Opinion by Haitham Al Ghais, OPEC’s Secretary-General, writes exclusively for Reuters
The Organization of the Petroleum Exporting Countries(OPEC) is on the front line of this policy dispute. Its decision last month to cut supply drew a huge backlash from the White House, which considered the decision to be political.
Yet, since then, the US government has itself announced a plan to buy oil to replenish its emergency stockpile at a price designed to give producers “confidence to invest” (the same producer’s President Joe Biden recently threatened with more tax unless they upped supply). This is almost identical to the reason Opec offered for its decision to cut output.- Reuters
Over the past years and in the run-up to COP27, the discourse around energy, climate, and sustainable development has become increasingly emotive and more forceful. This is warranted, given the energy crisis in Europe, the pressing need to reduce global emissions, and the scourge of energy poverty that has been worsened by the pandemic. The challenges before us are enormous.
But the discourse needs to be inclusive, welcoming all voices to the table. We cannot return to a world that is limited by the question: are you for or against fossil fuels? It cannot be just one or the other. This limits the options available to help the world meet the interwoven challenges of energy affordability and security that have emerged starkly in the past year, while also reducing greenhouse gas emissions.
Expanding populations and growing economies mean the world will need more energy — we calculate 23 per cent more energy by 2045. Meeting this extra demand, while also lowering global emissions in line with the Paris agreement, calls for a broad energy mix and unprecedented collaboration.
Investment will be key to providing the energy needed. For example, we calculate that the oil industry alone must spend more than $12tn between now and 2045, or more than $500bn per year. But spending on energy has been down in recent years: a legacy of industry downturns, the pandemic, and markets’ growing focus on environmental, social, and governance issues. The shortfall now threatens the very sustainability of the global energy system.
This is a problem all stakeholders must work together to address, creating a long-term investment-friendly climate that makes sufficient finance available. It must be an investment environment that works for both producers and consumers, developed and developing countries.
We have heard calls for oil and gas producing countries to ensure stable and sustainable global energy supplies. But we have also heard industrialised countries pledge to end financing in fossil fuel projects.
These mixed messages will do little to spur the investment needed in an oil industry that is characterised by high upfront costs that might pay off only over decades. We need clear signals of oil’s continuing importance to the world’s long-term energy future.
The chronic under-investment we have seen in the oil industry has resulted in shrinking spare capacity, constraints on production, and reduced refinery output — all at a time when demand for crude and oil products continues to rise.
Bear in mind, too, that global oil production declines at an average rate of about 5 per cent a year. In today’s 100mn barrels-a-day market, that’s 5mn more barrels a day that must be produced just to hold output steady each year. It requires huge investment — and that’s before we think about how much more oil the world might need next year, and beyond.
We need a holistic view of this investment challenge, one that accepts all forms of energy to enable an orderly, inclusive and just energy transition. If the world does not get it right, it could sow the seeds of future energy crises.
Opec members are ready, willing and able to play a central role.
We are investing in long-term oil capacity, in both the upstream and downstream. We are mobilising cleaner technologies and our expertise to help the industry reduce its carbon footprint as we make major investments in everything from renewables to new hydrogen capacity.
History shows that energy transitions can take many decades and follow different paths. Furthermore, the developed and developing world have vastly different capabilities, economic drivers, and above all needs — such as the 700mn people who lack access to electricity and the 2.4bn still using inefficient and polluting systems.
Today’s market turmoil shows what happens when we ignore the complexity of our global energy system and seek solutions that are too narrow. We need to work with each other, not against each other. The investment the world needs must focus on an “all-peoples, all-fuels and all-technologies” approach. This will be vital in finding a sustainable future that leaves no one behind.