https://www.mei.edu/publications/gulf-o ... urn-russia
Gulf oil producers feel vindicated, but don’t expect them to turn on Russia
March 31, 2022
Ruba Husari
The war in Ukraine, which has unleashed fears of an energy supply crunch and pushed oil prices to record highs, has brought back to the forefront the conversation about the need for new investments in oil and gas for the foreseeable future. That’s in stark contrast to calls almost a year ago by the International Energy Agency (IEA) to forgo investment in fossil fuels in the race to a net-zero emissions world. As the calls multiply for Gulf producers to step in and fill the gap in gas and oil supplies as Russia faces sanctions, producers now feel vindicated after being shunned, and even targeted, at the U.N. Climate Change Conference (COP26) in Glasgow last year. This newly regained confidence is also pushing the limits in the political conversation between the Gulf and the West, with OPEC powerhouses Saudi Arabia and the UAE rejecting calls from the U.S. and other allies to squeeze Russia out of their OPEC+ alliance as part of the U.S. and NATO-led pressure campaign against Moscow to end its war on Kyiv.
In early March, less than two weeks into Russia’s invasion of Ukraine, oil prices hit a record high of $139 per barrel, the highest in about 14 years, while gas prices in Europe more than doubled. The market volatility and coordinated rounds of sanctions targeting Russia’s economy sent shockwaves across Europe and the U.S. Oil prices have fallen slightly since, but both Brent and West Texas Intermediate benchmarks are still averaging above $100 per barrel, way above the averages seen before the COVID-19 crisis hit the world in 2019.
With an average of 10 million barrels per day (bpd) of oil production, Russia’s impact on the global energy balance is far from negligeable. It is also the second-largest producer of natural gas globally, accounting for 16.6% of total world supply. It exports 37% of its domestic natural gas production, with the majority of this going to Europe, meeting about 45% of the region’s import demand. The U.S., even though it is a major oil and gas producer, also imported Russian crude and gas to meet its consumption needs.
Supply tightness, skyrocketing oil prices, and the growing prospect of new Western sanctions and an oil embargo against Russia prompted consuming nations to call on Gulf producers to increase their output to meet potential shortages in the market, irrespective of the previous attacks on fossil fuel producers in the context of the net-zero pledges. The irony did not escape the biggest oil producers in the region, however.
Addressing the audience at the World Government Summit in Dubai on March 29, Saudi Energy Minister Abdulaziz bin Salman recalled his speech at COP26 in Glasgow last year where he stressed — to the indifference of other leaders at the gathering — that addressing climate change would be meaningless without ensuring energy security and economic sustainability and growth. “Today, no one is talking climate change. The focus is back on oil and gas and energy security,” he said.
For Gulf producers, the fervent calls for more oil and gas to make up for Russian supplies drew home the point that the earlier demands to ditch fossil fuels were premature and that, in the words of Abu Dhabi National Oil Company (ADNOC) CEO Sultan al-Jaber, “We cannot and must not unplug the current energy system before we have built a new one.” Energy transitions take time, OPEC’s third-largest oil producer reminded those who just a few months ago raised the banner for defunding the oil and gas industry. The unrealistic approach of ignoring market economics when calling for the substitution of fossil fuels with renewable resources leads to market shocks like the one being witnessed now, where inflation and a supply crunch are eroding economic growth, al-Jaber argued.
Gulf producers are already gearing up to alter the conversation on climate change at the upcoming COP27 in Egypt this year and COP28 in Abu Dhabi next year, as the world’s immediate need for them to compensate for energy shortages using any spare capacity they hold has added sway to their argument that it is irresponsible to close the tap on oil and gas to decarbonize the world economy. Their counterargument is that hydrocarbons producers need to continue investing in and producing from their oil and gas fields while seeking to minimize carbon per barrel.
The inflation hitting the commodities supply across the world has also put an emphasis on the notion of energy affordability as paramount in the transition to net zero. A supply crunch resulting from defunding the oil and gas industries and divestment by international oil companies — under pressure from shareholders and climate change lobbyists — away from their fossil fuel assets, will inevitably derail economic growth as energy prices become exorbitant.
While feeling vindicated on the climate change and net-zero emissions fronts, it’s on the political scene where Gulf producers have found their voices again. The call on OPEC producers to join the boycott against Russia and push it out of the alliance created six years ago was swiftly rejected. “No one can replace Russia’s 10 million barrels per day if we squeeze it out of the alliance,” UAE Minister of Energy Suhail al-Mazrouei told the Atlantic Council’s Global Energy Forum in Dubai on March 28. The alliance is there to stay.
OPEC’s stance regarding a Russia boycott is consistent with its policy since its inception. Historically, OPEC did not take sides when Iran and Iraq were involved in an eight-year war in the 1980s and both continued to attend the ministerial meetings as full members. It did not push Iraq out of the organization when it invaded Kuwait in 1990 and U.N. sanctions were imposed on Baghdad that remained in place until the U.S. invasion in 2003. The same was true for Venezuela and Iran, despite U.S. sanctions that targeted their oil exports in recent years.
Gulf producers have a number of reasons to defend the OPEC+ alliance and maintain its ability to influence oil markets through managing supply. For one, oil demand destruction, a result of the COVID-19 pandemic, has not fully recovered yet, making it crucial for the producers’ alliance to continue micro-managing supply and fine-tuning it to avoid another glut like the one that sent oil prices into negative territory in 2020.
A second reason is the loss of output in some OPEC producers. Natural decline in oil fields, which averages around 5% per year in the biggest producers in the Middle East but could reach 10-20% in others, has hit the production capacity of several members, forcing those with spare capacity, such as Saudi Arabia and the UAE, to have to account for any shortages that might appear on the market. OPEC officials lament that the attacks on fossil fuels in the context of the conversation about climate change and the lack of investments to maintain oil production to counter natural decline have impacted the ability of some producers to keep up with their allocated output quotas.
Then there’s the possibility of Iran’s full return to the market following a potential revival of the 2015 nuclear agreement, which would result in the lifting of sanctions that kept most of its oil exports out of the market. OPEC+ has to account for the possibility of the return of Iranian barrels despite being in the dark over when Iran will be able to export its oil freely again and how many barrels it can bring to market.
More importantly, the OPEC+ alliance is needed to avoid a repeat of the oil price war between its biggest producers, Russia and Saudi Arabia, in their 2020 duel for market share that sent oil prices downhill just as the pandemic was hitting oil demand globally.
“We need to decouple politics from energy availability or else the result is poverty and economic stagnation,” said Mazrouei. Asking Russia to leave the alliance will lead to higher oil prices, which many countries won’t be able to afford, he argued.
Resisting U.S. calls to punish Russia for its invasion of Ukraine is a reflection of a recent change in the relationship between the U.S. and its traditional allies in the region that goes beyond the need for energy and their ability to continue providing a secure supply. While the U.S. edges closer to an agreement with Iran — of which they are not part — Saudi Arabia and the UAE did not miss the opportunity to note that even as their oil facilities came under attack from Iranian proxies in recent weeks, they have made no attempt at trying to punish Iran by forcing it out of OPEC.
“Don’t tell us do this or do that. We are experts in our field,” Mazrouei said, addressing the U.S. “What we are doing aims to balance the oil market for the benefit of all, including U.S. consumers.”
Gulf oil producers feel vindicated, but don’t expect them to turn on Russia
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strawberry
- Posts: 164
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strawberry
- Posts: 164
- Joined: Wed Jun 10, 2015 2:13 pm
Re: Gulf oil producers feel vindicated, but don’t expect them to turn on Russia
https://www.mei.edu/publications/saudi- ... e-industry
Saudi Arabia’s oil price war could reshape the industry
April 1, 2020
Saudi Arabia declared a price war against Russia in early March to prove a point: that it can offer an unprecedented supply of 12.3 million barrels per day (bpd), way above the record 11 million bpd it reached in November 2018, and expand its market share at the expense of Moscow. As the coronavirus pandemic brings the world to a standstill, the question is how long it can sustain this war.
For market watchers, Riyadh’s ability to pump that much crude from its oil fields and maintain that level for a year without investing any new capital, as Saudi Aramco CEO Amin Nasser declared, is not the issue. What’s more important now is who will buy it.
Since the OPEC+ alliance collapsed in early March after Russia balked at joining OPEC producers in cutting crude supply further to shore up falling oil prices in the face of weakening demand in China, the world has plunged into deeper crisis. Demand for oil is crashing as airlines around the world ground their fleets and millions of people are in lockdown at home. Many refineries are coming to a standstill, as their fuels are not needed. Pipelines are sitting idle. Onshore and offshore storage is filling to the brim in some areas and very large tankers are being used as floating storage at sea.
The repercussions of this for oil producers are huge. The sharp drop in oil revenues — more than 60 percent in one month — and the unmanageable oil surplus due to lack of buyers is starting to bite at the wellhead. Many, including in Brazil and Canada and further afield in Africa, are starting to shut down production to mitigate their losses. U.S. shale producers, for many years a nemesis of both Russia and Saudi Arabia, are no exception as drilling starts to slow down. That might be considered an important win for those waging the price war, who have long regarded the shale producers as free riders.
To undercut its rival suppliers, Aramco offered its crudes for April at a big discount to benchmark Brent, only for the price of Brent to fall below the reduced Saudi monthly official selling price (OSP). To stay competitive Riyadh now needs to cut its May OSP even further, offering even deeper discounts to Brent to be able to sell the oil it intends to ship. Aramco will announce its OSP for May in the first week of April.
This downward spiral could continue into June and beyond. Global demand is expected to fall by 20-25 percent from the 100 million bpd consumed globally within weeks. Brent could hit a new low in the teens for the first time in decades. Aramco managed to lock in buyers for its crude for the month of April, largely because of the huge discounts. As it continues to flood the market, only much deeper discounts can guarantee buyers for its crudes. Whether it succeeds while demand continues to fall to new lows remains to be seen.
Is Saudi Arabia committing suicide by staying the course with its declared price war? Probably not. Riyadh has one of the biggest financial cushions in the world, estimated at $600-plus billion in reserves, to rely on if worse comes to worse. To win the oil price war it can only escalate against its rivals. It will suffer from dwindling revenues for the sake of winning the biggest bounty: a sizeable market share, the biggest, where greater volume will compensate for the low price. That at least is what it’s bargaining for.
Saudi Arabia engaged in a similar price war in 1986. At the time it lasted for six months in a market that is very different from today’s. A major difference is that unlike in the 1980s, the current low oil price cannot spur demand and generate economic activity while the world is hit by a pandemic, stock markets are crashing, and many industries are buckling under the strain of lockdowns. Notwithstanding their financial ability to weather the low oil prices and falling revenues, the Saudi-Russian duel could end if both producers crash on the rock of disappearing demand as they struggle to sell cheap oil that no one wants to buy.
The aftermath of this oil market crisis could usher in its own challenges and probably its own crisis as the world moves from the repercussions of demand destruction to a mounting threat of supply destruction. As the Saudi bulldozer plows ahead to the point where it thinks it has achieved its goals, it is crushing a lot of suppliers, including among its OPEC peers. Many are declaring force majeure on production operations while buyers of crude are doing the same on long term contracts. What’s more, every time Aramco discounts its crude prices, they have to follow suit and discount theirs to stay in the market. Once this crisis is over, the oil industry landscape will look very different from the one we have known until now.
Saudi Arabia’s oil price war could reshape the industry
April 1, 2020
Saudi Arabia declared a price war against Russia in early March to prove a point: that it can offer an unprecedented supply of 12.3 million barrels per day (bpd), way above the record 11 million bpd it reached in November 2018, and expand its market share at the expense of Moscow. As the coronavirus pandemic brings the world to a standstill, the question is how long it can sustain this war.
For market watchers, Riyadh’s ability to pump that much crude from its oil fields and maintain that level for a year without investing any new capital, as Saudi Aramco CEO Amin Nasser declared, is not the issue. What’s more important now is who will buy it.
Since the OPEC+ alliance collapsed in early March after Russia balked at joining OPEC producers in cutting crude supply further to shore up falling oil prices in the face of weakening demand in China, the world has plunged into deeper crisis. Demand for oil is crashing as airlines around the world ground their fleets and millions of people are in lockdown at home. Many refineries are coming to a standstill, as their fuels are not needed. Pipelines are sitting idle. Onshore and offshore storage is filling to the brim in some areas and very large tankers are being used as floating storage at sea.
The repercussions of this for oil producers are huge. The sharp drop in oil revenues — more than 60 percent in one month — and the unmanageable oil surplus due to lack of buyers is starting to bite at the wellhead. Many, including in Brazil and Canada and further afield in Africa, are starting to shut down production to mitigate their losses. U.S. shale producers, for many years a nemesis of both Russia and Saudi Arabia, are no exception as drilling starts to slow down. That might be considered an important win for those waging the price war, who have long regarded the shale producers as free riders.
To undercut its rival suppliers, Aramco offered its crudes for April at a big discount to benchmark Brent, only for the price of Brent to fall below the reduced Saudi monthly official selling price (OSP). To stay competitive Riyadh now needs to cut its May OSP even further, offering even deeper discounts to Brent to be able to sell the oil it intends to ship. Aramco will announce its OSP for May in the first week of April.
This downward spiral could continue into June and beyond. Global demand is expected to fall by 20-25 percent from the 100 million bpd consumed globally within weeks. Brent could hit a new low in the teens for the first time in decades. Aramco managed to lock in buyers for its crude for the month of April, largely because of the huge discounts. As it continues to flood the market, only much deeper discounts can guarantee buyers for its crudes. Whether it succeeds while demand continues to fall to new lows remains to be seen.
Is Saudi Arabia committing suicide by staying the course with its declared price war? Probably not. Riyadh has one of the biggest financial cushions in the world, estimated at $600-plus billion in reserves, to rely on if worse comes to worse. To win the oil price war it can only escalate against its rivals. It will suffer from dwindling revenues for the sake of winning the biggest bounty: a sizeable market share, the biggest, where greater volume will compensate for the low price. That at least is what it’s bargaining for.
Saudi Arabia engaged in a similar price war in 1986. At the time it lasted for six months in a market that is very different from today’s. A major difference is that unlike in the 1980s, the current low oil price cannot spur demand and generate economic activity while the world is hit by a pandemic, stock markets are crashing, and many industries are buckling under the strain of lockdowns. Notwithstanding their financial ability to weather the low oil prices and falling revenues, the Saudi-Russian duel could end if both producers crash on the rock of disappearing demand as they struggle to sell cheap oil that no one wants to buy.
The aftermath of this oil market crisis could usher in its own challenges and probably its own crisis as the world moves from the repercussions of demand destruction to a mounting threat of supply destruction. As the Saudi bulldozer plows ahead to the point where it thinks it has achieved its goals, it is crushing a lot of suppliers, including among its OPEC peers. Many are declaring force majeure on production operations while buyers of crude are doing the same on long term contracts. What’s more, every time Aramco discounts its crude prices, they have to follow suit and discount theirs to stay in the market. Once this crisis is over, the oil industry landscape will look very different from the one we have known until now.
-
strawberry
- Posts: 164
- Joined: Wed Jun 10, 2015 2:13 pm
Re: Gulf oil producers feel vindicated, but don’t expect them to turn on Russia
https://www.mei.edu/publications/gulf-p ... production
For Gulf producers, decarbonization does not mean zero oil production
January 31, 2022
Ruba Husari
Gulf oil producers do not envisage a post-2050 world devoid of hydrocarbons, even though two of the region’s biggest producers, the UAE and Saudi Arabia, have committed to net-zero carbon emissions by 2050 and 2060, respectively. Reconciling their future environmental commitments with their current reliance on hydrocarbons is going to be an arduous and expensive journey that starts with decarbonizing their oil and gas production to reduce their carbon footprint and increasing their domestic green energy production. With demand for oil and gas forecast to continue post-2050 — albeit at lower levels than now — their net-zero target does not equate to zero oil and gas production. Instead, their transition will differ from that of other countries and will happen at a different pace.
Both Saudi Arabia and the UAE are yet to publish their road maps to net zero or their national energy strategies to 2050. These strategies are expected to be predicated on the green economy’s continued reliance on oil derivatives for feedstock, ensuring a certain demand for oil and gas. In their future policies and plans, the Gulf’s biggest producers will need to account for the onset of peak demand at some point, either in this decade or the next, but none of their plans will see a world devoid of hydrocarbons. Whatever demand for fossil fuels still exists in the next three decades and beyond, regardless of shape and form, could certainly be satisfied by Gulf producers.
The onus on Gulf producers and OPEC in general will be greater as international oil companies continue to divest their assets away from oil and gas under pressure from stakeholders and financiers and transition to green energy. This divestment is akin to a shift in ownership rather than the killing of hydrocarbon assets. As the holders of the biggest traditional oil reserves and the cheapest barrels to produce, it is the national oil companies, mainly the biggest producers in the region, that will bear the responsibility of securing the energy transition and grab the lion’s share of whatever demand remains.
For Gulf producers, this transition will require increasing their investments in sustainable energy sources while also ensuring that the world does not run short of traditional ones during its transition and maintaining their oil production capacity in the face of natural decline in their oil fields. For the world to avoid supply crunches similar to the gas crisis Europe is experiencing this winter — and the higher energy prices that inevitably accompany them — Gulf producers see themselves as the guarantors of secure and affordable energy and thus of global economic growth more broadly during this transition period.
Investment crunch?
The funding required to pay for this transition will put greater pressure on Gulf producers to monetize their hydrocarbon assets while pushing them to maximize their output. With their economies’ entrenched dependence on oil rents, they will need to leverage their oil sectors to finance decarbonization. This would entail maximizing their oil and gas output and fighting for the largest market share in an environment of shrinking oil demand, as well as releasing a huge chunk of the equity held in fossil fuel assets, which risk becoming stranded assets in a low oil demand environment.
The biggest expense will be decarbonization technologies, such as carbon capture and hydrogen production, that reduce the carbon footprint of the oil and gas sector. As the main generator of funds to finance the transition away from oil-based economies, traditional sources of energy are seen not as a threat to net zero but as a path to reach that goal. While expanding their clean energy projects, especially solar, wind, and (to a lesser extent) nuclear power, investments are pouring in to develop the technologies that will secure continued but cleaner hydrocarbon production.
The process of producing cleaner barrels started some years ago, especially at Saudi Aramco. Aramco’s carbon footprint, including its methane emissions from oil and gas operations, is now among the smaller in the world, according to the company.
The effort to monetize Saudi Arabia’s hydrocarbon assets began when it offered 1.5% of Saudi Aramco as equity to private investors in an initial public offering in 2019. Privatization of assets that for a long time were closely held under national and sovereign ownership is a growing trend, especially in Saudi Arabia and the UAE. This includes the full or partial privatization of mid- and downstream sectors, such as pipelines and refineries, and eventually bigger chunks of their upstream equities.
While some analysts predict an investment crunch that would divert funds away from traditional sources of energy, indications point to investments evolving, rather than drying up, through new finance schemes that have a “green” tag attached to them, even where hydrocarbons are involved. From green bonds to environmental, social, and governance (ESG) investments to public-private partnerships in clean energy projects, the world of finance is proving to be a source of creativity. One example is the Arab Petroleum Investment Corp (APICORP), which issued a $750 million “green” bond in 2021, its first, that was nearly three times oversubscribed, with 93% of subscribers coming from outside of the region, including hard-core ESG-focused investors. This is in spite of the fact that APICORP is a petroleum finance institution by definition and owned by 10 Arab oil producers. If anything, the bond’s success represents a vote of confidence in Gulf producers and their clean energy pathway toward sustainability while they continue to develop decarbonized hydrocarbon assets.
Having missed the train of diversification away from the rent economy fueled by their cheap oil and gas production, Gulf producers’ focus now shifts toward a hybrid model of diversification that has two facets. First, these states are investing in and developing clean energy technologies that could be exported either as production technologies, clean energy products, or investments abroad in clean energy projects. Together with “greener” oil barrels, their economies would rely on the export of sustainable green energy, ranging from solar power to multiple varieties of hydrogen. Second, they are adopting a different approach to diversification within the hydrocarbon industry by shifting the weight from diversifying the broader economy to diversifying their revenue sources while maintaining oil and gas production.
The privatization of hydrocarbon assets would play a major role in diversifying revenue sources. The removal of domestic fuel subsidies, which account for a big tranche of the Gulf producers’ budgetary expenditures, is another option that would support their balance sheets, provided the right social compensations and safety nets can be put in place. The development of new industries around the decarbonized oil and gas sector will also ensure new revenue streams. Even the introduction of a carbon tax, once it matures and is deployed in other more advanced economies, cannot be excluded as a local revenue source for Gulf producers, though in smaller amounts and at a later stage.
Gulf oil producers have accepted that the transition to a clean energy global economy is inevitable. They have set themselves challenging and costly targets in their endeavor to present themselves as part of the solution, not the problem, in the global transition journey. Now they have to convince the world that greener fossil fuels need to be part of the net-zero equation. This will be their mission when they join the discussion for the first time as hydrocarbon producers at the next Conference of the Parties (COP), COP27, in Egypt later this year and more so when the UAE hosts COP28 in Abu Dhabi in 2023.
For Gulf producers, decarbonization does not mean zero oil production
January 31, 2022
Ruba Husari
Gulf oil producers do not envisage a post-2050 world devoid of hydrocarbons, even though two of the region’s biggest producers, the UAE and Saudi Arabia, have committed to net-zero carbon emissions by 2050 and 2060, respectively. Reconciling their future environmental commitments with their current reliance on hydrocarbons is going to be an arduous and expensive journey that starts with decarbonizing their oil and gas production to reduce their carbon footprint and increasing their domestic green energy production. With demand for oil and gas forecast to continue post-2050 — albeit at lower levels than now — their net-zero target does not equate to zero oil and gas production. Instead, their transition will differ from that of other countries and will happen at a different pace.
Both Saudi Arabia and the UAE are yet to publish their road maps to net zero or their national energy strategies to 2050. These strategies are expected to be predicated on the green economy’s continued reliance on oil derivatives for feedstock, ensuring a certain demand for oil and gas. In their future policies and plans, the Gulf’s biggest producers will need to account for the onset of peak demand at some point, either in this decade or the next, but none of their plans will see a world devoid of hydrocarbons. Whatever demand for fossil fuels still exists in the next three decades and beyond, regardless of shape and form, could certainly be satisfied by Gulf producers.
The onus on Gulf producers and OPEC in general will be greater as international oil companies continue to divest their assets away from oil and gas under pressure from stakeholders and financiers and transition to green energy. This divestment is akin to a shift in ownership rather than the killing of hydrocarbon assets. As the holders of the biggest traditional oil reserves and the cheapest barrels to produce, it is the national oil companies, mainly the biggest producers in the region, that will bear the responsibility of securing the energy transition and grab the lion’s share of whatever demand remains.
For Gulf producers, this transition will require increasing their investments in sustainable energy sources while also ensuring that the world does not run short of traditional ones during its transition and maintaining their oil production capacity in the face of natural decline in their oil fields. For the world to avoid supply crunches similar to the gas crisis Europe is experiencing this winter — and the higher energy prices that inevitably accompany them — Gulf producers see themselves as the guarantors of secure and affordable energy and thus of global economic growth more broadly during this transition period.
Investment crunch?
The funding required to pay for this transition will put greater pressure on Gulf producers to monetize their hydrocarbon assets while pushing them to maximize their output. With their economies’ entrenched dependence on oil rents, they will need to leverage their oil sectors to finance decarbonization. This would entail maximizing their oil and gas output and fighting for the largest market share in an environment of shrinking oil demand, as well as releasing a huge chunk of the equity held in fossil fuel assets, which risk becoming stranded assets in a low oil demand environment.
The biggest expense will be decarbonization technologies, such as carbon capture and hydrogen production, that reduce the carbon footprint of the oil and gas sector. As the main generator of funds to finance the transition away from oil-based economies, traditional sources of energy are seen not as a threat to net zero but as a path to reach that goal. While expanding their clean energy projects, especially solar, wind, and (to a lesser extent) nuclear power, investments are pouring in to develop the technologies that will secure continued but cleaner hydrocarbon production.
The process of producing cleaner barrels started some years ago, especially at Saudi Aramco. Aramco’s carbon footprint, including its methane emissions from oil and gas operations, is now among the smaller in the world, according to the company.
The effort to monetize Saudi Arabia’s hydrocarbon assets began when it offered 1.5% of Saudi Aramco as equity to private investors in an initial public offering in 2019. Privatization of assets that for a long time were closely held under national and sovereign ownership is a growing trend, especially in Saudi Arabia and the UAE. This includes the full or partial privatization of mid- and downstream sectors, such as pipelines and refineries, and eventually bigger chunks of their upstream equities.
While some analysts predict an investment crunch that would divert funds away from traditional sources of energy, indications point to investments evolving, rather than drying up, through new finance schemes that have a “green” tag attached to them, even where hydrocarbons are involved. From green bonds to environmental, social, and governance (ESG) investments to public-private partnerships in clean energy projects, the world of finance is proving to be a source of creativity. One example is the Arab Petroleum Investment Corp (APICORP), which issued a $750 million “green” bond in 2021, its first, that was nearly three times oversubscribed, with 93% of subscribers coming from outside of the region, including hard-core ESG-focused investors. This is in spite of the fact that APICORP is a petroleum finance institution by definition and owned by 10 Arab oil producers. If anything, the bond’s success represents a vote of confidence in Gulf producers and their clean energy pathway toward sustainability while they continue to develop decarbonized hydrocarbon assets.
Having missed the train of diversification away from the rent economy fueled by their cheap oil and gas production, Gulf producers’ focus now shifts toward a hybrid model of diversification that has two facets. First, these states are investing in and developing clean energy technologies that could be exported either as production technologies, clean energy products, or investments abroad in clean energy projects. Together with “greener” oil barrels, their economies would rely on the export of sustainable green energy, ranging from solar power to multiple varieties of hydrogen. Second, they are adopting a different approach to diversification within the hydrocarbon industry by shifting the weight from diversifying the broader economy to diversifying their revenue sources while maintaining oil and gas production.
The privatization of hydrocarbon assets would play a major role in diversifying revenue sources. The removal of domestic fuel subsidies, which account for a big tranche of the Gulf producers’ budgetary expenditures, is another option that would support their balance sheets, provided the right social compensations and safety nets can be put in place. The development of new industries around the decarbonized oil and gas sector will also ensure new revenue streams. Even the introduction of a carbon tax, once it matures and is deployed in other more advanced economies, cannot be excluded as a local revenue source for Gulf producers, though in smaller amounts and at a later stage.
Gulf oil producers have accepted that the transition to a clean energy global economy is inevitable. They have set themselves challenging and costly targets in their endeavor to present themselves as part of the solution, not the problem, in the global transition journey. Now they have to convince the world that greener fossil fuels need to be part of the net-zero equation. This will be their mission when they join the discussion for the first time as hydrocarbon producers at the next Conference of the Parties (COP), COP27, in Egypt later this year and more so when the UAE hosts COP28 in Abu Dhabi in 2023.
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strawberry
- Posts: 164
- Joined: Wed Jun 10, 2015 2:13 pm
Re: Gulf oil producers feel vindicated, but don’t expect them to turn on Russia
https://www.iea.org/news/pathway-to-cri ... e-benefits
Pathway to critical and formidable goal of net-zero emissions by 2050 is narrow but brings huge benefits, according to IEA special report
18 May 2021
World’s first comprehensive energy roadmap shows government actions to rapidly boost clean energy and reduce fossil fuel use can create millions of jobs, lift economic growth and keep net zero in reach
The world has a viable pathway to building a global energy sector with net-zero emissions in 2050, but it is narrow and requires an unprecedented transformation of how energy is produced, transported and used globally, the International Energy Agency said in a landmark special report released today.
Climate pledges by governments to date – even if fully achieved – would fall well short of what is required to bring global energy-related carbon dioxide (CO2) emissions to net zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C, according to the new report, Net Zero by 2050: a Roadmap for the Global Energy Sector.
The report is the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access, and enabling robust economic growth. It sets out a cost-effective and economically productive pathway, resulting in a clean, dynamic and resilient energy economy dominated by renewables like solar and wind instead of fossil fuels. The report also examines key uncertainties, such as the roles of bioenergy, carbon capture and behavioural changes in reaching net zero.
“Our Roadmap shows the priority actions that are needed today to ensure the opportunity of net-zero emissions by 2050 – narrow but still achievable – is not lost. The scale and speed of the efforts demanded by this critical and formidable goal – our best chance of tackling climate change and limiting global warming to 1.5 °C – make this perhaps the greatest challenge humankind has ever faced,” said Fatih Birol, the IEA Executive Director. “The IEA’s pathway to this brighter future brings a historic surge in clean energy investment that creates millions of new jobs and lifts global economic growth. Moving the world onto that pathway requires strong and credible policy actions from governments, underpinned by much greater international cooperation.”
Building on the IEA’s unrivalled energy modelling tools and expertise, the Roadmap sets out more than 400 milestones to guide the global journey to net zero by 2050. These include, from today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants. By 2035, there are no sales of new internal combustion engine passenger cars, and by 2040, the global electricity sector has already reached net-zero emissions.
In the near term, the report describes a net zero pathway that requires the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation. The pathway calls for annual additions of solar PV to reach 630 gigawatts by 2030, and those of wind power to reach 390 gigawatts. Together, this is four times the record level set in 2020. For solar PV, it is equivalent to installing the world’s current largest solar park roughly every day. A major worldwide push to increase energy efficiency is also an essential part of these efforts, resulting in the global rate of energy efficiency improvements averaging 4% a year through 2030 – about three times the average over the last two decades.
Most of the global reductions in CO2 emissions between now and 2030 in the net zero pathway come from technologies readily available today. But in 2050, almost half the reductions come from technologies that are currently only at the demonstration or prototype phase. This demands that governments quickly increase and reprioritise their spending on research and development – as well as on demonstrating and deploying clean energy technologies – putting them at the core of energy and climate policy. Progress in the areas of advanced batteries, electrolysers for hydrogen, and direct air capture and storage can be particularly impactful.
A transition of such scale and speed cannot be achieved without sustained support and participation from citizens, whose lives will be affected in multiple ways.
“The clean energy transition is for and about people,” said Dr Birol. “Our Roadmap shows that the enormous challenge of rapidly transitioning to a net zero energy system is also a huge opportunity for our economies. The transition must be fair and inclusive, leaving nobody behind. We have to ensure that developing economies receive the financing and technological know-how they need to build out their energy systems to meet the needs of their expanding populations and economies in a sustainable way.”
Providing electricity to around 785 million people who have no access to it and clean cooking solutions to 2.6 billion people who lack them is an integral part of the Roadmap’s net zero pathway. This costs around $40 billion a year, equal to around 1% of average annual energy sector investment. It also brings major health benefits through reductions in indoor air pollution, cutting the number of premature deaths by 2.5 million a year.
Total annual energy investment surges to USD 5 trillion by 2030 in the net zero pathway, adding an extra 0.4 percentage points a year to global GDP growth, based on a joint analysis with the International Monetary Fund. The jump in private and government spending creates millions of jobs in clean energy, including energy efficiency, as well as in the engineering, manufacturing and construction industries. All of this puts global GDP 4% higher in 2030 than it would reach based on current trends.
By 2050, the energy world looks completely different. Global energy demand is around 8% smaller than today, but it serves an economy more than twice as big and a population with 2 billion more people. Almost 90% of electricity generation comes from renewable sources, with wind and solar PV together accounting for almost 70%. Most of the remainder comes from nuclear power. Solar is the world’s single largest source of total energy supply. Fossil fuels fall from almost four-fifths of total energy supply today to slightly over one-fifth. Fossil fuels that remain are used in goods where the carbon is embodied in the product such as plastics, in facilities fitted with carbon capture, and in sectors where low-emissions technology options are scarce.
“The pathway laid out in our Roadmap is global in scope, but each country will need to design its own strategy, taking into account its own specific circumstances,” said Dr Birol. “Plans need to reflect countries’ differing stages of economic development: in our pathway, advanced economies reach net zero before developing economies. The IEA stands ready to support governments in preparing their own national and regional roadmaps, to provide guidance and assistance in implementing them, and to promote international cooperation on accelerating the energy transition worldwide.”
The special report is designed to inform the high-level negotiations that will take place at the 26th Conference of the Parties (COP26) of the United Nations Climate Change Framework Convention in Glasgow in November. It was requested as input to the negotiations by the UK government’s COP26 Presidency.
“I welcome this report, which sets out a clear roadmap to net-zero emissions and shares many of the priorities we have set as the incoming COP Presidency – that we must act now to scale up clean technologies in all sectors and phase out both coal power and polluting vehicles in the coming decade,” said COP26 President-Designate Alok Sharma. “I am encouraged that it underlines the great value of international collaboration, without which the transition to global net zero could be delayed by decades. Our first goal for the UK as COP26 Presidency is to put the world on a path to driving down emissions, until they reach net zero by the middle of this century.”
New energy security challenges will emerge on the way to net zero by 2050 while longstanding ones will remain, even as the role of oil and gas diminishes. The contraction of oil and natural gas production will have far-reaching implications for all the countries and companies that produce these fuels. No new oil and natural gas fields are needed in the net zero pathway, and supplies become increasingly concentrated in a small number of low-cost producers. OPEC’s share of a much-reduced global oil supply grows from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil markets.
Growing energy security challenges that result from the increasing importance of electricity include the variability of supply from some renewables and cybersecurity risks. In addition, the rising dependence on critical minerals required for key clean energy technologies and infrastructure brings risks of price volatility and supply disruptions that could hinder the transition.
“Since the IEA’s founding in 1974, one of its core missions has been to promote secure and affordable energy supplies to foster economic growth. This has remained a key concern of our Net Zero Roadmap,” Dr Birol said. “Governments need to create markets for investments in batteries, digital solutions and electricity grids that reward flexibility and enable adequate and reliable supplies of electricity. The rapidly growing role of critical minerals calls for new international mechanisms to ensure both the timely availability of supplies and sustainable production.”
The full report is available for free on the IEA’s website along with an online interactive that highlights some of the key milestones in the pathway that must be achieved in the next three decades to reach net-zero emissions by 2050.
Pathway to critical and formidable goal of net-zero emissions by 2050 is narrow but brings huge benefits, according to IEA special report
18 May 2021
World’s first comprehensive energy roadmap shows government actions to rapidly boost clean energy and reduce fossil fuel use can create millions of jobs, lift economic growth and keep net zero in reach
The world has a viable pathway to building a global energy sector with net-zero emissions in 2050, but it is narrow and requires an unprecedented transformation of how energy is produced, transported and used globally, the International Energy Agency said in a landmark special report released today.
Climate pledges by governments to date – even if fully achieved – would fall well short of what is required to bring global energy-related carbon dioxide (CO2) emissions to net zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C, according to the new report, Net Zero by 2050: a Roadmap for the Global Energy Sector.
The report is the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access, and enabling robust economic growth. It sets out a cost-effective and economically productive pathway, resulting in a clean, dynamic and resilient energy economy dominated by renewables like solar and wind instead of fossil fuels. The report also examines key uncertainties, such as the roles of bioenergy, carbon capture and behavioural changes in reaching net zero.
“Our Roadmap shows the priority actions that are needed today to ensure the opportunity of net-zero emissions by 2050 – narrow but still achievable – is not lost. The scale and speed of the efforts demanded by this critical and formidable goal – our best chance of tackling climate change and limiting global warming to 1.5 °C – make this perhaps the greatest challenge humankind has ever faced,” said Fatih Birol, the IEA Executive Director. “The IEA’s pathway to this brighter future brings a historic surge in clean energy investment that creates millions of new jobs and lifts global economic growth. Moving the world onto that pathway requires strong and credible policy actions from governments, underpinned by much greater international cooperation.”
Building on the IEA’s unrivalled energy modelling tools and expertise, the Roadmap sets out more than 400 milestones to guide the global journey to net zero by 2050. These include, from today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants. By 2035, there are no sales of new internal combustion engine passenger cars, and by 2040, the global electricity sector has already reached net-zero emissions.
In the near term, the report describes a net zero pathway that requires the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation. The pathway calls for annual additions of solar PV to reach 630 gigawatts by 2030, and those of wind power to reach 390 gigawatts. Together, this is four times the record level set in 2020. For solar PV, it is equivalent to installing the world’s current largest solar park roughly every day. A major worldwide push to increase energy efficiency is also an essential part of these efforts, resulting in the global rate of energy efficiency improvements averaging 4% a year through 2030 – about three times the average over the last two decades.
Most of the global reductions in CO2 emissions between now and 2030 in the net zero pathway come from technologies readily available today. But in 2050, almost half the reductions come from technologies that are currently only at the demonstration or prototype phase. This demands that governments quickly increase and reprioritise their spending on research and development – as well as on demonstrating and deploying clean energy technologies – putting them at the core of energy and climate policy. Progress in the areas of advanced batteries, electrolysers for hydrogen, and direct air capture and storage can be particularly impactful.
A transition of such scale and speed cannot be achieved without sustained support and participation from citizens, whose lives will be affected in multiple ways.
“The clean energy transition is for and about people,” said Dr Birol. “Our Roadmap shows that the enormous challenge of rapidly transitioning to a net zero energy system is also a huge opportunity for our economies. The transition must be fair and inclusive, leaving nobody behind. We have to ensure that developing economies receive the financing and technological know-how they need to build out their energy systems to meet the needs of their expanding populations and economies in a sustainable way.”
Providing electricity to around 785 million people who have no access to it and clean cooking solutions to 2.6 billion people who lack them is an integral part of the Roadmap’s net zero pathway. This costs around $40 billion a year, equal to around 1% of average annual energy sector investment. It also brings major health benefits through reductions in indoor air pollution, cutting the number of premature deaths by 2.5 million a year.
Total annual energy investment surges to USD 5 trillion by 2030 in the net zero pathway, adding an extra 0.4 percentage points a year to global GDP growth, based on a joint analysis with the International Monetary Fund. The jump in private and government spending creates millions of jobs in clean energy, including energy efficiency, as well as in the engineering, manufacturing and construction industries. All of this puts global GDP 4% higher in 2030 than it would reach based on current trends.
By 2050, the energy world looks completely different. Global energy demand is around 8% smaller than today, but it serves an economy more than twice as big and a population with 2 billion more people. Almost 90% of electricity generation comes from renewable sources, with wind and solar PV together accounting for almost 70%. Most of the remainder comes from nuclear power. Solar is the world’s single largest source of total energy supply. Fossil fuels fall from almost four-fifths of total energy supply today to slightly over one-fifth. Fossil fuels that remain are used in goods where the carbon is embodied in the product such as plastics, in facilities fitted with carbon capture, and in sectors where low-emissions technology options are scarce.
“The pathway laid out in our Roadmap is global in scope, but each country will need to design its own strategy, taking into account its own specific circumstances,” said Dr Birol. “Plans need to reflect countries’ differing stages of economic development: in our pathway, advanced economies reach net zero before developing economies. The IEA stands ready to support governments in preparing their own national and regional roadmaps, to provide guidance and assistance in implementing them, and to promote international cooperation on accelerating the energy transition worldwide.”
The special report is designed to inform the high-level negotiations that will take place at the 26th Conference of the Parties (COP26) of the United Nations Climate Change Framework Convention in Glasgow in November. It was requested as input to the negotiations by the UK government’s COP26 Presidency.
“I welcome this report, which sets out a clear roadmap to net-zero emissions and shares many of the priorities we have set as the incoming COP Presidency – that we must act now to scale up clean technologies in all sectors and phase out both coal power and polluting vehicles in the coming decade,” said COP26 President-Designate Alok Sharma. “I am encouraged that it underlines the great value of international collaboration, without which the transition to global net zero could be delayed by decades. Our first goal for the UK as COP26 Presidency is to put the world on a path to driving down emissions, until they reach net zero by the middle of this century.”
New energy security challenges will emerge on the way to net zero by 2050 while longstanding ones will remain, even as the role of oil and gas diminishes. The contraction of oil and natural gas production will have far-reaching implications for all the countries and companies that produce these fuels. No new oil and natural gas fields are needed in the net zero pathway, and supplies become increasingly concentrated in a small number of low-cost producers. OPEC’s share of a much-reduced global oil supply grows from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil markets.
Growing energy security challenges that result from the increasing importance of electricity include the variability of supply from some renewables and cybersecurity risks. In addition, the rising dependence on critical minerals required for key clean energy technologies and infrastructure brings risks of price volatility and supply disruptions that could hinder the transition.
“Since the IEA’s founding in 1974, one of its core missions has been to promote secure and affordable energy supplies to foster economic growth. This has remained a key concern of our Net Zero Roadmap,” Dr Birol said. “Governments need to create markets for investments in batteries, digital solutions and electricity grids that reward flexibility and enable adequate and reliable supplies of electricity. The rapidly growing role of critical minerals calls for new international mechanisms to ensure both the timely availability of supplies and sustainable production.”
The full report is available for free on the IEA’s website along with an online interactive that highlights some of the key milestones in the pathway that must be achieved in the next three decades to reach net-zero emissions by 2050.