The demand for clean and affordable energy has never been higher. While countries and energy companies look into the financing and technology needed, a major agreement signed in Abu Dhabi yesterday is opening a new chapter in energy security and climate action. The Partnership for Accelerating Clean Energy was signed by the UAE and the US as part of a project to invest $100 billion to produce 100 gigawatts of clean energy globally by 2035. The two countries also agreed to invest in ways to manage carbon and methane emissions, as well as the development of nuclear technology and the decarbonisation of the industrial and transport sectors.
This is a significant milestone as the world adjusts to new energy demands. Prior to the Covid-19 pandemic, the global energy market looked very different. With vast supplies buoyed by America’s shale gas boom and fast-evolving technology in renewable energy, cheap fuel was a given. In too many ways, in fact, it was taken for granted.
Years of abundance and greater pressure to shift to greener energy sources caused some investors to pull back on spending for new oil and gas infrastructure. As a consequence, forecasts for capital expenditure were starting to project downwards, but the crash in demand brought on by the pandemic rendered them almost non-existent in various markets. In the seven years from 2014 to 2021, annual investment within the industry fell from $750bn to $350bn.
Oil is almost unique among industries in the way it requires constant reinvestment, with producers normally expected to allocate about 80 per cent of their capital expenditure each year just to keep their level of reserves up. The investment shortfall, coupled with a cut in supplies caused by the war in Ukraine, has caused prices to soar in recent months, and this has presented a tough lesson to a world now in the throes of unwieldy inflation and on the verge of a recession.
What to do about all of this is a hot topic at the Abu Dhabi International Petroleum Exhibition and Conference (Adipec), the world’s largest gathering for the energy industry, taking place in the UAE’s capital this week .
Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, told conference participants on Tuesday that the world will lose up to 5 million barrels per day of oil each year from current supplies if investment comes to a halt. “This,” Dr Al Jaber said, “would make the shocks we have experienced this year feel like a minor tremor.”
New investment in oil and gas is no longer as easy as it once was, given the worldwide push towards decarbonisation. But it is necessary all the same, and it can be done in a way that does not forsake the global effort to contain climate change.
“Energy security,” Dr Al Jaber noted, “is the foundation of all progress – economic, social and climate progress.” In his remarks, he emphasised the need for “maximum energy” alongside “minimum emissions”. In this respect, oil-producing nations can show leadership. Adnoc, for instance, has already connected its operations to nuclear and solar power, and is in the process of electrifying its offshore operations to cut their carbon footprint in half. It is also redoubling its efforts to bring down its levels of methane intensity, though it already has “one of the lowest levels in the world”. Yesterday’s partnership with the US is another step in the right direction.
At the same time, hydrocarbon producers are by no means the only factor in the equation to combat climate change. The lead-up to the Cop27 climate summit due to begin in Egypt next week has seen a host of countries in the developed world revisit and update their emissions targets for the next decade. Few of them, independent analysis has found, are on track to achieving them.
Balancing the world’s growing energy demands with its urgent fight against climate change is a complex challenge that requires not only boldness, but realism. In a year where these issues are very much at the forefront of the global consciousness, Adipec’s role in navigating that challenge cannot be overstated.