The Big Picture

Same World, Different Planets

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  • Consumers and producers are drawing radically different lessons from today’s energy crisis.
  • These clashing energy narratives are roiling coherent energy transition policymaking as delegates head to next week’s COP27 climate talks in Egypt.
  • Differences over Russia appear to have melted into producer-consumer debates on the energy transition and market management — further negatively impacting relations.

Producers and consumers might as well be on different planets when it comes to identifying causes of the energy crisis, how to best address it, and the longer-term impact on energy demand. Both sides are doubling down on old arguments. For OECD energy watchdog the International Energy Agency (IEA), the crisis is accelerating the clean energy transition. Global oil demand in all three scenarios in the IEA’s latest World Energy Outlook (WEO) published last week is down compared to last year’s edition of the WEO. By contrast, 2045 oil demand in Opec’s Reference Case scenario in its World Oil Outlook (WOO), published this week, was 109.8 million barrels per day, up 1.6 million b/d on WOO 2021.


For Opec, this is a crisis born of bad policy and wilful myopia over the consequences of fast-tracking the transition. Surging overall demand for energy, and to a lesser extent the need to move away from coal, means oil demand will continue to rise to 2045. And this requires massive investment — some $12.1 trillion through 2045 into oil and gas, Opec insists.

Investment is absolutely critical, Mideast producers say. “If we zero out hydrocarbon investment, due to natural decline we would lose 5 million b/d of oil each year from current supplies," warned Sultan al-Jaber, CEO of state-owned Abu Dhabi National Oil Co. and United Arab Emirates minister of industry. "This would make the shocks we have experienced this year feel like a minor tremor," he told attendees at this year’s Adipec conference in Abu Dhabi.

Since the publication of its Net Zero by 2050 report last year, the IEA has become a lightning rod for producer frustration for what Saudi Energy Minister Abdulaziz bin Salman famously slammed as “La La Land” energy policies. These policies, producers claim, have contributed to current high prices.

Recent producer-consumer differences over Opec-plus supply policy have exacerbated the ideological divide over the energy transition. The IEA invested considerable energy rebutting these producer arguments in the WEO. Russia’s invasion of Ukraine is primarily to blame for the current crisis, the IEA argues. The WEO’s first two chapters are essentially devoted to countering narratives that the transition to clean energy is in any way at fault. Regions with a high level of renewables adoption are enjoying on average lower energy prices currently, it notes.

‘Historic’ Inflection Point

“The economic arguments in favor of cost-competitive and affordable clean technologies are now stronger — and so too is the energy security case,” the WEO argues. “This alignment of economic, climate and security priorities has already started to move the dial.” Government responses to the crisis, including the US’ $370 billion Inflation Reduction Act and Europe's REPowerEU initiative to wean itself off Russian fossil fuels, meant this was “a turning point in the history of energy,” IEA chief Fatih Birol told reporters at the WEO launch.

For the first time, demand for all fossil fuels in the IEA’s no-change Stated Policies scenario peaks, declining from the mid-2020s. The 24 million b/d oil demand figure in the 2050 Net-Zero scenario that so infuriated producers last year is now 22.8 million b/d. And the WEO is relatively kind to oil compared to its outlooks for both Russia and gas.

The unprecedented Ukraine-induced price shocks of the last year have "damaged confidence in [gas’] reliability and put a major dent in the idea of it serving as a transition fuel,” the report concluded. In its Stated Policies scenario, 2050 natural gas demand is 750 billion cubic meters lower than in WEO 2021. And Russia’s invasion of Ukraine was a massive act of self-harm, severing both physical trade and trust with its main trading partner, the EU, the IEA argues. “Russian fossil fuel exports never return — in any of our scenarios — to the levels seen in 2021, and its share of internationally traded oil and gas falls by half by 2030” in the Stated Policies scenario.


Much depends on Opec-plus’ decision at its December meeting, but it could be that last month saw producer-consumer relations hit a low. At Adipec, US Energy Envoy Amos Hochstein advocated for more investment in oil and gas. Also in Abu Dhabi, the US and the UAE signed an agreement to spend $100 billion to create some 100 gigawatts of new renewables capacity globally, although the deal was long in the works.

In the wake of the Opec-plus' recent 2 million b/d cut decision, Washington warned of “consequences.” Its options are limited. Today, the last thing the US needs is more enemies. And its Mideast Gulf relationships are both economically and strategically beneficial. On Riyadh's part, the resurgence of Saudi-Iranian tensions could underscore the US' critical security role. In the last few days, Riyadh has shared intelligence with the US pointing to an imminent Iranian attack on Saudi soil.

A massive turnaround in relations — or on supply policy — isn't expected. The US' top officials at Adipec, Hochstein and Brett McGurk, deputy assistant to the president, left the conference without getting any answers on what Opec-plus will do in December, Energy Intelligence understands. But an improvement in atmospherics is possible.

One area where producers and the IEA have been on the same page is the need to secure concrete pledges to help finance transition adaptation for developing countries. But with recession looming it is hard to see the OECD widening the funding taps. This is set to remain a sore point in North-South relations.

The IEA sees it as half as expensive to cut emissions in the developing world relative to the developed world. But the primary impact of the Ukraine crisis has been to drive home to OECD consumers the vital importance of energy security, and as such they are likely to push for investment at home. An exception to the OECD's inward gaze could well be North Africa and the East Mediterranean, which is emerging as a focus for EU climate diplomacy. In addition to having strong renewables potential, Europe needs to secure a modicum of prosperity in the region for reasons of migration.

These energy security concerns are also a major new structural policy driver. Already, the IEA has upgraded its estimates for 2022 renewables capacity growth — from 340 GW of new capacity just published in its September renewables report to 400 GW. Producers ignore it at their peril.

Opec/Opec-Plus, Low-Carbon Policy, Renewable Electricity , CO2 Emissions, Macroeconomics , Policy and Regulation
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