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Divestment and the Future Uses of Oil, Gas and Coal

Dr John Constable: GWPF Energy Editor

Coal is now only a trace element in the UK’s electricity supply; Saudi Arabia is selling shares in Aramco. Is it all over for fossil fuels? Or have we simply misunderstood where the future utility of these remarkable substances really lies?

Over the last year there has been an increasing tendency for climate change activists to try to undermine investor confidence in companies specializing in the extraction of carbon and hydrocarbon stocks, coal, oil and gas. Some experienced investors, Jeremy Grantham for example, have even been tempted to say that the end was nigh for oil, though perhaps after his mea culpa, just published, this variety of particularly frantic reaction will die down. However, the more moderate versions of this view will doubtless roll on, supported, as it seems, by remarks from organisations such as the International Energy Agency, to the effect that the future of renewables is extremely, indeed overwhelmingly bright. Those who rely on this perhaps forget that the IEA must, as a matter of course, take the policy agendas of its supporting states very seriously, and thus the IEA’s own scenarios are, largely, a description of the shape of things to come if (and only if) the current policies are successful. Policy failure, or distressed correction, or abrupt redirection caused by unforeseen invention and innovation, is simply undiscussable (whatever individuals padding up and down the corridors of its Paris offices may actually think when no one is looking).

This gives courage to campaigners seeking to persuade capital to divest from fossil fuels on the grounds that oil and gas are likely to be stranded assets, and perhaps sooner than we think, for, as Sheikh Yamani wittily prophesied, the Stone Age did not end for a lack of stones, and the Age of Oil will come to end long before the wells run dry.

That argument gives a peculiar interest to the fact that 5% of Saudi Arabia’s national oil company, Aramco, will be offered to global investors, and one plausible interpretation is that the government of the Kingdom is raising cash to spread its bets a little wider as the importance of its principal product dwindles. But that diversification strategy would make sense even if the geology was ten times more promising, and there were no global climate change policy threatening constraints on future consumption. One cannot infer from this public offering that Saudi Arabia has concluded that oil has no long term future, and one should not do so in any case, because oil, and gas, and to a lesser degree coal, are all such intrinsically interesting substances apart from their energy content.

Sheikh Yamani’s aphorism made a point, and a good one, but it is not profound. There is simply too much difference between the Ages. Stones are intrinsically not that interesting; they have simple properties, hardness, incompressibility, and density that render them useful for some purposes, in construction for example, as building materials, as foundations, and as ballast. In the Stone Age, much was gained from a further property of some stones, that they can be fractured so as to make an edge so thin and hard that it will concentrate the energy of a human arm muscle and so make good tools. But knapping a flint is no simple matter; much of the complexity of the stone knife, axe or arrowhead is added by the agency of the human mind and hand. The flint itself is thermodynamically simple, and commonplace; it is the outcome of essentially random geological processes.

Oil and gas are rather different; they are intrinsically very complex, and arise from the partial decomposition of extremely complex structures, living organisms, that have evolved by natural selection and thus are highly improbable and stand very far from thermodynamic equilibrium. Their organic remains inherit much of this complexity, hence the value of these substances as fuels. The energy tied up in the multiple chemical bonds of those long molecular chains is relatively easily liberated for human use, which is why the fossil age preceded the nuclear age and still continues to give it stiff competition.

But this intrinsic complexity tells us that such substances could remain of remarkable value to human beings long after their use as an energy source has been superseded by fuels found superior for whatever reason, availability, density, cheapness, cleanliness, all of the above. The long molecular chains derived from once living structures already offer the materials engineer a very welcome thermodynamic headstart in the manufacture of substances, from antifreeze, antihistamines and aspirin to lipstick, socks and surfboards, all with astonishingly improbable and desirable properties. Consequently, some fractions of the oil refining process and a portion of the production of natural gas are already too valuable to burn. The IEA, whose data if not their opinions are of great use, reports that some 821 mtoe of hydrocarbons are used annually for non-energy purposes, with about 601 mtoe of that from oil and the remainder from natural gas (155 mtoe) and coal (65 mtoe). This is about 15% of all fossil fuels used.

It seems reasonable, then, to conclude that even if oil and gas cease to be of interest to the energy markets, and that seems to be a fair way off, certainly over the hill and out of sight, they are all but certain to become more desirable as feedstocks for the chemicals industry, in other words the complexity facilitated by that already present in a hydrocarbon will steadily come to seem more valuable than the complexity we are able to create with the energy contained in its bonds.

There is a risk, of course, in driving fossil fuels from the market prematurely on environmental grounds, that this transition will not be as smooth as it otherwise would be.