The non-energy use of oil products poses the ‘greatest challenge’ to international trade as the world continues its transition to renewables, according to a leading supply chain expert.
Oliver Chapman, from supply chain procurement specialist OCI Group, believes recent data supports the narrative that an acceleration in the ‘renewable revolution’ can create a more resilient supply chain.
However, Mr. Chapman warns that for more than a century, oil has been the ‘base upon which economic growth is built,’ and the world has become ‘over-reliant’ on it. This over-reliance may impact trade due to the lack of available petroleum as countries aim to reach Net Zero by 2050.
“The motion of the oil cycle is often correlated with the economic cycle — with spikes in the oil price often occurring before economic recessions,” said Chapman. “Oil has been essential for economic growth, but our reliance on it has created vulnerabilities.
“Recent data points to change ahead. The International Energy Agency (IEA) predicts that electricity usage will likely grow at its fastest rate in 14 years, while BP predicts that oil demand will peak later this decade and then decline.
The transition to electricity is important for two reasons. Firstly, electricity is more efficient than gas for many applications, including motor transport and heat pumps. Switching from oil to electricity automatically leads to lower CO2 emissions. “This is why, when considering the green transition, it is important to look at energy sources as a proportion of final demand rather than primary production, as less production is required to meet that demand when using electricity, he explains.
“Secondly, an ever-increasing amount of electricity is now generated from renewables. According to the IEA, the amount of electricity generated by wind and solar has tripled since 2014, and 2025 is likely to be the first year ever in which more electricity is generated from renewables than from coal.
“The switch to both electricity and renewables helps support a more resilient energy supply chain as energy is generated closer to the point of use, and in any case, less energy needs to be generated to meet final demand.
Critics say that the intermittent nature of wind and sun means renewables are unreliable, but Mr Chapman argues that innumerable studies show that 100 percent renewables are viable, and at a cost which will eventually lead to lower electricity prices.
However, Mr. Chapman points out that the non-energy use of oil in applications such as asphalt or bitumen for road paving, roofing, and construction, lubricants used in transportation and industry engines, waxes for candles, adhesives and food packaging, and turpentine and kerosene used in paints, resins, and plastics may mean the supply chain for these products will diminish as there are no sustainable alternatives.
Mr. Chapman continued: “The non-energy applications of oil pose our greatest challenge, as the use of oil to make such products is far more economical when it is also used as energy. The elephant in the room is the other applications for oil, such as in plastic, asphalt, paraffin wax, fertilizer, and pesticides. It’s clear that the supply chain for such products will be impaired as, at the moment, the emergence of alternative sustainable products is not sufficiently advanced.”
