[Choi Ji-woong's Oil Hegemony War] Still, Oil Survives

Renewable Energy and Crude Oil Have a 'Rain Boots and High Heels' Relationship
Misconception That Crude Oil Consumption Will Decrease

Asia Economy Newspaper publishes a biweekly Friday column titled 'Choi Ji-woong's Oil Hegemony War,' which analyzes changes in the international oil order and the future of the energy industry. The author joined Korea National Oil Corporation in 2008, working in the Europe and Africa Business Division and the Stockpile Business Division before completing an Oil & Gas MBA program at Coventry University in London in 2015. Last year, he published the bestseller 'How Oil Rules the World,' which chronicles the modern history of oil.

Currently, Germany leads the renewable energy sector. According to Reuters in July, renewable energy accounted for 55.8% of Germany's total power generation in the first half of this year. About ten years ago, in 2009, Germany's renewable energy share was approximately 18%. Over the past decade, Germany has focused on expanding renewable energy, becoming a country that supplies more than half of its electricity from renewables this year.

So, did Germany's crude oil consumption decrease during this period? It did not. According to statistics published annually by BP, Germany's crude oil consumption was 2.34 million barrels per day in 2009 and 2.28 million barrels per day in 2019. This represents a decrease of about 60,000 barrels from ten years ago. While renewable energy generation tripled, oil consumption only decreased by 2.5%.

The case is similar for the United Kingdom. The UK has rapidly expanded offshore wind power by harnessing strong winds from the North Sea, increasing the share of renewable energy almost as much as Germany. Since 2009, the UK has increased the share of renewable energy generation about fivefold, obtaining approximately 37% of its electricity from renewables in 2019. However, like Germany, oil consumption decreased by only about 5% during the same period.

Renewable Energy Is Used for Power Generation,
Different from Crude Oil Uses Such as Aviation Fuel

Many people mistakenly believe that as the share of renewable energy expands, oil usage will decrease. This incorrect intuition may lead to the idea that the share of oil in the overall energy mix will decline and that the era of oil will soon end. However, reality is different. Renewable energy cannot displace oil.

As mentioned earlier, Germany's crude oil consumption last year was 2.28 million barrels per day, less than South Korea's 2.76 million barrels per day. However, South Korea refines and processes more than half of its imported crude oil into petroleum products such as gasoline, diesel, and kerosene, as well as petrochemical products for export. If we compare net consumption after excluding the volume processed and exported, Germany consumes much more crude oil relative to its economic size than South Korea. Although only Germany and the UK were cited as examples, other European countries such as Spain, Italy, and Norway are also actively developing and using renewable energy. Nevertheless, Europe still consumes a huge amount of crude oil proportional to its economic scale.

Then why does oil consumption not decrease despite the increase in renewable energy? The most important reason is that renewable energy and oil have different uses and are not substitutes for each other. To exaggerate slightly, they are like 'rain boots and high heels'?their purposes are completely different. Many people think that the electricity we use comes from oil. However, the share of power generation using oil is only about 3-4%, and most thermal power generation uses coal.

▲Choi Ji-woong, author of "How Oil Rules the World," working at the Korea National Oil Corporation Oil Information Center

The largest use of oil is its processing into gasoline, aviation fuel, etc., which are used as fuels for vehicles, ships, and aircraft. About 50-60% of total oil consumption is for transportation fuels, followed by about 20% used as raw materials for petrochemical products such as plastics, textiles, and cosmetics. The remaining portion is used for industrial, heating fuels, or other purposes.

In contrast, renewable energy is mostly used for power generation to produce electricity. While wind power, the largest share among renewable energy sources, can generate electricity, it cannot serve as fuel for aircraft or ships. Some renewable energy is used as a power source for vehicles through secondary battery technology, but this is currently limited to some small vehicles. Solar power can also be a source of electricity, but it cannot replace the numerous petrochemical products or asphalt roads encountered in daily life. In short, renewable energy will increase its share as a power generation energy source, and rightly so, but it cannot replace oil.

Goldman Sachs Forecasts Global Oil Consumption to Increase Annually Until 2030,
Premature to Expect Oil Replacement

In a report released in July this year, Goldman Sachs predicted that global oil consumption will increase annually by an average of 500,000 to 1.1 million barrels per day until 2030. Energy information company Wood Mackenzie also recently forecasted that even if the world attempts a radical energy transition, oil consumption will not decrease by 2030. This is because the use of renewable energy will inevitably be limited to the power generation sector for the time being.

Then what has the increased renewable energy in Germany and the UK replaced? In other words, if their efforts have not reduced oil consumption, what exactly have they reduced? Here, Germany and the UK show an interesting difference. After the Fukushima nuclear accident in 2011, Germany pursued an active nuclear phase-out policy. Nuclear power, which accounted for about 25% of total power generation before the accident, decreased to about 12% in 2019. In other words, Germany increased renewable energy mainly by reducing nuclear power. In contrast, the UK maintained nuclear power during the same period and pursued policies to reduce coal-fired power generation, which emits fine dust and carbon dioxide.

Unlike Germany, the UK also pursued policies to build new nuclear power plants, leading to competition by Korea Electric Power Corporation to secure contracts for UK nuclear power plant construction projects. Meanwhile, the UK's coal-fired power generation, which accounted for about 40%, has recently decreased to about 3%, and all coal-fired power plants are planned to be closed by 2025. The UK is expected to be the first country to stop large-scale coal use, which began during the Industrial Revolution.

In conclusion, energies such as wind and solar have different uses from oil. An important social consensus in the energy sector going forward will relate to whether to reduce nuclear power or thermal power as renewable energy expands. To put it bluntly, nuclear power is risky, and thermal power generation is dirty.

Germany and the UK made different choices on this issue. Germany has a history of viewing nuclear physicists as collaborators with the Nazis, while the UK has trauma from the 1950s London smog incident that caused over 10,000 deaths. It is argued that these historical backgrounds influenced their energy source choices. Regardless of their historical backgrounds and whatever their choices may be, it is necessary to keep in mind that oil still plays a major role as an energy source for them.