Global oil industry is on the defensive over climate change

Observers say that the addiction to oil is a powerful one, particularly when supplies remain abundant, and the switch to renewables is enormously costly. (Shutterstock)
Updated 13 September 2019

Global oil industry is on the defensive over climate change

  • World Energy Congress in Abu Dhabi nominates water scarcity as biggest source of future world tension

ABU DHABI: At the dawn of an era scientists have dubbed the Anthropocene, driven by human impact on the planet, the energy industry’s four-yearly gathering was forced onto the defensive on climate change.

With the burning of “demon” fossil fuels blamed for playing havoc in the “age of man,” many agreed that after decades of energy wars, future conflicts would be driven by competition for clean water as the glaciers recede and rivers dry up.

Asked what the biggest source of world tension would be in 2040, more than half the energy professionals and officials polled at this week’s World Energy Congress in Abu Dhabi nominated water scarcity.

“Ten years ago or 20 years ago oil would have been on the top of the list for sure,” said Adnan Shihab-Eldin of Kuwait, the former acting secretary general of OPEC.

“Now it’s not because of two factors: We have more resources throughout the world especially through technology ... and the resources are more evenly distributed,” he told the World Energy Congress.

But like many other leaders and executives at the conference he insisted that given predicted global demand over coming decades, that could be reversed by an excessively rapid and unplanned switch to renewable sources of power.

“We all agree that what we want is a clean energy future. Getting to that clean energy future and the speed that we get there must be kept open,” he said, warning of “volatilities and crisis” if policy
decisions were made in haste.

“It’s wrong in my view to set a policy that will impact for 40 years, saying for example not only that I don’t want nuclear for myself ... but I don’t want nuclear for everyone else.”

“So it’s important to keep all our options open, to invest in all them, depending on our local situation.”

Gulf nations have invested tens of billions of dollars in clean energy projects, mainly in solar and nuclear. But critics say many are slow to get off the drawing board and that political will is lacking.

The addiction to oil is a powerful one, particularly when supplies remain abundant, and the switch to renewables is enormously costly.

But the Global Commission on Adaptation said on Tuesday that countries rich and poor must invest now to protect against the effects of climate change or pay an even heavier price later. “We are the last generation that can change the course of climate change, and we are the first generation that then has to live with the consequences,” said former UN chief Ban Ki-Moon, who chairs the commission.

Failure to curb the greenhouse gas emissions slow-roasting the planet has already unleashed a crescendo of deadly heat waves, water shortages and superstorms made more destructive by rising seas.

Earth’s average surface temperature has gone up 1C since the late 19th century, and is on track — at current rates of CO2 emissions — to warm another two or three degrees by the century’s end.

“We are the biggest influencing factor on nature these days,” Martin Frick, senior policy director at the UN Framework Convention on Climate Change, said at a panel discussion in Abu Dhabi.

“As they say, with great power comes great responsibility.”

One of the leading lights at the World Energy Congress, Aramco CEO Amin Nasser, has spoken of a “crisis of perception” facing the industry and a growing risk the financial community will turn against fossil fuels.

During the week he led calls for an “orderly” shift and criticism of knee-jerk policies. “All energy transitions — including this one — take decades, with many challenges along the road,” said the boss of the Saudi oil giant which is preparing for a stock market debut that will raise billions of dollars.

The UN’s Frick said that diplomacy on climate change was still working despite the difficulties.

“There is an urgent need for that,” he said. “The impacts are absolutely alarming, and no matter how much we negotiate, there is no negotiating with nature.”

WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.