Whereas the US and Europe press forward with local weather coverage, Center East and Russia oil producers are benefiting – Watts Up With That?
Reposted by the South China Morning Post
The View by Tilak K. Doshi
- In the long term, the US and EU green policies to reduce fossil fuel investments will increase the market share of oil and gas producers from the Middle East and Russia
- Global demand for fossil fuels shows no signs of slowing as developing countries seek rapid growth to meet the needs of their citizens
In mid-May, the International Energy Agency – the rich world’s preeminent energy advisor – released a bombshell report that immediately halted all new investments in the global oil and gas sector so that the world can achieve net-zero carbon emissions by 2050.
A few days later, the group of 7 confirmed their support for the net-zero target, “by 2050 at the latest”. But less than a month later, the IEA stunned OPEC + countries to step up oil production to avoid an upside shock as Brent crude prices – the international benchmark – hit a three-year high.
The resumption of economic growth around the world as countries relax pandemic restrictions on business and travel is fueling global energy demand.
Global oil demand is now back at around 95 percent of its pre-Covid-19 high of just over 100 million barrels per day in 2019 and is expected to be higher in 2022. Oil has traded at over $ 70 a barrel in recent weeks.
Falling inventories and the improved demand outlook have led market observers to believe that an oil price of $ 100 a barrel is quite possible by the end of the year.
Middle Eastern oil exporters will benefit from higher prices over the next two years, especially as the US Biden government has adopted a “state-wide” approach to disrupt domestic oil and gas production and combat climate change.
In the long term, the green policies promoted by the US and Europe to reduce fossil fuel investments will increase the market share of oil and gas producers from the Middle East and Russia such as Saudi Aramco, Abu Dhabi National Oil Company (ADNOC) and Rosneft.
Given the combined pressure from government and shareholders on international oil companies – including Exxon, Chevron and BP – to reduce greenhouse gas emissions, the national oil companies of the Middle East and Russia will be happy to step in to fill the supply gap.
The international corporations, whose management must now apologize for their core business, seem on the path of extinction. Shell recently lost a lawsuit in Holland in which a court ruled it fell within its jurisdiction to determine the company must cut emissions by 45 percent from 2019 levels by 2030.
Last month, both Exxon and Chevron lost key shareholder votes as pressure grew on them to cut emissions.
The national oil companies of the oil production cartel OPEC + are not exposed to this pressure. Their state owners require them to maximize the value of their assets in the national interest.
As international oil companies shrink, national producers will welcome the opportunity to increase their world market share. Fossil fuel demand shows no signs of slowing and will continue to grow for decades as developing countries seek rapid growth to meet the desires of their citizens.
This view was perhaps best expressed by India’s Minister of Power, Raj Kumar Singh. He described the “net zero” mantra spread by the developed world as a “cake in the sky” and unfair too.
He pointed out that in the developing world there are “800 million people who do not have access to electricity.
“You can’t say that they have to go to zero, they have the right to development, they want to build skyscrapers and have a higher standard of living, you can’t stop that.”
Despite the hype about renewable energy and electric vehicles, it is very likely that energy policy in large developing countries such as China, India, Brazil, South Africa and Indonesia will not be driven by the preferences of the climate commissioners in Washington, London and Paris.
Oil pump on the California prairie.
In the US, the Biden government has taken an “all-of-government” approach to hinder domestic oil and gas production and combat climate change.
In mid-May, the International Energy Agency – the rich world’s preeminent energy advisor – released a bombshell report that immediately halted all new investments in the global oil and gas sector so that the world can achieve net-zero carbon emissions by 2050.
A few days later, the group of 7 confirmed their support for the net-zero target, “by 2050 at the latest”. But less than a month later, the IEA stunned OPEC + countries to step up oil production to avoid an upside shock as Brent crude oil prices – the international benchmark – hit a three-year high.
The resumption of economic growth around the world as countries relax pandemic restrictions on business and travel is fueling global energy demand.
Global oil demand is now back at around 95 percent of its pre-Covid-19 high of just over 100 million barrels per day in 2019 and is expected to be higher in 2022. Oil has traded at over $ 70 a barrel in recent weeks.
Falling inventories and the improved demand outlook have led market observers to believe that an oil price of $ 100 a barrel is quite possible by the end of the year.
Middle Eastern oil exporters will benefit from higher prices over the next two years, especially as the US Biden government has taken a “state-wide” approach to hampering domestic oil and gas production and tackling climate change. /www.youtube.com/embed/WhB9b7MZQ0E
In the long term, the green policies promoted by the US and Europe to reduce fossil fuel investments will increase the market share of oil and gas producers from the Middle East and Russia such as Saudi Aramco, Abu Dhabi National Oil Company (ADNOC) and Rosneft.
Given the combined pressure from government and shareholders on international oil companies – including Exxon, Chevron and BP – to reduce greenhouse gas emissions, the national oil companies of the Middle East and Russia will be happy to step in to fill the supply gap.
The international corporations, whose management must now apologize for their core business, seem on the path of extinction. Shell recently lost a lawsuit in Holland in which a court ruled it fell within its jurisdiction to determine the company must cut emissions by 45 percent from 2019 levels by 2030.
Last month, both Exxon and Chevron lost key shareholder votes as pressure grew on them to cut emissions.
The national oil companies of the oil production cartel OPEC + are not exposed to this pressure. Their state owners require them to maximize the value of their assets in the national interest.
As international oil companies shrink, national producers will welcome the opportunity to increase their world market share. Fossil fuel demand shows no signs of slowing and will continue to grow for decades as developing countries seek rapid growth to meet the desires of their citizens.
This view was perhaps best expressed by India’s Minister of Power, Raj Kumar Singh. He described the “net zero” mantra spread by the developed world as a “cake in the sky” and unfair too.
He pointed out that in the developing world there are “800 million people who do not have access to electricity.
“You can’t say that they have to go to zero, they have the right to development, they want to build skyscrapers and have a higher standard of living, you can’t stop that.”
Despite the hype about renewable energy and electric vehicles, it is very likely that energy policy in large developing countries such as China, India, Brazil, South Africa and Indonesia will not be driven by the preferences of the climate commissioners in Washington, London and Paris.
Opec + producers are aware of the need for fossil fuels outside the developed west.
Both Saudi Aramco and ADNOC plan to significantly increase their manufacturing capacities, while Qatar has pledged to spend billions of dollars on expanding liquefied natural gas by 50 percent.
Russian company Rosneft has started investing in an arctic oil mega-project that will cost $ 170 billion in a decade, employ 400,000 workers, build 15 new industrial cities and build 800 km of new pipeline.
Russia also wants to massively increase its coal production, modernize its railways and double its coal exports over the next 15 years.
There has been a lot of discussion recently about the energy transition in the Middle East. It is clear that oil and gas, as well as energy-intensive sectors such as aluminum and petrochemicals, remain highly profitable in the region. They are likely to remain so for decades to come.
An early exit from the oil and gas industry and its derivatives will deprive governments of export revenues and is unrealistic.
As far as customers in the West demand “moral” energy resources such as green hydrogen, the national oil companies in the Middle East and Russia can always comply, provided the prices they offer are worthwhile.
The producers in the Middle East must hope that the rich member countries of the IEA will continue their net-zero course and thus bring the international oil companies out of business.
The rest of the world is growing fast enough to keep oil producers in the Middle East, Russia, Africa and elsewhere in the money for at least the next few decades.
Dr. Tilak K. Doshi is visiting scholar at the Middle East Institute of the National University of Singapore. This article reflects the views of the author only
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