At the virtual “Climate Ambition Summit” co-hosted by the UN and UK and attended by over 70 world leaders on December 12th, Secretary-General António Guterres issued a stark warning: the world is facing a catastrophe ahead as it is on track to warm by more than 30 C by the end of the century “unless all countries declare climate emergency”. He expressed disappointment at the summit that the G-20 countries are “spending 50% more in their stimulus and rescue packages on sectors linked to fossil fuel production and consumption than on low carbon energy…This is unacceptable”.
The Secretary-General asked earnestly “Can anybody still deny we are facing a dramatic emergency”? The question poses the vast gulf between the policy positions of key Western governments and the oil and gas producers in the Middle East. For the Middle East hydrocarbon producers hit by the ‘double whammy’ of sharply reduced oil and gas price – the mainstay of government revenues — and the impact of Covid-19 lockdowns on domestic economic activity, the strategy for national survival is clear and could not be more opposed to the UN Secretary-General’s: sharply increasing the pace of monetizing the oil and gas reserves that their countries are blessed with.
Middle East To Supply More Oil And Gas
Within two weeks of the UN summit, Saudi Arabia’s energy minister announced on December 27th the discovery of four new oil and gas fields, including unconventional resources. The discoveries will boost the country’s plans to increase its maximum sustained crude production capacity from the current 12 million b/d to 13 million b/d as well as developing its gas resources to free up more oil for export instead of burning it for power generation.
CEO Sultan Al Jaber of the ADNOC, one of the leading national oil companies in the Gulf region, said that the Abu Dhabi company is “leaving no stone unturned in unblocking value from our abundant hydrocarbon resources”. In late 2019, Abu Dhabi’s government approved $122 billion investment schedule for the next 5 years to raise its oil and gas production capacity. With massive newly discovered reserves and the go-ahead to award major oil and gas exploration blocks, the country looks forward to increasing its oil production capacity to 5 million barrels/day (b/d) from its current 4 million b/d.
While The West Seeks To Do Without
In contrast, the climate summit was an occasion for Prime Minister Boris Johnson to show leadership on climate policy in a warm-up act for next year’s global climate conference to be held in Glasgow and hosted by the UK. Calling for a radical end to dependence on fossil fuels, the UK has previously announced a ban on new diesel and petrol cars by 2035 and a cut in carbon emissions by a steep 68% of 1990 levels by 2030. At the climate summit, Prime Minister Johnson pledged to end the financing of oil and gas projects overseas “as soon as possible”. He also repeated his call for the UK to become “the Saudi Arabia of the wind power generation”, putting the nation’s “foot to the accelerator in a carbon friendly way”.
Policy makers of a number of Western countries that have announced ambitious zero-emission reduction goals by 2050 have focused on converting the coronavirus pandemic crisis into an “opportunity” for a Green Industrial Revolution (Boris Johnson) and the Great Reset of global business (Klaus Schwab, founder of the World Economic forum). And we are promised that a Biden presidency around the corner will sign on to the ‘net-zero by 2050’ pledge from day one of its taking office.
While policy elites in the West warn about the “impending” cataclysmic outcome of not reducing emissions, those of the rest of the world have been beset by the need to make tough choices in restoring growth and employment for their citizens hit by recessions amid a global pandemic. Hydrocarbons constitute almost 85% of global energy consumption, while renewable energy technologies such as wind, solar, modern biofuels and batteries are barely able to provide 5%. Can these renewable energy technologies provide the world with the energy that it needs in the foreseeable future?
But That Oil and Gas Is Needed
Despite the unprecedented demand collapse caused by the coronavirus pandemic since March and despite the endless stream of stories about robust growth of renewable energy, the world faces a long term supply gap for oil and gas. According to energy consultancy Wood Mackenzie, only about half the supply needed to 2040 is available from producing fields, “the rest requires new capital investment”.
Given the recent collapse in upstream oil and gas investments, the International Energy Forum in a recent report pointed out that if upstream investments in oil and gas exploration and production do not increase by 25% annually over the next 3 years, we face a supply shock of “historic proportions”. According to IEF’s Secretary-General, “Slashing investment in new production locks in lower total supply…it won’t be long before this lower supply collides with resurgent demand. The result will be higher and more volatile oil prices and headwinds for the post-pandemic global economic recovery.”
Access to fossil fuels, available at scale, is the only known route to economic development. Since the Industrial Revolution in the 18th and 19th centuries, no country on earth has developed without the use of readily accessible hydrocarbons. The UK may well become the “Saudi Arabia of wind energy” (though there are plenty of doubters), but what the developing world, accounting for over three quarters of the world’s population, needs is for the real Saudi Arabia, along with other oil and gas producers, to be willing and able to supply fossil fuels as needed for human flourishing.