The world needs to find a delicate balance between advancing net-zero targets and investing in hydrocarbons to support the global economy, according to the oil and gas minister of Bahrain, one of the smallest fossil fuel producers in the Gulf.
"I like to be a bit controversial, but the rush to net zero, this space is going to have dire consequences," Sheikh Mohammed bin Khalifa Al Khalifa told an online panel on Tuesday.
"Energy is the most important commodity for human development. People can't do without it. Under risk, we see that the costs are going to be high, we're going to be hit by the economic cycle of low investments and high prices," he said.
Energy prices are trading at multi-year highs amid a global crunch in demand. Oil prices are trading at a three-year high, with Brent, the international benchmark, rallying above $85 per barrel. Gas prices are trading at more than 90 per cent higher on an annual basis because of shortages in Europe and other parts of the world.
The worldwide crunch in energy supply has been exacerbated by under-investment during the boom and bust cycle of oil prices as well as rising demand for hydrocarbons fuelled by post-Covid economic recovery in several parts of the world.
"We've already gone through a seven-year cycle of low prices in oil and gas and a huge underinvestment made even worse by last year's Covid issue," Sheikh Mohammed said.
"Yes, we want to go towards zero. The challenge was always how can you make it commercially viable without increasing the cost of energy. But it's a very delicate balance. And if the policy comes in too quickly, we will often mess it up. And looking at history, Europe ended up paying its price."
The ongoing energy crisis and record natural gas prices are expected to boost oil demand by 500,000 barrels per day, according to the monthly oil market analysis released by the International Energy Agency.
Global shortages of natural gas are increasing demand for crude and placing yet more pressure on strained oil supplies, the agency said. This, in turn, is helping to feed rising inflation and slow the world's recovery from the Covid-19 pandemic.
The US Energy Information Administration has also forecast natural gas prices will remain elevated during the Northern Hemisphere winter, marking the highest increase in prices since 2007-08.
Bahrain, which announced the discovery of 80 billion barrels of shale oil in 2018, has a better chance of capitalising on this resource and ramping up development amid higher oil prices, Sheikh Mohammed said.
"What we need to prove first is the geological and technical viability. Once we get there, hopefully, we will have investors. Initially when we started in 2018, we said five years. So we should be ready by then. It’s been 3.5 years now. With these oil prices, the chances of it going full-scale are better."
In addition to the shale oil reserves, Bahrain also announced discovery of up to 20 trillion cubic feet of tight gas offshore – its biggest find since oil was discovered in the kingdom more than eight decades ago.