Stuck in the Middle With You
“Clowns to the left of me. Jokers to the right.” – Stealers Wheel
In innumerable ways, Norway has executed a near flawless energy policy. It produces more than 90% of its electricity from carbon-free hydropower, with the balance coming from other renewable resources like wind. The country’s nearly 1,700 hydroelectric dams are buttressed by approximately 1,000 water reservoirs that collectively represent a backup power supply equivalent to 70% of its annual consumption. Norway produces so much clean electricity that it routinely exports a meaningful amount to its neighbors in Europe. Most Norwegian homes are warmed in the winter using heat pumps or electric heaters, and more than 90% of its new vehicle sales are either full battery electric (BEV) or plugin hybrids (PHEV). In essence, Norway is an “electrify everything” green utopia.
Norway is also blessed with an abundance of oil and natural gas reserves—far more than it could ever consume domestically— and the country has been incredibly thoughtful as to how it exploits its resources and who ultimately benefits from them. In 1990, the Norwegian parliament passed legislation creating what is now the Government Pension Fund Global, and surplus revenues from its petroleum sector have been swept into it ever since. The fund is used to dampen the impact of economic volatility on government budget planning, diversify the country’s wealth beyond its borders, and secure the well-being of its future generations. As of March 31, 2023, the fund had a value of $1.36 trillion, or approximately $250,000 per citizen.
Given this fact set, the data on Norway’s annual oil consumption may come as a surprise:
The belief that the proliferation of renewables and electric vehicles (EVs) will cause a precipitous drop in oil consumption is practically religious dogma among environmental evangelicals. The entire climate change movement is predicated on it. It is the kind of assertion that feels like it should be true. Banks have been pressured to stop lending to the “soon-to-be-obsolete” industry, and investors of all stripes have fallen into a similar intellectual trap. Legendary Investor™ Cathie Wood, founder, CEO and CIO of Ark Invest, made a public spectacle of such in a now infamous tweet from 2020:
Last week, the increasingly political—and thus, decreasingly useful—International Energy Agency (IEA) released its medium-term oil market report, catalyzing yet another round of breathless headlines on the matter. Here are a few snippets from the press release accompanying the report’s publication (emphasis added throughout):
“Growth in the world’s demand for oil is set to slow almost to a halt in the coming years, with the high prices and security of supply concerns highlighted by the global energy crisis hastening the shift towards cleaner energy technologies, according to a new IEA report released today….
In particular, the use of oil for transport fuels is set to go into decline after 2026 as the expansion of electric vehicles, the growth of biofuels and improving fuel economy reduce consumption.
‘The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,’ said IEA Executive Director Fatih Birol. ‘Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.’”
A peak in global oil demand in the next six years? A simple acknowledgement of the logic underpinning the world’s oil consumption reveals that it is a far cry from being unseated. Let’s do the job the IEA should have done and bring the very real gating factors to the discussion.