Oil prices hit three-year highs after Opec-plus ministers opted not to accelerate planned supply additions.The group increasingly views the OECD-led energy transition pathway as an existential threat. As a result, producer-consumer dialogue has gotten a lot spicier ahead of critical climate talks in Glasgow. Save for later Print Download Share LinkedIn Twitter It was steady as she goes this week, with Opec-plus needing just 25 minutes to decide to stick with its agreed monthly 400,000 barrel per day supply hike. A more ambitious proposal doubling this amount for November was rejected — and this was despite discussions on prices ahead of the meeting between Saudi officials and visiting US National Security Adviser Jake Sullivan and his team. Talks on the issue are ongoing, sources say.From a market management perspective, there is much to commend the decision. True, prices are steamy, but Monday’s “no policy change” decision is not a “do-nothing” move — 400,000 b/d increments are set to arrive every month between now and next September.Despite an upward revision to its 2022 demand growth projection, Opec-plus still sees a 1.7 million b/d demand drop in the first quarter of next year in its base-case scenario. That means if supply was loosened more aggressively than planned, the producer group might have to pull back output tightly. And this is if Opec-plus’ relatively rosy oil demand trajectory materializes: Its 4.2 million b/d 2022 demand growth projection is well above consensus, with Energy Intelligence estimating 2022 demand growth at 3.1 million b/d. Under Opec-plus' low-demand scenario, OECD inventories swell back to a surplus to their 2015-19 average as soon as February, compared to October in the base case.Record RestraintAs Opec-plus supply rises, capacity issues are coming increasingly into focus. Market consensus when Opec-plus announced its 9.7 million b/d megacut last April was that there was no way members would comply. Now it appears the group output discipline has actually been too good, with Opec-plus seeing unprecedented compliance rates of over 110% for six out of the last seven months to August. Clearly, several key countries, including Nigeria, Angola and Malaysia, cannot produce their quotas. And this pressure on capacity is only going to get worse as output ceilings rise with the planned staggered return of supply. These under-producers are unlikely to accept any restructuring of quotas that penalizes them. But sooner or later there will have to be change. As yet, producers do not seem unduly concerned about high prices. Certainly, the Riyadh-Washington relationship appears cooler than under the previous administration. But rising producer anger over climate policy difference could also be fueling this apparent producer indifference to rising prices.Same Conference, Different PlanetProducers are adamant that climate change pressure to lower investment in oil and gas has been counterproductive. This anti-oil bias is both “irrational” and the resulting gas price surge should be a “wake-up call” for the whole world as to the dangers of a fast-track energy transition, Opec Secretary-General Mohammed Barkindo told this week’s Energy Intelligence Forum. There has been a spillover from current white-hot gas prices, with oil demand up by some 500,000 b/d in Asia alone as consumers switch, Saudi Aramco CEO Amin Nasser also told the Forum. “The worst is still to come if we continue with these policies,” he warned. An accelerated transition away from oil and gas, as advocated by OECD consumers, “does not help this orderly transition. The lack of investment will have more impact on prices,” Nasser argued. Among producers, the United Arab Emirates stands out with its new net zero by 2050 target.The consumer response? The current gas price crisis “has almost nothing to do with the clean energy transition. The drivers are completely different,” Fatih Birol, executive director of the International Energy Agency, said. He attributed it to a “perfect storm” of severe weather, exceptional forced maintenances and an unprecedented demand rebound. Certainly, these factors have been critical. But it is hard, too, to refute the argument that more redundancies in the supply system, which could have only been created by more investment, would also have tempered the current price surge.Producers are just going to have to accept the energy transition means that demand for unabated oil and gas is going to go down, and this structural decline “is coming,” Birol argued. “I just had a meeting with the 20 top car manufacturers of the world and 18 of them ... said electric cars will be the top priority for them between now and 2030. And some of them said as of 2030, they are not going to manufacture anything but electric vehicles.”In contrast to the energy crisis of the 1970s, this time it is producers who are the supplicants. But their arguments are falling on deaf ears. Rather than slow the transition, consumers need to work on demand-side measures to stifle oil and gas consumption, Birol said. And on Wednesday, the EU announced it would study a restructuring of the European power market designed to avoid a repeat of current prices. "The quicker we move towards renewable energy, the quicker we can protect our citizens against high prices,” EU climate policy chief Frans Timmermans said. Echoing the EU, US Secretary of State Antony Blinken told Bloomberg high prices "reinforce the need for a transition to new forms of energy."Roller-Coaster RideOne point of emerging producer-consumer consensus is that the energy transition will not be smooth. “It will not be a rose garden ... We will see a lot of changes in the market's volatility,” Birol told the Forum.However, there is no doubt the acceleration of the energy transition is speeding up structural changes in producer oil and gas industries. Saudi Aramco is now targeting peak output at its giant 2 billion cubic foot per day Jafurah unconventional gas initiative in 2030, six years earlier than expected. And even Iraq, historically among the least climate-conscious producers, is finally waking up to the need to reform. Last month it signed a major deal with Total involving solar and gas capture. This week it signed for 1 gigawatts of solar capacity with the UAE's Masdar, and other deals are in the pipeline. Foreign investors also sense a sea-change and the prospect of better terms if they can accelerate development while cutting emissions.