Taking a stand that the energy transition to cleaner sources is underway, Petroleum Minister Dharmendra Pradhan of India said that fossil fuels would not have acceptability forever. “Fossil fuels will be a bad word in the decades to come. There is a growing shift towards the clean energy ecosystem.” India, a would-be global leader, is one of many and counting throughout the world who are keen to jump ship ending up Investments in fossil fuels to retreat as the climate crisis increases pressures on producers.
There will soon be a time when all producers are made responsible for all the damage caused by climate change and be forced to pay for it; this applies equally to the Big Oils and to all OPEC+ countries.
The picture above is for illustration and is of Bloomberg’s. Private equity investors are pouring capital into fast-growing sectors such as solar energy. Photographer: Jeremy Suyker/Bloomberg
Investments in fossil fuels to retreat as climate crisis increases pressures on producers
Saudi and Russia believe fossil fuel demand will only increase, and cuts to investments in that sector are not in the offing. But major oil producers are feeling the pressure of meeting emissions targets
Almost 200 countries, including Russia and Saudi Arabia, ratified the Paris climate accord in 2015
The world was facing an acute oil shortage in the long-term due to underinvestment
Between 2010 and 2020, the cost of wind power fell by about 70%, and solar power by 89%
Almost 200 countries, including Russia and Saudi Arabia, ratified the Paris climate accord in 2015, agreeing to pursue efforts to limit the planet’s temperature increase to 1.5 degrees Celsius above pre-industrial levels. The agreement requires net-zero greenhouse gas emissions by 2050.
Remarkably, the IEA delivered its starkest warning yet on global fossil fuel use last month, saying the exploitation and development of new oil and gas fields must stop this year if the world wants to reach net-zero emissions by the middle of the century.
Speaking at the St. Petersburg International Economic Forum on Thursday, Russian Deputy Prime Minister Alexander Novak said the IEA had ostensibly arrived at its findings “by using reverse calculations” on how to achieve net-zero emissions by 2050.
“It is a sequel of the ‘La La Land’ movie. Why should I take it seriously?” Abdulaziz said, according to Reuters.
His reaction to the report came shortly after OPEC and non-OPEC partners agreed to gradually ease production cuts in the coming months amid a rebound in oil prices.
Igor Sechin, the head of Russian oil major Rosneft, said recently that the world was facing an acute oil shortage in the long-term due to underinvestment, amid a drive for alternative energy while demand for oil continued to rise.
Rosneft is the world’s second-largest oil-producing company by output after Saudi Aramco. It produces more than 4 million barrels of oil per day.
He expected some shortages to kick in from the second half of 2021.
Meanwhile, a court order to deepen carbon cuts for Shell was a new form of risk for oil majors, he said.
A quarter of Exxon’s board of directors is now composed of critics who have argued the company has been too slow in moving away from traditional carbon power.
Chevron also saw its own investors vote for a proposal to cut emissions from their customers at a recent conference, even after its board urged them not to.
Meanwhile, Shell recently lost a major case in a Dutch court. It recently ordered the Anglo-Dutch company to slash its global greenhouse gas emissions, which stood at around 1.6 billion tons of CO2 equivalent in 2019, by 45% by 2030 in keeping with European climate promises.
More lawsuits demanding other companies to cut back their emissions are likely to follow, in Europe and elsewhere.
The world is in the middle of a rapid energy transition. The use of coal in utility-scale American electricity generation has fallen by 62 percent since 2007. Much of that slack has been taken up by natural gas, but wind and solar account for most of the rest, and renewables are starting to make inroads into gas too.
The main reason being prices: Between 2010 and 2020, the cost of wind power fell by about 70%, and solar power by 89%. Other technologies like energy storage will also contribute to making renewables easier to deploy.
It may take decades, but the long-term business prospects of oil and gas are weak.
The world’s most important oil-importing region, Asia, is showing signs of weaker physical demand with lower cargo arrivals in May and crashing refining margins as a COVID resurgence depresses fuel demand in India and other South Asian markets.
Imports into the Asian region are estimated to have dropped in May to the lowest monthly level so far this year. Asia imported 23 million bpd of crude oil last month, down from more than 24 million bpd in each of April and March, and from 25.2 million bpd in February, according to data from Refinitiv Oil Research cited by Reuters’ Russell.
Still, crude oil futures prices rallied to a two-year high last week after OPEC+ reaffirmed plans to unwind another 840,000 barrels per day (bpd) of its total cuts in July.
Most analysts, forecasters, OPEC, and the IEA continue to expect strong global oil demand in the second half of this year that would offset weakness in some Asian markets this quarter.
For over a century, burning fossil fuels has helped propel our vehicles, power our businesses, keep the lights on, and warm our homes and to this day still provide many of our energy needs. We are paying the price in terms of extreme weather fluctuations and the increased intensity of natural disasters. The latter’s impact, coupled with advancements in technological knowledge and implementation on the hydrocarbons market in parallel to a specific social movement of divesting off all fossil fuel industries, could not have begun if no palliative industry can procure all that necessary energy. At this conjecture, a story of a looming oil price super cycle will likely be the last produced in the IMF blog titled ‘End of the Line‘ only manages to highlight a change in the game. Here it is.
A looming oil price super cycle will likely be the last
Rabah Arezki, chief economist at the African Development Bank and a senior fellow at Harvard University’s Kennedy School of Government.
Per Magnus Nysveen, senior partner and head of analysis at Rystad Energy.
After a pandemic and a price war sent petroleum prices tumbling in 2020, they are again on the rise. A new oil price super cycle—an extended period during which prices exceed their long-term trend—seems to be in the making, driven by pervasive supply shortages from the lack of investment that has continued since the 2014 collapse in oil prices and, more recently, reduced investment in shale oil production; and demand growth triggered by a strong recovery in countries such as China, a big stimulus package in United States, and global optimism about vaccines.
Some of these factors have persistent components and will likely more than offset any downward pressure on consumption that becomes part of a new normal post–COVID-19 environment.
Nevertheless, this could be the last super cycle for oil because major economies appear committed to replacing fossil fuels, and mass car manufacturers have responded by committing to replacing internal combustion engine vehicles with electric vehicles over the medium term. This shift will transform the oil market into one consistent with climate goals, but poses a risk of disorderly adjustment for economies dependent on oil, with far-reaching effects that in some cases could spill over their borders.
Oil investment crunch
Even with relatively lower oil prices, extraction and exploration companies have been highly profitable. At the same time, perhaps in recognition of a less buoyant future, they have reduced their investment. Production in oil fields and the number of wells are declining, and reserve depletion is rapid. The drop in both capital expenditure and replacement of oil reserves has persisted since 2014.
COVID-19 has exacerbated the investment decline. For example, shale oil output—which has a shorter production cycle and therefore is more sensitive to changes in investment—is now increasing by half a million barrels a year, compared with 2 million barrels a year before the onset of the pandemic. While the Biden administration’s announced ban on drilling on federal land in the United States will have little direct impact on shale production, it signals a shift in federal government sentiment against the oil industry.
Shale producers have adopted a noticeably more cautious investment posture. As a result, they will be operating with positive cash flows—cash flow was previously directed toward investment spending. This reduced investment will lessen the role of shale as swing production and plants the seeds of a price super cycle. On the other hand, the Organization of the Petroleum Exporting Countries will likely increase production to counter that upward pressure on price.
The debate over peak demand
Several commentators and major oil market players, including BP and Shell, argue that global demand for oil peaked in 2019 at about 100 million barrels a day and that it will never again reach that level because of pandemic-related structural changes. That view seems supported by the sharp reduction in oil consumption for transportation, including jet fuel. After travelers started cancelling flying plans in March 2020, jet fuel consumption collapsed and only began to creep up as travel restrictions started to ease.
Those who believe consumption has peaked still anticipate that gasoline consumption will rise in mid-2021, despite higher prices as a result of the inevitable lag between any demand-induced increase in crude oil production and the increase in refined products to meet demand. With vaccine developments and optimism from a proximate reopening of the global economy, it is expected that oil consumption will continue to recover, but to a level lower than what prevailed before the pandemic—effectively the peak of oil consumption.
Yet proponents of the view that oil demand has peaked overlook the structural increase in consumption that will eventually offset any downward shift from COVID-19. Rising living standards and a growing middle class in China and India will lead to increased demand for individual cars and air travel. So even if economic growth slows, the large numbers of people crossing the income threshold that enables them to afford a car will support demand for travel. In emerging markets such as China and India, any shift toward electric vehicles will likely be slower than in advanced economies given concerns over the availability of charging stations. The rate of adoption of electric vehicles will, by and large, be the major driver of future oil demand because road fuel accounts for half of global oil demand.
The structural increase in oil demand, together with a persistent reduction in production from insufficient investment, will likely precipitate—and keep alive for some time—an oil price super cycle. But will an increase in oil prices prompt more investment and lead to another price bust as has happened in the past?
Technology and its consequences
Technological innovation may make things different this time. Large investments will likely be discouraged by the new technology at the heart of carmaker plans to replace internal combustion engine vehicles with those that run on electricity. The stock market capitalization of electric carmaker Tesla points to the imminence of the transformation of the automobile market. Tesla’s capitalization dwarfs that of traditional carmakers—even though those manufacturers produce vastly more cars than Tesla. That disparity has prompted traditional car manufacturers to commit to replacing vehicles powered by internal combustion engines with those powered by electricity, which in turn has triggered massive research and development on electric vehicles by manufacturers seeking to grab shares of the new market (see table).
A frenetic ramping up of production of electric vehicles is not without risk, however. It could cause supply to exceed demand—which would lead to negative cash flows, illiquidity, and bankruptcies of car manufacturers. The automakers’ bet is driven both by the commitment of governments to achieving zero net carbon emissions and by the belief that consumers will want to adopt cleaner modes of consumption—transportation accounts for about a quarter of global energy-related carbon dioxide emissions. But it is unclear whether consumers will merely pay lip service to cleaner consumption or actually change their behavior. Will higher carbon prices become less important to consumers than concern about an inadequate charging infrastructure for automobile batteries?
That said, mass manufacturing will eventually make the price of electric cars attractive, and a spike in oil prices would hasten the conversion to electric vehicles. This last oil price super cycle will be consistent with climate goals and associated with commitments by large economies to net zero carbon emissions in the medium term. However felicitous a development that will be for the global climate, however, it poses a risk that the oil reserves so many oil-dependent economies count on will be less valuable—especially for reserves where extraction costs are high. The reserves and the investment surrounding them become, in effect, stranded assets. That could lead to severe economic woes, including bankruptcies and crises, in turn leading to mass migrations, especially from populous oil-dependent economies, many of them in Africa. Other larger oil-dependent economies in the Middle East, central Asia, and Latin America are also an important source of remittances, employment, and external demand for goods and services that benefit many neighboring countries. The end of oil, then, could not only devastate oil-dependent economies but could also overwhelm their neighbors. It is not all bad news for countries with mineral deposits important to the energy transition. Cobalt, essential for car batteries, will be in much higher demand. Uranium could be valuable as well as electricity generation moves away from fossil fuels and nuclear power becomes more attractive.
The end of oil thus makes economic transformation imperative. Oil-rich countries must diversify to become resilient to the changes in energy markets. An appropriate governance framework to manage proceeds from oil in good and bad times has always been important to fostering economic diversification. But with stranded assets a new risk, radical shifts in governance in oil-dependent economies are urgent. Dubai, for example, facing the depletion of its oil reserves, transformed itself into a global trade hub. Countries and businesses reliant on these markets must formulate policies to address this transformation, including the development of renewable energy. To jettison their hidebound economies, which have led to low productivity and waste, oil-rich economies should commit to reforms that lessen obstacles to innovation and entrepreneurship. Reforming corporate governance and legal systems, promoting markets that have no barriers to entry and exit, and ending favoritism for both state-owned enterprises and politically connected private firms will help attract investment and change attitudes toward innovation (Arezki 2020).
S&P Global‘s article by Dania Saadi with a statement-title that World oil demand may have peaked in 2019 amid energy transition as per IRENA does not come down however informative as a surprise anymore. Its use will plummet by more than 75%, and its production to have plunged by 85% by 2050. It is even earlier, 2025, for the Natural gas demand.
World oil demand may have peaked in 2019 amid energy transition: IRENA
Dubai — Global oil demand may have hit the peak in 2019 and natural gas will follow suit around 2025, the director-general of International Renewable Energy Agency said March 16, as the energy transition gathers pace, echoing forecasts made by BP last year.
Under a 2050 scenario that meets the Paris Agreement’s commitment to limit global warming to 1.5 C, fuel use is forecast to decline by more than 75% if energy transition policies are enforced now, IRENA said in its World Energy Transitions Outlook.
Under the 1.5 C scenario, global oil production is projected to plummet by 85% to slightly above 11 million b/d by 2050 from current levels, with natural gas remaining the largest source of fossil fuel at about 52% of current levels, the Abu Dhabi-based organization said.
“In the last eight years, the installed capacity of renewables has been outpacing systemically the installed capacity of fossil fuels-related plants,” Francesco La Camera, director general of IRENA, said in a virtual media briefing. “There is a structural change that is already there. The energy transition is already in place, it is unstoppable.”
IRENA’s prediction of peak oil mirrors BP’s projection last year that the world may never return to the pre-pandemic oil demand level of about 100 million b/d. Demand for oil will be the biggest casualty from lower energy demand in the coming three decades as weaker economic growth and a faster shift to renewable energy accelerates the demise of oil-based transport fuels, BP said in its Energy Outlook 2020 published Sept. 14, 2020.
Natural gas will still be needed in the future for power generation and in some industries, IRENA said. Coal will be phased out by 2050, with gas supplying around 6% of power generation and nuclear energy around 4%.
“Fossil fuels still have roles to play, mainly in power and to an extent in industry, providing 19% of the primary energy supply in 2050,” IRENA said. “Around 70% of the natural gas is consumed in power/heat plants and blue hydrogen production.”
IRENA’s bearish view of fossil fuel demand contrasts with predictions from the International Energy Agency and OPEC.
Under the IEA’s last central forecast scenario published in November, world oil demand will rise to 106.4 million b/d in 2040 from 96.9 million b/d in 2018, with growth flattening out by 2030.
Last year, OPEC said for the first time that peak oil demand may be nigh, estimating that the world’s thirst for oil will stop growing in about 20 years.
With the pandemic prompting a re-examination of the oil market and countries becoming more aggressive on their sustainability targets, OPEC on Oct. 8 estimated that global demand would hit 109.3 million b/d in 2040 before declining to 109.1 million b/d in 2045 and plateauing “over a relatively long period.”
S&P Global Platts Analytics sees global oil demand peaking in 2040 at around 114 million b/d before slipping to 109 million b/d in 2050 under a “most likely” scenario, some 5 million b/d lower than pre-crisis forecasts.
Use of fossil fuels is being whittled away by the rising adoption of renewable energy, energy efficiency and electrification, according to IRENA.
“Over 90% of the [decarbonization] solutions in 2050 involve renewable energy through direct supply, electrification, energy efficiency, green hydrogen and BECCS,” or biomass with carbon capture and storage, IRENA said. “Fossil-based CCS has a limited role to play, and the contribution of nuclear remains at the same levels as today.”
Under the 1.5 C scenario, electricity would become the main energy carrier with 50% of direct share of total energy use, up from the current level of 21%, IRENA said. Nearly 90% of electricity needs will be provided by renewables, up from 7% in 2018, with the remainder coming from gas and nuclear.
Wind and solar photovoltaic will constitute the biggest part of the power generation mix, supplying 63% of total electricity needs by 2050, with installed renewable generation capacity growing to 27,700 GW from 2,500 GW currently.
Electricity demand is forecast to grow over two-fold between 2018 and 2050 with the use of electricity in industry and buildings doubling and in transport jumping from zero to over 12,700 TWh, according to IRENA.
Hydrogen and its derivatives will make up 12% of final energy use by 2050 and 30% of electricity use will be dedicated to green hydrogen production and its derivatives, it said. The world will need almost 5,000 GW of hydrogen electrolyzer capacity by 2050 from just 0.3 GW now to achieve this level of hydrogen.
To achieve the 1.5 C scenario, the world will need to spend $33 trillion on top of the $98 trillion currently earmarked for energy systems investments. Some $24 trillion invested in fossil fuels need to be rerouted to energy transition technologies over the period to 2050, IRENA said.
NATURAL GAS NEWS‘ Geopolitical Implications of Global Decarbonization for MENA producing countries by Pier Paolo Raimondi and Simone Tagliapietra, Oxford Institute for Energy Studies (OIES) is an expert’s hindsight in the foreseeable future of the region.
Endowed with half of the world’s proven oil and gas reserves, the Middle East and North Africa (MENA) region represents a cornerstone of the established global energy architecture. As the clean-energy transition gains momentum worldwide, this architecture might shrink—challenging the socio-economic and geopolitical foundations of the region in general, and of its oil and gas-producing countries in particular.
Geopolitical Implications of Global Decarbonization for MENA producing countries
February 21, 2021
This challenge has two dimensions: domestic and international. Domestically, a decline in global oil and gas demand would reduce revenues for producing countries. Considering the profound dependency of these countries on oil and gas rents (the ‘rentier state’ model), this could have serious economic and social consequences. Internationally, the global clean-energy transition might push producers towards a fierce competition for global market share, exacerbating geopolitical risks both regionally and globally.
In 2020, MENA oil and gas producers experienced a situation that some observers have described as a preview of what the future might look like for them beyond 2030, as global decarbonization unfolds. The COVID-19 pandemic resulted in an unprecedented crash in global oil demand. At the same time, oil prices collapsed (for the first time in history, the benchmark West Texas Intermediate entered negative territory) due to a lethal combination of falling demand and OPEC+ coordination failure. All this generated a perfect storm for MENA oil- and gas-producing countries, which led to unprecedented macroeconomic imbalances.
The evolution of oil markets, national stability, and prosperity as well as international influence are closely linked in the MENA region, but MENA oil- and gas-producing countries are far from homogenous. Different countries are likely to experience different impacts from the global clean-energy transition, depending on a number of domestic and international factors.
MENA producers are likely to be affected by the differences in the trajectories for oil and gas markets, the speed of the energy transition in different world markets, increased competition between energy producers, and increasing penalties for carbon intensity in production.
While gas is set to play a role in the global energy mix for decades, oil is expected to lose relevance as a result of decarbonization policies and technological developments in electric vehicles. BP’s 2020 Energy Outlook warned about the imminence of peak oil demand. In its business-as-usual scenario, oil demand is set to recover from the pandemic by 2025 but drop slowly thereafter. In its rapid-energy-transition scenario, oil demand drops from around 100 million barrels per day (mb/d) in 2019 to 89 mb/d in 2030 and just 47 mb/d in 2050. Such a scenario would represent a challenge for MENA oil producers. By contrast, in the business-as-usual scenario, gas demand is expected to increase from 3.8 trillion cubic meters (tcm) in 2018 to 5 tcm in 2040, underpinned by a massive coal-to-gas switch in Asia and elsewhere. Such a scenario would be beneficial for MENA gas-producing countries such as Qatar and Algeria, which could remain geopolitically relevant by providing an important transition fuel to a decarbonizing world.
In the MENA region, Qatar seems to be the best positioned to preserve its geopolitical role, thanks to its significant liquified natural gas (LNG) capacity and its geographical location between Europe and Asia. Nevertheless, gas-producing countries will not be immune to the challenges posed by decarbonization policies in the long run. Gas demand is especially difficult to predict starting in the second half of the 2030s, as a result of increasing cost competition in power generation from renewables, as well as stricter environmental regulations (e.g. the EU Methane Strategy). It will thus be of paramount importance for MENA gasproducing countries to cut emissions in their gas value chain, in order to preserve their position and geopolitical influence.
The speeds of the energy transition in different world regions will also affect MENA geopolitical shifts. For instance, Europe’s oil and liquids demand is expected to decrease from the current 13.3 million tons of oil equivalent (Mtoe) to 8.6 Mtoe in 2040, according to the International Energy Agency’s stated-policies scenario. By contrast, Asia-Pacific countries’ oil and liquids demand is set to increase from the current 32.5 Mtoe to 37.9 Mtoe in 2040. Thus, MENA producers more exposed to the European market are likely to suffer more—and earlier—from the global decarbonization process than others more exposed to Asian markets. That is, energy demand will increasingly dominate energy geopolitics, especially in an oversupplied energy market.
In such a scenario, export portfolio composition and diversification will determine the evolution of geopolitical influence for MENA oil and gas producers. Exporters that depend heavily on European markets will see their geopolitical position erode and their revenues fall. For example, Algeria, which mostly exports gas via pipeline to Europe, has been an essential element of the European gas supply architecture. Unless it manages to decarbonize its gas exports, this important role will shrink as the European Green Deal is implemented. In 2019, 85 per cent of Algeria’s total gas exports flowed to Europe, 62 per cent via pipeline (mainly to Italy and Spain). By contrast, LNG provides more flexibility to gas exporters, which will enable them to respond effectively to the geographical shifts of the energy demand. Qatar is the world’s top LNG exporter. In 2019, Qatar exported 83 per cent of its total gas exports via LNG. Of this volume, 67 per cent was directed to Asia Pacific countries. Asian markets are expected to drive energy demand growth in general and LNG in particular until 2030. Oil and gas producers will increasingly try to gain market share in such growing energy markets.
While energy demand will be crucial in the future, energy supply issues will not disappear. Competition among producers will persist, and even increase in the foreseeable future. The peak of oil demand will create a harsher world of more intense competition and tighter revenues for MENA oil producers. Regional oil and gas producers are likely to pursue different supply strategies, which will need to deal with the consequence of the global energy transition.
The transition indeed raises an existential dilemma—requiring a choice between maximizing production, which would weaken higher-cost exporters, and coordinating production cuts to increase prices, which could deprive governments of vital revenues. These are not trivial issues, as maximization of production would put into question established assumptions about saving reserves for future production and avoiding stranded assets. An intensification of competition among producers could thus undermine coordinated actions (e.g. OPEC agreements), which are important to oil price stability. This was illustrated by the collapse of OPEC+ talks in March 2020—spurred by disagreements between Saudi Arabia and Russia on the introduction of production quotas, as the two were also competing for market share with US shale oil producers—and the consequent fall in oil prices.
Another example of the growing competition among producers is the growing opposite visions between the United Arab Emirates (UAE) and Saudi Arabia that emerged openly during OPEC talks in late 2020. Although they managed to reach an agreement within OPEC, the UAE’s ambitious plans to increase its oil capacity from about 4 mb/d to 5 mb/d by 2030 puts further pressure on the traditional alignment among Gulf OPEC producers. Moreover, in late 2020 the Abu Dhabi National Oil Company announced a $122 billion investment plan for 2021–2025, suggesting that the UAE had abandoned its more cautious approach to the oil sector. The plan suggested that MENA national oil companies might gain a growing share of world oil and gas production in the future. That is also due to (Western) oil companies’ decisions to cut their capital expenditure and other investments. Such decisions are motivated mostly by low oil prices and their commitment to decarbonization.
In a more competitive world, some MENA producing countries such as Saudi Arabia and the UAE have the economic advantage of vast oil reserves (298 and 97 billion barrels, respectively), the lowest production costs (under $4 per barrel), and the least carbon-intense production. In the next years, due to expected higher carbon prices, carbon intensity will play a key role in determining which oil and gas producers will be able to preserve their geopolitical influence. MENA oil producers with higher production carbon intensity, such as Algeria and Iraq, might thus lag behind.
The global energy transition can also impact MENA oil- and gas-producing countries’ governance, due to their heavy dependence on revenues from these resources. To address this issue, regional oil and gas producers have launched several strategies (referred to as Visions) aimed at economic diversification (e.g. by increasing productivity, strengthening the private sector, and developing non-oil sectors), as well as increasing the share of renewables in the energy mix. These Visions were largely developed as a response to the 2014 oil price drop; COVID-19 and the acceleration of the global energy transition make it necessary to accelerate them. A country’s chances of success at this are likely to be affected by domestic factors including population size, government capacity, and financial ability to implement diversification measures.
Countries with a large, young, and growing population (Algeria, Saudi Arabia, and Iraq) will encounter significant obstacles to the transformation of their rentier-state model. By contrast, countries with a smaller population, like the UAE and Qatar (9.7 and 2.8 million inhabitants, respectively) are likely to find it easier to adjust.
The ability to govern and finance major domestic socio-economic transformation will also be crucial. For example, North African countries could exploit their geographical vicinity to Europe and become major clean-electricity suppliers. In this sense, the recent EU Hydrogen Strategy considers imports of 40 GW of green hydrogen from the EU’s eastern and southern neighbours. However, countries like Algeria and Libya are experiencing major social and political instability, which undermines such scenarios and discourages the needed foreign investments. Thus, countries with major governance issues like Algeria, Libya, and Iraq are expected to lag behind on energy and economic diversification. The risk is that these countries will focus political energies on an intensifying fight for a share of the diminishing global oil and gas market, rather than on a strategy to reorient their economy. By contrast, countries with stronger governance are better equipped to transform their economies, bear the negative consequences of the transition in the short term, and navigate the geopolitical evolution.
The availability of large foreign exchange reserves will be crucial for the transformation of MENA producing countries. With such reserves, countries could offset the negative economic effects of lower oil demand and revenues in the short term, while investing in renewable energy projects for the medium and long term. Thus, countries like Saudi Arabia, the UAE, and Qatar (with $500, $108 and $38 billion of foreign reserves, respectively) are potentially well equipped to manage the negative effects of lower revenues and foster economic transformation. Additionally, countries with large sovereign wealth funds could use them as an integral part of the diversification effort, for example to finance research and development and renewable-energy projects in MENA countries.
Producers with large foreign exchange reserves, sizable sovereign wealth funds, and small populations to appease are potentially the best placed to navigate the uncharted waters of the global energy transition.
MENA oil and gas producers have also considered developing their high renewable-energy potential, especially solar. This could help them pursue several goals, including economic diversification and reduction of greenhouse gas emissions. It could also free additional oil and gas volumes, currently used to meet fast-growing domestic energy demand, for sale abroad to produce additional revenue—thus avoiding the negative economic effects of growing energy consumption and positioning themselves as major renewable powers in a low-carbon future.
More recently, MENA oil and gas producers have begun to consider the growing interest in hydrogen as a way to preserve their geopolitical influence and remain pivotal actors in the future energy system. Given the region’s abundant renewable energy and carbon capture and storage potential, MENA countries could be at the forefront in both the green and blue hydrogen markets. In the short and medium term, blue hydrogen could benefit from its cost advantages. In the longer term, the MENA countries could exploit their excellent solar conditions and low-cost renewables in order to produce and export green hydrogen. Three MENA oil producers (Saudi Arabia, the UAE, and Oman) have announced major hydrogen plans. For example, in July 2020 an international consortium announced plans for a $5 billion green renewables and hydrogen plant in Saudi Arabia, which aims to begin shipping ammonia to global markets by 2025. In September 2020 Saudi Arabia shipped 40 tons of blue ammonia to Japan in a pilot project undertaken by Saudi Aramco and the petrochemical giant Sabic.
The global energy transition will inevitably affect MENA oil- and gas-producing countries, both macroeconomically and geopolitically. However, not all MENA countries will see their geopolitical influence change in the same way. Some countries are better equipped than others to offset the negative effects domestically and internationally. Internationally, MENA oil and gas producers will start to focus more on energy demand differences among world regions. MENA countries with lowest-cost and least-carbon-intensive production are better positioned to preserve their geopolitical influence. Moreover, export portfolio composition and diversification will crucially define whether a country will lead or lag behind in the energy transition. Oil and gas producers are also endowed with an abundant renewable potential, another possible route to future energy leadership.
Nevertheless, competition among producers will remain or even increase, potentially undermining coordinated efforts to stabilize oil prices. Due to the strong link between hydrocarbons and the nature of the state in the MENA region, the domestic sphere will be a key element in the geopolitical shifts. Population size, strong governance, and the financial ability to adapt to change will help some MENA oil and gas producers to preserve their geopolitical role, while managing domestic socio-economic transformation.
Even today and despite all that, oil, coal, and gas provide about a lot of our energy needs but we are gradually aware that:
Using fossil fuels has an enormous toll on humanity and the environment—from air and water pollution to global warming and certainly the COVID-19. That’s not taking the negative impacts of petroleum-based products such as plastics and chemicals.
And all agree that it’s time to move toward a clean energy future. In recent years, the divest movement from fossil fuels has grown to a multi-trillion dollar movement involving more than 350 institutions worldwide. And thanks to stricter policies to address the climate crisis, fossil fuels are gradually becoming yesterday’s energy source. Since 2016, renewable power is slowly replacing fossil fuels usage at all levels.
In the meantime, it looks as if the following is ongoing as per local media.
Around 400 million people could see their livelihoods affected as a result of lower revenues from declining fossil fuel sales
Oil-exporting countries stand to lose nearly $13 trillion in revenue by 2040 as global economies continue to decarbonise their power systems, according to a report by Carbon Tracker.
As countries around the world lower their carbon footprint and energy companies set net-zero emissions targets over the coming decades oil exporting economies will face an existential crisis.
Around 40 oil exporters surveyed by the UK-based think tank will require $9tn to bridge the gap in income shortfalls amid structural changes in energy consumption.
Around 400 million people could see their livelihoods affected as a result of lower revenues from declining fossil fuel sales. The most affected will be oil exporters based in Africa. Nigeria, the continent’s biggest producer, will be the hardest hit as a 70 per cent drop in oil revenues will slash government income by a third. Angola, a southern African country will also stand to lose over 40 per cent of government revenue, endangering the standard of living of nearly 33 million people.
“Government oil revenues will shift dramatically as the market shakes out during the energy transition,” said Andrew Grant, the head of climate, energy and industry and a co-author of the report.
The key to tackling the looming crisis for populations living in oil-exporting nations would be to understand the scale of the challenge.
“Cushioning the landing for hundreds of millions will deliver better outcomes for both climate and human development,” he added.
An orderly drawdown of fossil fuel production would prevent a hard landing for populations living in producer economies, while quick monetisation of resources and oversupply is likely to destroy value for crude, the report said.
Several Middle Eastern exporters such as the UAE and Saudi Arabia have already set in motion efforts to diversify their rentier economies. The UAE derives revenues from tourism and manufacturing and is looking to generate three quarters of its electricity from clean sources by 2050.
Abu Dhabi also has a substantial renewable energy industry, which has recently pivoted towards the production of hydrogen. The country’s leading industrial and financial players, including the national oil company, formed an alliance earlier this year to manufacture hydrogen.
Saudi Arabia, the world’s largest exporter of crude, is undertaking plans for a multibillion dollar, carbon-neutral city, as it plans to phase out fossil fuels from its utilities and become an exporter for hydrogen.
Mexico, Iran and Russia are vulnerable and could lose up to a fifth of their revenues.
Angola and Azerbaijan could see a hit to 40 per cent of government income from oil. However, Norway and Malaysia, which have diversified economies, are less exposed to energy transition risks and will face losses of up to 5 to 10 per cent of crude income.Published: February 11, 2021 06:34 PM
Originally posted on Gharamophone: In May 2020, I posted Sariza Cohen’s stunning recording of “أَشْكُوا الْغَـرَامَ”(Ashku al-gharam), released on Polydor in 1938. This is the other side of that record. It is no less remarkable. Here the pianist and vocalist from Oran performs a composition by Algerian Jewish impresario Edmond Nathan Yafil. The title of…
It’s a truism that Europe is unstable if its North African neighbours are unstable. That being so, it should be of some concern to EU leaders that, on the bloc’s south Mediterranean border, Tunisia’s 10-year-old democracy appears to be on life support.
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