Alternative energy sources will not be able to replace oil and gas overnight as part of the world's energy transition efforts, with additional hydrocarbon investment required to meet growing demand, Saudi Aramco's chief executive has said.
Investment in oil and gas has fallen sharply, with upstream investment at about $400 billion in 2022, less than half of the peak in 2014, Amin Nasser said at the Saudi Capital Markets Forum.
“The primary reason: pressure from multiple directions to discontinue all new investments in oil and gas. Pressure based on what I strongly believe are flawed assumptions and arguments,” he said.
“Popular energy transition narratives paint a picture of a utopian world where alternatives are ready to replace oil and gas overnight.”
They also assume that “less-than-reliable” electric grids in many developing countries can be transformed instantly.
But this is “rhetoric” rather than “the reality”, Mr Nasser said.
“As the energy crisis in Europe has demonstrated, alternatives are not ready to shoulder the heavy burden of global demand,” he said.
“Indeed, the world will continue to depend on oil and gas for the foreseeable future, particularly in sectors such as heavy transport, heavy industry and power generation.”
Capital investment in renewables increased “significantly” and is estimated to have hit $494 billion in 2022, surpassing that of upstream oil and gas at $446 billion for the year, Rystad Energy said in a report in October.
However, with growing oil demand, the industry requires “huge investments” of $12.1 trillion until 2045 to raise production and meet demand, Opec said in a report in November.
Demand for oil as a primary fuel is expected to increase to 101 million barrels of oil equivalent a day in 2045, from 88 million barrels of oil equivalent a day in 2021, with its share in the energy mix dropping to 29 per cent, from 31 per cent during the period, the oil producers' group said.
“From my perspective, for a less-risky global energy transition, everyone — including capital markets — must take a more realistic view of how the global energy transition will unfold,” Mr Nasser said.
The increasing emphasis on investing in environmental, social and governance (ESG) initiatives is required, he said.
The opportunities to invest in energy transition are also growing, with up to $275 trillion in cumulative spending required by 2050 to achieve net-zero ambitions, according to some estimates.
“However, if ESG-driven policies are implemented with an automatic bias against any and all conventional energy projects, the resulting underinvestment will have serious implications — for the global economy, for energy affordability and for energy security.”
While $1.1 trillion was committed last year towards the global energy transition, investment in two critical areas — carbon capture and storage, and hydrogen — accounted for less than 1 per cent of this total.
The current “investment imbalance is leading us down a dangerous path”, he said.
“Capital markets have an obvious opportunity to concurrently address the 'trilemma' of energy affordability, energy security and sustainability,” Mr Nasser said.
This will involve restoring investment in vital conventional energy sources, increasing investment in technology that reduces the carbon footprint of oil and gas, and investing in new energy sources such as renewables, as well as blue and green hydrogen, he said.