Vici Insights: Why Crude Oil Remains Key to Global Energy Security

Oil fueled the 20th century, powering everything from cars and planes to the economy. As instability grips our energy markets, calls are growing to accelerate the shift to a new energy order. Yet, few can clearly outline how this transition will be achieved.

As the lifeblood of industrialized nations, oil is the single biggest contributor to the world’s energy consumption at 34%, followed by coal at 27% and natural gas at 24%. Beyond energy, oil plays a vital role in the production of many everyday essentials – from plastics and paints to fertilizers, detergents, medicines, and even the SIM card in your mobile phone.

As industrialization expands in emerging markets, our oil usage has soared to unprecedented levels. In 1990, oil usage totaled 67 million barrels per day (b/d). By 2000, this figure had risen to 77 million b/d, reaching 91 million b/d in 2014. Today, estimates suggest that 99.8 million b/d of petroleum and liquid fuels are consumed globally – a significant increase in the two decades since the start of the century.

As calls grow to phase out oil, we are left with practical questions: how will the world operate without an energy source on which we so heavily rely? What can replace it? Is there a genuine, reliable alternative?

“The whole of human prosperity and wealth has been based on our exploitation of oil and other fossil fuels, so it is an almighty undertaking,” says Kingsmill Bond, an energy strategist at the think tank Carbon Tracker. “To just remove them from our energy system within a decade or two is completely fanciful.”

While coal is beginning to be displaced by lower-cost renewables in electricity, oil continues to play a dominant role, particularly in the global transport industry. While companies like Tesla are paving the way for electric cars, we are far from being able to generate electricity at the required outputs, frequency, and consistency without oil-fueled power plants.

Fuels produced from oil are as close to being a perfect power source for transportation. They are liquid instead of solid, which allowed the development of the internal combustion engine that powers transportation today. They are also energy dense, averaging twice the energy content of coal by weight.

Oil can also be easily stored with large inventories throughout the value chain, from national emergency stocks to the fuel tank in your car. For these reasons, among others, we are yet to find a good alternative that ticks all the same boxes.

Our reliance on oil, particularly in the transport sector, means that we are unlikely to transition entirely to renewables in the foreseeable future. As The Brooking Institution recently highlited, " "As renewable energy sources like solar and wind continue to grow, it's important to recognize their current limitations. Despite significant advancements, these technologies are not yet capable of completely displacing the reliability and capacity of oil and gas. The variability in solar and wind energy production requires substantial backup from traditional energy sources or expensive storage solutions, which are not yet economically feasible at scale."​

It’s not just the practicality of oil; it’s also the cost.

Competing energy sources such as liquefied natural gas (LNG) or nuclear power are significantly more expensive at present.

As emerging markets look to grow their economies, the cheapest option available will always, and quite rightly, be the preferred choice. At this level, LNG and nuclear energy simply cannot compete.

Integrated oil companies, which work across the entire value chain, can push down costs by driving efficiencies at every stage from oil exploration and production to transport, refining, and marketing. Companies in this space, such as Vici Energy, ConocoPhillips, and Suncor Energy, regularly outcompete in terms of price by eliminating waste and conserving resources. For instance, Vici Energy can find savings in transportation costs by leveraging their own shipping fleet and vendors’ asset base when offering logistics solutions.

We should also remember, as OPEC Sec Gen recently opined, “ that billions of people in the developing world still lack access to modern energy services. For these people, their energy future is not about net zero, deciding on the purchase of an electric vehicle, or ruminating over the costs and benefits of energy sources. Instead, it is about achieving the energy basics that the developed world takes for granted, such as being able to turn on a light, cook on a clean stove or have motorized transport to move to and from work or school.”

Stakeholders must acknowledge the necessity of ongoing investment in the oil industry, both now and for many decades ahead, as products derived from crude oil are vital to our daily lives. Ignoring this reality risks future energy shortages and heightened volatility, potentially widening the gap between those with sufficient energy resources and those without.

As we enter a phase of economic recovery and energy markets experience shocks not seen since the Middle Eastern oil crises of 1973 and 1979, it is clear crude oil will remain a vital energy source to power the global economy. Until we can beat it on price and tackle the practical issues of transitioning, crude oil will maintain its leading position in the energy markets.

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