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Oil Producers Close Ranks Against IEA

Copyright © 2021 Energy Intelligence Group

Producer nations are starting to push back against what they see as an anti-oil bias in the International Energy Agency's (IEA) recently published Net Zero by 2050 report (IOD May18'21). Several ministers from oil- and gas-producing countries slammed the report's pathway to net-zero greenhouse gas emissions during the St. Petersburg International Economic Forum on Thursday. Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman described the IEA report as "irresponsible" and "condescending," after likening it to a Hollywood fantasy earlier this week (IOD Jun.1'21). He said the fight against climate change "needs to be inclusive" and should take account of "the national circumstances of all parties engaged" -- an allusion to countries like his that depend heavily on oil and gas resources. Prince Abdulaziz had previously dismissed the report as a sequel to “La La Land” -- a musical that won six Oscars in 2017. "Why should I take it seriously?" he asked. Qatar's Saad al-Kaabi told the St. Petersburg forum that the "euphoria" around the energy transition has become "dangerous." "We need to be very careful that we don't deprive the oil and gas sector of investments which will harm the customers and more than 1 billion people that don't have electricity today,” he told the gathering in Russia's second-largest city. Divergence of Interests The IEA -- the energy watchdog for OECD nations across Europe, Asia and North America -- described its report as a road map for the world to limit global warming to 1.5°C and achieve net-zero emissions by midcentury. It set out a scenario involving a transformation of the global economy from one dominated by fossil fuels into one that would mostly be powered by renewable energy like solar and wind. At the same time, it projected that global oil production would fall to just 24 million barrels per day by 2050 from a pre-pandemic peak of around 100 million b/d. The report was prepared at the request of the UK government in preparation for UN climate talks in Glasgow in November. It reflects a growing gap between producer and consumer interests, as OECD nations push the low-carbon transition as a higher priority than security of oil supply. Glasgow could deepen that wedge by accelerating policy momentum. Who Will Foot the Bill? Russian Deputy Prime Minister Alexander Novak, who oversees energy policy in his country, suggested that a massive shift in investment away from fossil fuels could drive oil prices as high as $200 per barrel in the coming years. “Who will pay for it?” he asked. The Saudi minister told the St. Petersburg gathering that the massive ramp-up in energy investment described in the report was tantamount to adding 25% to the world's tax bill. Earlier in the week, Angolan Oil Minister Diamantino Pedro Azevedo said the IEA's net-zero scenario was a recipe for escalating tensions between the developed and developing world. An internal Opec memo previously said the report’s message "stands in stark contrast with conclusions often expressed in other IEA reports and could be the source of potential instability in oil markets if followed by some investors." It criticized the report as "overly ambitious," but acknowledged that it "will certainly influence investment decisions" (IOD May21'21). The IEA has traditionally encouraged oil investment to avoid a supply crunch, and some producer officials questioned its sudden change of message. "To change direction like this overnight, it is too much," said one. Change of Tone The tone of this week’s response stirred memories of the producer-consumer polemics of the 1970s and 1980s. A concerted policy push by consumers toward net-zero emissions would present producers with a serious problem. The IEA report sees Opec’s share of global oil supply rising to a record 52% from around 37% in recent years -- but this would amount to less than 12.5 million b/d of Opec supply, compared with roughly 26 million b/d today. The road map sees prices sliding to $35/bbl in 2030, $28 in 2040 and just $24 in 2050. At the same time as some producers are closing ranks, others are starting to review policies to sweeten investment terms and accelerate production of their reserves -- with some also pondering their future in Opec-plus. "Most likely, we are living in the last 30-40 years for the oil industry," one non-Opec source told Energy Intelligence. "So, it is important we do everything to maximize our production" (EC May28'21). Rafiq Latta, Nicosia, and Nadezhda Sladkova, St. Petersburg This article has been revised to correct the attribution of quotes made by the energy ministers of Saudi Arabia and Qatar.

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Fri, Nov 26, 2021