Gulf oil CEOs attack ‘unrealistic’ energy transition goals

Reuters

• Aramco and ADNOC chiefs claim fear factor is harming oil investments
• Call for credible energy transition plan built on long-term strategy
• Anger directed at EU’s 2050 net-zero greenhouse gas emissions plan

Saudi Aramco’s CEO has lambasted the “unrealistic” energy transition scenarios that he claims have exacerbated a global energy crisis.

His counterpart at Abu Dhabi National Co (ADNOC) also warned that efforts to tackle climate change could prove counterproductive if they slow economic growth. 

In unusually fiery comments, Aramco CEO and president Amin Nasser warned that if investments in the oil and gas industry continued to fall, supply growth would lag demand growth.

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Oil and gas investments slumped to around $300 billion last year from $700 billion in 2014, he said, describing an increase in spending this year as “too little, too late, too short-term”.

“It looks to me like there’s a coordinated message from the Gulf oil producers, and there’s a lot of truth in what they’re saying,” Robin Mills, CEO of Dubai consultancy Qamar Energy, told AGBI.

“The energy policy globally hasn’t worked – there are energy shortages, very high prices and energy insecurity, while it’s not delivering on its environmental goals either. Underinvestment, the lack of supply and the current crisis is much more about gas than oil.”

Production levels at existing oil fields are declining about six percent each year, Aramco’s Nasser estimated, noting that at some older fields, depletion topped more than 20 percent annually.

“At these levels, simply keeping production steady needs a lot of capital in its own right, while increasing capacity requires a lot more,” said Nasser. “Yet, incredibly, a fear factor is still causing the critical oil and gas investments in large, long-term projects to shrink.”

In August, oil production by OPEC’s 13 members rose by 618,000 barrels per day (bpd) to 29.65 bpd. Demand in OPEC crude remained unchanged at 28.9 million bpd, which is 0.9m bpd higher than in 2021. 

ADNOC CEO Sultan Al Jaber was equally forthright. 

He said: “If people’s basic energy needs are not met, economic development slows down, and so does the climate action agenda. And if we under-invest in the energy system of today before the energy system of tomorrow is ready, we will only make matters worse.”

In its September report, OPEC reiterated its forecast that global oil demand growth will grow by 3.1 million bpd to 100 million bpd in 2022, predicting demand will increase by a further 2.7 million bpd in 2023. 

“Globally there are less than 1.5 million barrels (per day) of spare oil capacity,” added Jaber, noting this represented less than two percent of global consumption.

“In a world where markets may face further disruption that doesn’t give us a lot of room to manoeuvre. In fact, it’s a recipe for disaster. What we need is more of a recipe for progress.”

Spare oil capacity is closer to around 3 million bpd, Mills estimates, and is largely held by Saudi Arabia and the UAE, with other producers usually running at maximum output.

“Jaber is reminding the world of their very important, strategic role as holders of this spare capacity,” said Mills.

Saudi Arabia produced 11.1 million bpd of crude oil in August, while the UAE produced 3.18 million bpd last month. Saudi and the UAE rank first and third respectively in OPEC in terms of oil output. 

Much of Nasser and Jaber’s ire appeared directed at International Energy Agency, whose May 2022 report Net Zero by 2050 suggested no new oil and gas fields would be needed in its scenario.

“The world has changed since then – Russia will be out as a major energy supplier to Europe and so somebody has to fill this gap,” said Mills.  

The European Union, wants to be net-zero in terms of greenhouse gas emissions by 2050, to reduce its energy import dependence on oil and gas to 20 percent in 2050 from 55 percent in 2018.

Yet EU coal consumption will rise by seven percent in 2022, as the 27-country bloc tries to wean itself off Russian oil and gashydrocarbons, according to International Energy Agency estimates. Burning coal produces more greenhouse gases than oil or natural gas.

Last year, Russia provided 40 percent of EU gas imports, with this figure likely drop to nine percent for full-year 2022 following Russia’s invasion of Ukraine, while Germany aims to eliminate all Russian gas imports by the end of 2024.

EU policymakers want to slash gas consumption in Europe by 15 percent between August 1 2022, and March 31 2023 to ease its energy supply stresses. 

“When you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right,” said Aramco’s Nasser, whose company is the world’s top corporate greenhouse gas emitter, according to the Climate Accountability Institute. 

“Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged.”

In the short term, OPEC members do not want to be blamed for high energy prices, said Mills.

“They want to ensure blame is ascribed more to Europe and US policies and that they’re seen as doing their best to provide a solution,” he said. “They also want to secure the longer-term future for oil and gas within a new energy system.”

The world’s 60 largest privately run banks have provided $4.6 trillion in finance for fossil fuel projects since the landmark Paris Agreement was adopted in 2015, according to a March report by non-profit Reclaim Finance, despite many lenders themselves pledging to become net-zero entities. 

“We are not saying our global climate goals should change because of this crisis. All of us have a vested interest in climate protection but the world deserves a much better response to this crisis,” said Nasser.  

“We need a more credible energy transition plan built on three rock-solid and long-term strategic pillars,” he said. “Recognition by policymakers and other stakeholders that supplies of ample and affordable conventional energy are still required over the long term. Further reductions in the carbon footprint of conventional energy and greater efficiency of energy use, with technology enabling both. And new lower-carbon energy steadily complementing proven conventional sources.”

Global refining capacity declined for the first time in two decades in 2020, shrinking further in 2021, according to a report by S&P Global and the Riyadh-based International Energy Forum published on September 13. 

This lower capacity along with reduced petroleum product exports from Russia and China more than tripled refinery margins to record levels of $35-50 per barrel, the report states, noting sanctions and embargoes against Russia have “displaced” nearly 3m bpd of products. 

Usually, such huge margins would spur investment to build more capacity but fears that a transition away from fossil fuels could render refineries dormant has deterred spending, the report warns. 

“The energy transition plan has been undermined by unrealistic scenarios and flawed assumptions …. For example, one scenario led many to assume that major oil use sectors would switch to alternatives almost overnight, and therefore oil demand would never return to pre-Covid levels,” added Nasser.

“In reality, once the global economy started to emerge from lockdowns, oil demand came surging back, and so did gas.”

Brent crude fell 4.2 percent to $86.65 on Friday, slumping to an eight-month low as growing fears of recession and renewed dollar strength weighed on oil prices.