[Choi Ji-woong's Energy War] Oil Still Determines Many Things

Sharp Drop in Oil Consumption Due to COVID-19
Record High Expected This Year
Urbanization and Industrialization in Developing Countries
Will Increase Consumption Until 2040

Misconception That 'Oil = Energy Source'
Raw Material for Clothes, Phones, Appliances
Oil Industry Is a Key Driver of Growth and Employment
Stable Resource Securing Is Essential

Editor's NoteAsia Economy Newspaper publishes a monthly series titled "Choi Ji-woong's Energy War" every Thursday, diagnosing the energy industry amid a period of great transformation and examining the related changes in the international order. The author joined Korea National Oil Corporation in 2008, working in the Europe & Africa Business Division and the Stockpile Business Division, and later completed an MBA in Oil & Gas at Coventry University in London in 2015. He is an expert in the energy field and the author of the bestseller "How Oil Rules the World," which chronicles the modern history of oil.

[Image source=Getty Images Bank]

In 2019, just before the outbreak of COVID-19, global oil consumption reached an all-time high of 100 million barrels per day. Although oil consumption sharply declined in 2020 due to the pandemic, it began to rise again from 2021. In 2022, consumption is expected to surpass the 2019 level, setting a new historical record. Already, the average daily oil consumption in the first quarter of this year has reached about 98% of the 2019 daily average. This is close to pre-pandemic consumption levels despite the lack of recovery in jet fuel demand. The International Energy Agency (IEA) forecasts that annual oil demand will break historical records this year and that this upward trend will continue until around 2040.

So why does oil consumption not decrease? The primary reason is urbanization and industrialization driven by economic growth in developing countries. In fact, this explains almost all of the increase in oil demand. Developing countries in Asia and Africa are still advancing urbanization and industrialization. This process leads to an increase in housing, vehicles, and various industrial facilities. Additionally, people's mobility and consumption of daily necessities also rise. It is unrealistic to expect a decline in oil demand from developing countries. Over the past 20 years, oil consumption in non-OECD countries has increased by about 80%. While OECD countries' oil consumption stagnated during the same period, demand from non-OECD countries drove the global increase in oil consumption. This trend has yet to reverse.

Currently, Africa's population is 1.3 billion, accounting for about 16% of the world's population, but its share of global oil consumption is only 4.0%. India has a population of 1.4 billion, about 18% of the world, but its oil consumption is only 5.3%. Over the past decade, China has played the largest role in increasing oil consumption. During this period, China's oil consumption rose by about 50%. Despite the global drop in oil demand in 2020 due to COVID-19, China increased its oil consumption and will continue to lead future growth. The combined population of China, India, and Africa exceeds 4 billion. Besides these, many other developing countries exist. As long as industrialization and urbanization trends in developing countries continue, it is reasonable to expect oil consumption to keep rising. Even South Korea, which has joined the ranks of developed countries, faces challenges expanding renewable energy. Expecting countries with worse economic conditions than South Korea to significantly expand solar, wind, and hydrogen energy is unrealistic. ExxonMobil, the largest U.S. oil company, stated in its annual report last year that about 1 billion people still live without electricity, indicating future energy demand growth.

Oil is not only an energy source but also a raw material for almost all goods today. Wherever you look, you can see that nearly all tools of daily life are made from petrochemical products. Smartphones, TVs, refrigerators, and other home appliances, as well as housing and vehicle interiors, are manufactured from synthetic resins derived from oil. Most of the clothes we wear are synthetic fibers such as polyester, acrylic, and nylon, all oil-based. Additionally, products like detergents, shampoos, cosmetics, paints, and asphalt use oil, making it difficult to list them all. Therefore, perceiving oil solely as an energy source is mistaken. In fact, oil's role as a 'raw material' is more closely integrated into daily life and may be harder to replace than its use as 'fuel.' The IEA forecasts that demand for oil in petrochemical products will increase more than demand for oil as an energy source in the future.

Jiwung Choi, Researcher at Korea National Oil Corporation Smart Data Center

Oil still determines many things. It is not just one commodity among many but a prerequisite that enables industry and daily life. Almost all economic indicators?economic growth rate, inflation, unemployment?are linked to stable energy supply. Public sentiment is immediately affected by changes in gasoline prices and electricity bills. Particularly in South Korea, petroleum products and petrochemicals rank second in export value after semiconductors. The oil-related industry is also a key driver of growth and employment.

Essential resources like oil should not be approached solely from an economic perspective. National power is based on the ability to secure what is needed independently. Whether defense, food, or energy resources, the more a country depends unilaterally on overseas sources, the more it is swayed by international affairs and loses autonomy. South Korea is the world's fifth-largest crude oil importer and relies entirely on foreign oil. Therefore, it must have the capability to secure resources resiliently amid rapidly changing global situations and unstable supply conditions. To this end, securing equity crude oil through oil development in producing countries and preparing for emergencies through stockpile projects are important tasks. Rather than remaining a unilateral buyer in the oil market, South Korea should expand cooperation with producing countries through joint oil development and joint stockpile projects. Such efforts not only help secure oil supply in emergencies but also provide means to influence producing countries as participants in the oil business. Additionally, continuous exploration and development in the domestic continental shelf are necessary. Given South Korea's relatively high oil consumption compared to its economic size, efforts to reduce oil consumption through improved energy efficiency and wiser oil use are also needed.

In this era when energy transition and carbon neutrality are pressing challenges, intense consideration and sophisticated strategies for various energy sources?including oil, nuclear power, renewables, and hydrogen?are required. Among the many solutions and strategies, one certainty is that we must develop our own capabilities to secure each energy source. Deepening dependence only leads to deeper subordination. Diplomacy and alliances can exert greater power only when our capabilities are well established.

Choi Ji-woong, Researcher, Smart Data Center, Korea National Oil Corporation