Global consensus is urgently needed to address climate priorities and energy security challenges, as a lack of investment in hydrocarbons will worsen the energy crisis and wipe out spare oil production capacity once economies rebound further.
“A fear factor is still causing the critical oil and gas investments in large, long-term projects to shrink. And this situation is not being helped by overly short-term demand factors dominating the debate,” Aramco chief executive, Amin Nasser, said at the Schlumberger Digital Forum.
Even with strong economic headwinds, global oil demand is still fairly healthy today, he said, and when the global economy recovers, it is expected to rebound further, “eliminating the little spare oil production capacity out there”.
“And by the time the world wakes up to these blind spots, it may be too late to change course. That is why I am seriously concerned,” Mr Nasser said.
Policymakers need to recognise that supplies of ample and affordable conventional energy are still required over the long term. And with that in mind, they should pursue further reductions in the carbon footprint of conventional energy and greater efficiency of energy use, he said.
Saudi Arabia, Opec’s top oil producer and the world’s biggest crude exporter, and the UAE have repeatedly highlighted the need to boost investments in hydrocarbons and develop spare capacities to tackle looming energy shortages and price swings in oil markets.
Spending in the oil and gas industry took a hit during the Covid-19 pandemic and the push by governments to transition to cleaner forms of energy.
Total investment in the upstream part of the oil and gas sector fell 23 per cent below pre-coronavirus levels to $341 billion in 2021, according to the International Energy Forum and IHS Markit.
The oil and gas sector needs $600bn worth of investments until 2030 to keep pace with rising demand, Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, said last year.
Low investment in the energy sector is also detrimental to energy transition and oil producers have also been pushing the West to draw realistic plans about how quickly renewable form of energy can replace fossil fuels.
Oil and gas will account for more than 50 per cent of the global energy mix by 2045 and will continue to play an important role even as the world pivots towards cleaner forms of energy, according to Opec.
“When you shame oil and gas investors, dismantle oil and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG [liquefied natural gas] receiving terminals, and reject nuclear power, your transition plan had better be right,” Mr Nasser said.
“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.”
Oil prices have remained volatile this year, climbing to a notch under $140 per barrel in March after Russia’s military assault in Ukraine. It has given up some gains to trade above $93 per barrel level, still nearly 20 per cent up on the beginning of the year.
World oil demand growth remained pegged at “a healthy” 3.1 million barrels per day rise in 2022, including the recent additional oil demand growth due to fuel-switching in power generation. Opec estimated global oil consumption in 2022 to average 100 million bpd.
“As the pain of the energy crisis sadly intensifies, people around the world are desperate for help,” Mr Nasser said.
“In my view, the best help that policymakers and every stakeholder can offer is to unite the world around a much more credible new transition plan.”