December 2022 – The prices of oil and its derivatives, particularly diesel oil, have been high for a couple of years and everything indicates that they will continue to be so. The price of WTI oil, after Russia’s invasion of Ukraine, has settled between 85 and 110 USD/barrel, with an average of 98.8 USD/barrel from March to November 2022.
But the diesel situation is very particular because, in addition to the high oil prices, we must add the high refining margins of this hated, but so coveted product that moves the planet. The average price of diesel oil (refinery output in the USA) from March to November 2022 is 170.7 USD/barrel. That is 1.07 US/liter or 4.06 USD per gallon. To this price must be added freight, insurance, wholesale and retail margins (often created to generate illicit profits in some countries), taxes and others to reach the final consumers.
One of the fundamental reasons for the prices of oil derivatives to be at these levels is the brake that has been imposed on the exploration, exploitation, refining and commercialization of hydrocarbons, when demand continues to grow. It is a brake with actions such as those of Greenpeace in Argentina to stop offshore exploration, a brake for the protection of the area where the activities are developed, a brake so that the companies do not obtain financing for exploration in the stock exchange, a brake with very original protests by painting pictures in the museums of Europe, a brake with protests in the streets and many other ingenious methods that we observe on a daily basis.
To all those who protest and stop investments in hydrocarbons, I would like to point out that they are making a mistake and this will have serious consequences and contrary effects for the longed-for energy transition. The brake to combat climate change should be to penalize the demand and supply of dirty and much more polluting coal. This energy source, which is mainly burned to generate electricity in Asia, Europe and the USA and where many naive people connect their electric vehicles.
During 2021 in Asia 27,180 Tera BTU (TB) were generated on coal basis with emissions of 2,600 Million Tons of CO2 to the atmosphere (MMTCO2). With natural gas, 5,095 (TB) were generated with emissions of 279 MMTCO2. Let’s assume that all the coal we dumped very quickly to abundant natural gas, with which we would have savings in emissions of 1,100 MMTCO2. Similarly, the same analysis in Europe would generate savings of 107 MMTCO2 and in the USA 135 MMTCO2. In total 1,342 MMTCO2. A big step. Latin America basically does not generate with coal and is the least polluting region of the planet per capita.
If we stop the production of natural gas, wouldn’t we have to use more coal to supply the demand for electricity? Therefore, stopping the exploration, production and commercialization of natural gas is suicide for the energy transition and the longed-for decarbonization of the planet. Of course, part of this electricity generation and its growth could come from renewable energies, which, let us remember, are intermittent, will take time and need backup. Natural gas can also be used in heavy vehicles and ship transport replacing fuel oil/diesel oil, in particular with LNG, with immense savings in emissions and costs.
We must finally understand that the much coveted energy transition cannot be massively addressed without huge investments in exploration and mining. It will require the manufacture of trillions of storage batteries (cellular, vehicle and backup), trillions of solar panels, millions of wind towers and all the copper and other minerals needed to expand power grids, boost hydrogen and build an electric planet in the long term.
Dear reader friends, to carry out all this enormous mining movement and its transformation, you know that it is necessary to produce hydrocarbons and mainly huge amounts of diesel oil. Without diesel there is no energy transition because this energy is used to move the mining machinery, its transportation and transformation. It should be added that the repudiated diesel oil also transports all the products demanded by the planet.
Therefore, let us make no mistake. And to those who so much tout avoiding climate change by curbing hydrocarbon production, we ask them to stop flying in airplanes, buying cars, using dryers of all kinds, using air conditioners, heating, refrigerated food and all the imaginable pleasures that haunt them in modern life.
To stop oil and natural gas production in the way we are doing is suicidal. Let’s beware that prices, especially for diesel oil and natural gas, could go through the roof. We will then see shortages, rationing, stoppages, blockades and protests everywhere. It is certain that those who will protest will be the same people who slow down their activity.
*Alvaro Rios was Minister of Hydrocarbons in Bolivia and is currently a partner of Gas Energy Latin America.
