OIL PRICE
As much of the world accelerates its plans for
decarbonization, developing its renewable energy capacity to shift away from
fossil fuels, it is becoming apparent that many major oil players are unwilling
to follow this strategy to combat climate change. While countries such as the
UAE and Saudi Arabia have announced ambitious green energy plans, they are not
hiding the fact that they will continue to push their oil and gas agendas for
decades to come. A recent investigation has shown that Saudi Arabia has plans
to artificially raise global oil demand, creating a whole host of moral
questions about the future of global energy.
A recent U.K. investigation by the Centre for Climate Reporting
and Channel 4 News showed officials from Saudi Arabia’s Oil Sustainability
Programme (OSP) admitting that the Saudi government is planning to boost demand
in Africa and Asia for petrol, oil and diesel products, as part of a public
program by the Ministry of Energy. In a recording, an undercover reporter asks,
“My impression is that with issues of climate change, there’s a risk of
declining oil demand and so the OSP has kind of been set up to artificially
stimulate that demand in some key markets?” The Saudi official responds, “Yes.
It is one of the aspects that we are trying to do. It’s one of the main
objectives that we are trying to accomplish.” The official goes on to say that
the plan is supported by the Saudi ruler Crown Prince Mohammed bin Salman.
The plan includes a fleet of power station ships off the
coast of Africa, using heavy fuel to generate electricity. It also aims to
develop technologies to launch ‘supersonic’ commercial aviation, which would
require around three times more kerosine than conventional air travel. Saudi
Arabia also plans to increase the number of combustion engine vehicles in the
Asian and African markets to drive up fuel demand. Meanwhile, officials stated
that they aim to counter market incentives and subsidies for electric vehicles
at a global level, to maintain the international reliance on fossil fuels,
particularly in emerging markets such as Africa.
Saudi Arabia has hardly hidden the fact that it intends to
continue pumping crude for as long as possible, so long as the global demand is
there. In fact, Saudi Arabia is expected to boost its crude output by over 1
million bpd to more than 13 million bpd by the end of 2026 or the start of
2027, it announced in May. Prince Abdulaziz bin Salman said that Saudi Arabia
expects to maintain that level of production if demand permits. Saudi Arabia is
the second-largest oil-producing member state in the Organisation of the
Petroleum Exporting Countries (OPEC), which has a major role in determining
global crude production and pricing.
In September this year, OPEC responded to an International
Energy Agency forecast that suggested that the demand for fossil fuels would
peak before the end of the decade by saying the narrative was “extremely
risky,” “impractical” and “ideologically driven.” The secretary general of
OPEC, Haitham al-Ghais, explained “Cognisant of the challenge facing the world
to eliminate energy poverty, meet rising energy demand, and ensure affordable
energy while reducing emissions, OPEC does not dismiss any energy sources or
technologies, and believes that all stakeholders should do the same and
recognize short- and long-term energy realities.” This statement reinforced
OPEC’s stance on fossil fuels, suggesting that it believes a weakening global
demand for oil and gas is still a long way off.
Despite the clear ambitions of Saudi Arabia and OPEC to
maintain, or even increase, oil output – so long as the demand is there – the
recent phrasing of ‘artificially’ creating oil demand has drawn criticism. This
news came just days before the beginning of the COP28 climate summit, which is
being held in Dubai. There has been widespread criticism around the latest
summit, with worries that the aims for a green transition being promoted at COP
are at odds with the objectives of the UAE and other oil-producing Middle East
states.
This once again raises the question of the need for funding
for developing states to participate in a green transition. The head of the
World Bank, Ajay Banga, recently emphasized the need for rich countries and
companies to help developing countries leapfrog over fossil-fuelled economic
growth in favor of developing their renewable resources. Banga said that this
would be the only way to achieve net-zero carbon emissions by 2050, in line
with the Paris Agreement’s aims, to restrict global heating to below 2oC.
Recently, there has been greater optimism around the
funding of projects in developing countries to support a green transition. Last
week, Indonesia announced a $20 billion investment plan to develop its
renewable energy capacity with funding coming from global lenders. Shortly
after, Mozambique approved an energy transition strategy worth $80 billion,
appealing for funding from wealthy nations. Mozambique is home to one of the
largest untapped coal reserves in the world, as well as lots of offshore
natural gas, which could remain largely untapped if it is successful at
financing its renewable energy sector to support economic growth. Financing
schemes such as these could help counter the ambitions of oil-rich countries
and major fossil fuel companies to maintain the global demand for fossil fuels
by supporting economic growth through the development of renewable resources
worldwide.