Category: Politics and American Democracy

About a week ago, Saudi Energy Minister Prince Abdulaziz bin Salman made waves in the oil community after telling Bloomberg News that Saudi Arabia “…is going to be the last man standing, and every molecule of hydrocarbon will come out.”

The comments by bin Salman—heralded as the most powerful man in the global oil and gas industry—came shortly after the latest OPEC+ agreement and mirrored those by Saudi Aramco CEO Amin Nasser, who expressed similar sentiments back in January 2019.

And this might not be idle bluster: In late 2019, Neil Atkinson, head of the oil industry and markets division at the International Energy Agency, told CNBC that, “There’s going to be rising demand for at least the next decade for oil products, possibly longer, and this is cementing [Saudi Arabia’s] role as the cornerstone player in global markets, the most reliable and biggest supplier in markets.”

Atkinson also highlighted another rarely discussed oil demand headwind: Shrinking populations in key demand locations. According to Atkinson, population growth remains the key driving force for oil demand, which he estimated could peak in the 2030’s.

‘Jaw-Dropping’ Population Declines

Source: BBC

Over the past few years, most of the energy community’s attention has been focused on seemingly more existential crises such as climate change. Now, the focus is on the Covid-19 pandemic. But seldom is population decline mentioned as a major headwind for the long-term oil demand outlook.

Maybe that’s the case because, unlike the other two risk factors, population decline really is a success story being driven by more women in education and work, as well as greater access to contraception, leading to women choosing to have fewer children. Another reason is because population decline is a much slower process whose full effects could take decades to be felt.

But make no mistake about it: Experts are now warning that the world’s population is declining at faster than anticipated rates, which could end up having a dramatic effect on major sectors of the global economy, including energy.

In early July, Researchers at the University of Washington’s Institute for Health Metrics and Evaluation warned that declining and aging populations are no longer a problem for developed economies but, rather, most of the world is currently transitioning into natural population decline.

In 1950, women were having an average of 4.7 children in their lifetime; the fertility rate nearly halved to 2.4 in 2017 and is projected to fall below 1.7 by 2100.

That’s well below the 2.1 children per woman that’s considered the replacement level for developed nations, meaning the global population will be experiencing massive contraction by the turn of the century.

Indeed, the researchers have projected that the global population will peak at 9.7 billion around 2064 before falling down to 8.8 billion by 2100.

Population Declines by Major Oil Consumers

What makes the long-term situation murky for the oil and gas bulls is the large population declines expected in major oil and gas consumers.

By 2100, China and Japan could see their populations drop by roughly 50%. China is the world’s second-largest oil consumer in the world, with a daily consumption estimated at 12.8 million barrels per day, while Japan is the fourth largest with a daily consumption of 4.0 million barrels per day.

India, the third-largest oil-consuming nation, will fare a bit better but will still lose a quarter of its population by 2100. Russia, the 5th largest, is projected to see its population drop between 15-50%.

The U.S. population is projected to expand from the current 331 million in 2020 to 404 million in 2060, when it’s expected to plateau.

The Eurozone—a region that consumes as much oil as the United States—is one of the few bright spots. Europe is projected to continue growing its population from 507 million in 2020 to 708 million in 20175 before falling to 689 million by 2100.

However, Europe also has also set some of the world’s most aggressive climate targets, with the European Union having announced a raft of climate change proposals aimed at pushing it towards its goal of becoming carbon neutral by 2050.

The problem of falling populations is likely to be aggravated by an aging crisis.

The world’s number of 80-year-olds is expected to rise from 141 million currently to 866 million by 2100, according to the BBC.

In the United States, the number of Americans aged 65 or older will jump nearly 75% by 2060 from 56.4 million to 98.2 million. This translates into a demand drop for gasoline of about 5% when looking at 2019 usage statistics and assuming an average of 20 miles per gallon, per driver. Miles driven per year drops dramatically from the 55-64 age bracket (11,972 miles per year) to 7,646 for the 65 and over age bracket.

Aging will also adversely affect the economy, with a 10% increase in the fraction of the population ages 60+ estimated to decrease the growth rate of GDP per capita by 5.5%.

The African Situation

Rapid population growth in Africa could take up some of that slack but will likely be far from adequate to stem the tide in the developed world.

Africa is an interesting case not only due to the fact that demographic forecasts of coming decades diverge in a way that could be crucial but also due to the fact that the continent has a huge population that consumes 4.3 million barrels of oil per day, or slightly less than India.

The UN expects Africa’s population to double from 1.3 billion in 2020 to 2.5 billion by 2050 and 4.3 billion people by 2100. The UN reckons that fertility rates in Africa—which have dropped to about 4.4 from 6.7 in 1980—will take another three decades to fall below three children per woman.

However, that underestimates the impact of a big jump in the number of girls who are now going to school across large parts of the continent. In the 1970s, little more than half of all children in sub-Saharan Africa were enrolled in primary school, a proportion that has since shot up to almost 100%.

Lessons garnered from other parts of the world that have recorded such dramatic increases in enrollment rates suggest that this factor cannot be underestimated in predicting the population growth curve. For instance, Iranian women went from having seven children each to fewer than two between the early 1980s and 2006 after a big rise in female education.

Further, although emerging economies have mostly been missing in the ongoing ESG boom, Africa is catching up with the IMF predicting a meaningful shift in African power consumption to renewables by 2050, with most power expected to come from solar and wind by 2100.

Overall, we can surmise that population trends across the globe pose a slow yet real and insidious threat to the long-term oil demand outlook even in lieu of increasingly hostile climate policies by the world’s governments.

So what exactly is La Niña?

The La Niña climate pattern is a natural cycle marked by cooler-than-average ocean water in the central Pacific Ocean. It is one of the main drivers of weather in the United States and around the world, especially during the late fall, winter and early spring.

It’s the opposite to the more well-known El Niño, which occurs when Pacific ocean water is warmer than average.

Both are Spanish language terms: La Niña means “little girl,” while El Niño means “little boy,” or “Christ child.” South American fishermen first noticed periods of unusually warm water in the Pacific Ocean in the 1600s, the National Oceanic and Atmospheric Administration said. The full name they used was “El Niño de Navidad” because El Niño typically peaks around December.

The entire natural climate cycle is officially known by climate scientists as El Niño – Southern Oscillation (ENSO), a see-saw dance of warmer and cooler seawater in the central Pacific Ocean.

During La Niña events, trade winds are even stronger than usual, pushing more warm water toward Asia, NOAA said. Off the west coast of the Americas, upwelling increases, bringing cold, nutrient-rich water to the surface.

These cold waters in the Pacific push the jet stream northward, which affects weather patterns in the U.S. and globally.

What is a La Niña winter?

A typical La Niña winter in the U.S. brings cold and snow to the Northwest and unusually dry conditions to most of the southern tier of the U.S., according to NOAA’s Climate Prediction Center. The Southeast and Mid-Atlantic also tend to see warmer-than-average temperatures during a La Niña winter.

New England and the Upper Midwest into New York tend to see colder-than-average temperatures, the Weather Channel said.

Because La Niña shifts storm tracks, it often brings more snow to the Ohio and Tennessee valleys. “Typically La Niña is not a big snow year in the mid-Atlantic,” said Mike Halpert, deputy director of the Climate Prediction Center. “You have a better chance up in New England.”

Texas A&M University agricultural economist Bruce McCarl said La Niña years are often bad for agriculture in Texas and the surrounding region. U.S. production of most crops – except corn – generally goes down in La Niña years, according to research by McCarl.

Globally, La Niña often brings heavy rainfall to Indonesia, the Philippines, northern Australia and southern Africa.

What to expect: La Niña climate pattern should return this fall and last through winter. Here’s what to expect.

During La Niña, waters off the Pacific coast are colder and contain more nutrients than usual. This environment supports more marine life and attracts more cold-water species, such as squid and salmon, to places like the California coast.

Can La Niña worsen the Atlantic hurricane season?

Yes, according to the Climate Prediction Center. “La Niña can contribute to an increase in Atlantic hurricane activity by weakening the wind shear over the Caribbean Sea and tropical Atlantic Basin, which enables storms to develop and intensify,” Halpert said in 2020.

Vertical wind shear refers to the change in wind speed and direction between roughly 5,000-35,000 feet above the ground, NOAA said. Strong vertical wind shear can rip a developing hurricane apart, or even prevent it from forming. This is what can happen in the Atlantic during an El Niño when Atlantic hurricane activity is often suppressed.

While La Niña tends to increase hurricanes in the Atlantic, it also tends to decrease their numbers in the eastern and central Pacific Ocean basins.

What’s happening: Lake Powell, the second largest reservoir in the U.S., has fallen to 3,554 feet in elevation, leaving the crucial lake on the Colorado River, at 33% capacity — the lowest since it was filled over half a century ago, new U.S. Bureau of Reclamation data shows.

• Utah’s Great Salt Lake, the biggest saltwater lake in the Western Hemisphere, saw levels plunge in the south roughly an inch below the previous record low of 4,191.4ft above sea level, set in 1963, the U.S. Geological Survey announced Saturday.
• Wildlife is already suffering from the decline, birds and shrimp in particular.

Threat level: Utah Department of Natural Resources executive director Brian Steed noted in a statement that while the state’s lake has been gradually declining for some time, “current drought conditions have accelerated its fall to this new historic low.”

• USGS Utah Water Science Center data chief Ryan Rowland wrote that based on current trends and historical data, it’s anticipated that “water levels may decline an additional foot over the next several months.”
• A major threat to Lake Powell, on the Utah-Arizona border line, is that demand for water across seven U.S. and two Mexican states “that rely on the Colorado River has not declined fast enough to match the reduced supply,” noted Brad Udall, a climate scientist at Colorado State University, to Cronkite News.
• “The hard lesson we’re learning about climate change is that it’s not a gradual, slow descent to a new state of affairs,” Udall added.

The big picture: Lakes across the country are under strain from a mega-drought.

• 95% of the West is experiencing drought conditions — and over 28% is facing exceptional drought, according to the U.S. drought monitor.