame of reference; marketability with favorable economies of scale; application in the two areas currently relevant to oil, i.e. industry and transport; and an environmental impact in terms of lower emissions than oil, this being a requirement that has arisen in recent years.

Which Resource is Ready to Replace Oil?

As matters stand, none of these resources are completely ready to make the “great leap forward”. Natural gas, for example, has formed a series of market niches and is exploited on account of competitive advantages over oil in areas where costs and economies of scale perform at their best. Take the case of the Mediterranean, a region in which the proliferation of production and gas pipelines has led to a diffusion of natural gas as a source of energy generation and heating in European countries bordering the sea basin.

However, the idea of ​​exploiting the main component of natural gas, methane, as a fuel has not yet taken off in the transport sector. As the deposits are far from the places of consumption or located in the open sea, it is almost impossible to harness and use the methane that emerges as a waste product from oil drilling, while in the case of the extraction of natural gas about two thirds of the methane found in its pure state is not transported due to the relatively high cost of transport via pipeline.

For the time being, the use of gas in the form of LNG is rapidly entering the shipping industry where precise environmental laws provide for the replacement of oil bunkers in ports with LNG tanks to reduce pollution and the threat to coastal areas.

Still at a basic level is the development of the hydrogen economy which, above all as a result of the studies conducted by economist Jeremy Rifkin, has become well-known in publications. Hydrogen, as Industria Italiana emphasizes, “does not generate climate-changing and polluting emissions in its various uses and can be transported and stored using existing infrastructures”, such as gas pipelines. The use of electrolysis for electricity generation and the construction of hydrogen vehicles and infrastructures with refueling stations for vehicles of this type have already been hypothesized among European and American decision-makers. As regards hydrogen, the main ambiguity is linked to the fact that the resource, in its natural state, is not present in nature and its production must take place with an upstream process that has environmental impacts and costs.

Greener Options

In relation to electricity generation the most important niche could be opened up for the replacement of oil in processes serving the economy. Here the prospect of replacing oil with better performing and greener resources is far from remote. In both 2018 and 2019, taking just the case of Italy, hydroelectric, bio-energy, wind, photovoltaic and geothermal energy together have guaranteed over 40% of the generation. Globally, it bodes well that among the major investors in these fields there are countries such as China, which exploit not only oil but also coal.

In conclusion, we consider it conceivable that the oil era could come to an end unevenly, with the role and impact of oil on the economy over the course of the 21st Century being gradually reduced but without completely disappearing, because it is relatively inexpensive and versatile to transport. In individual sectors, however, oil will give way to those resources that prove most exploitable.

Domestic use is already a niche for natural gas, electricity generation is turning towards renewable energy sources, crude oil still dominates in transport, but massive investment for its gradual replacement could bring results in the next few years. The debate we have presented invites — if there is still any need to do so — an evaluation of the energy question in a pragmatic way, especially given that behind every energy resource there is an inevitable geopolitical challenge for the control of sources and their sale. And for this reason the interests in favor of the continuation of the oil age are anything but weakened.