CERAWeek India: Oil producers want COP26 to keep fossil fuels in decarbonization roadmap
Major oil producers want the delegates at the 26th UN Climate Change Conference in Glasgow (COP26) next month to keep fossil fuels as part of the world's pathway to a low-carbon future.
During the India Energy Forum by CERAWeek, OPEC Secretary General Mohammad Sanusi Barkindo sought to highlight the importance of hydrocarbon resources amid the ongoing energy crisis.
"This [low-carbon] transition has to be inclusive. It has to be fair. It has to be comprehensive," Barkindo said in a panel discussion.
"It is not a transition from fossil fuels to any sources of energy. It is about reducing greenhouse gas emissions in order to help us meet our climate goals," he said.
International oil, natural gas, and coal prices hit record or multi-year highs in recent weeks, leading to spikes in electricity prices and power shortages in some major economies, including China and India.
"We have been witnessing a [market] turmoil…literally all across the world," Barkindo said. It hasn't just been China and India where the turmoil has been seen, Europe too has experienced extreme price volatility.
The price spikes mainly resulted from supply issues and demand recovering in the aftermath of the COVID-19 pandemic, while low-carbon energy transition policies were partly responsible, according to analysts.
With many countries struggling to secure fossil fuels for power generation and failing to obtain sufficient electricity from renewable sources, the recent crisis has put a renewed focus on energy security and affordability.
"For us in OPEC, climate change can only be comprehensively addressed if it's looked at from the prism of energy poverty," Barkindo said.
"Energy poverty and climate change for us are two sides [of a coin]. We cannot afford to do away with one and focus only on one," he added.
OPEC attends UN climate talks as an observer. However, with all agreements under the United Nations Framework Convention on Climate Change requiring consensus, the Vienna-based organization's 13 member states—which hold more than three-quarters of global oil reserves—effectively have veto power at COP26.
Also, Barkindo called on developed countries to focus on technology transfers to and financial support for developing countries to help mitigate the negative impact of climate change.
"We would like to see the key issues…back to the front burner in Glasgow," he said. "In OPEC, we strongly believe that there is potential for great success, but only if the leading industrial powers take their responsibilities."
OPEC officially supports the Paris Agreement's ambition in keeping the global temperature rise to below 1.5 degrees Celsius. "The Paris rule book and the implementation program…needs to be finalized in Glasgow," Barkindo said.
While an increasing number of countries have committed to carbon neutrality by 2050, Barkindo said defining the energy transition "as a transition from fossil fuels to renewables within the time frame [of 2050] is simply unrealistic."
The cartel has advocated zero flaring, energy efficiency improvements, and carbon capture, utilization, and storage (CCUS) as decarbonization measures. But it has never provided any detailed pathways to GHG emissions reduction.
OPEC forecast in its World Oil Outlook that oil will account for a 28.1% primary energy share in 2045, slightly down from 30% in 2020. Coal's share will fall to 17.4% from 26.5%, while gas' will rise to 24.4% from 23.3%.
CO2 emissions will continue to rise over the next 25 years in the scenario, according to OPEC. Some scientists believe GHG emissions need to peak by 2030 to avert climate disaster. China's goal on its path to carbon neutrality by 2060 is for its CO2 emissions to peak by 2030.
For the world to achieve net-zero GHG emissions by mid-century, the International Energy Agency said oil's share of energy supply needs to fall to 8% in 2050 from 29% in 2020. When CCUS is not taken into account, coal's share will have to drop to 1% from 26% and gas' from 24% to 3%.
With the increasing public awareness of climate change, many fund managers—including Aviva Investors and Fidelity International—are asking banks to cease fossil fuel financing activity.
The trend has contributed to insufficient investments in upstream oil and gas projects, which could result in worsening energy shortages later this decade, Barkindo suggested.
"We would like to see this [issue] on the global agenda, particularly in Glasgow," he added.
The International Energy Agency (IEA) expects upstream spending to recover from $326 billion in 2020 to $351 billion this year. This is still far below the 2015 level of $461 billion.
Meanwhile, investment in low-carbon fuels is expected to amount to just $14 billion in 2021.
"Today's investment spending on fuels appears caught between two worlds: neither strong enough to satisfy current fossil fuel consumption trends nor diversified enough to meet tomorrow's clean energy goals," the IEA said in its World Energy Investment 2021.
Among the OPEC members, the United Arab Emirates is the only one that has committed to a net-zero emissions target by 2050.
Saudi Arabia, the largest OPEC producer, has set a target to power half the country with renewable sources by 2030 without making much progress. Non-profit Climate Action Tracker said the country's overall climate policy is "critically insufficient."
In a ministerial address during the CERAWeek forum, Saudi Minister of Energy Prince Abdulaziz bin Salman stressed that energy security should not be compromised by the low-carbon transition.
"I sincerely believe that we should not compromise one for the other," Prince Abdulaziz said. "The whole world still requires fossil fuels."
"When you lose sight of energy security, that priority will kick in seriously, and it would make you compromise all of these other [climate] aspirations simply because the issue of energy security becomes more dominant," he added.
National oil company Saudi Aramco said it would seek to reduce emissions through limiting flaring and improving energy efficiency, as well as capturing, reusing and recycling carbon in its operations.
The major has signed up for the Oil & Gas Climate Initiative, whose members commit to reducing their carbon intensity in upstream operations from 23 kg of CO2-equivalent per barrel of oil in 2017 to 17 kg/CO2e by 2025.
Aramco also has a target of achieving net-zero operational GHG emissions "within the timeframe set by the Paris Agreement," but did not specify an exact date.
"We still have lots of hydrocarbons and fossil fuels, and we need to monetize them," Prince Abdulaziz said. "But we need to monetize them in a way that does not impact the environment."
Jeffrey Currie, global investment research head of commodities at Goldman Sachs, said the recent hikes in fossil fuel prices reflected unsolved issues in the energy transition.
With investments being diverted to other sectors such as technology, Currie said oil projects have faced an underinvestment in recent years.
"Call this the revenge of the old economy," he told a CERAWeek panel. "You choked off the capital needed to build the supply base across the commodity complex."
Currie also cited aluminum as an example of the "climate change paradox." Aluminum is a key material in solar panels and wind turbines, but its production is energy intensive.
"These are questions that we're going to have to grapple with, as we think about how we're going to do this more efficiently," he said.
China, the world's largest importer of commodities, unveiled a series of decarbonization measures in recent quarters and has its 2030 peak CO2 emissions goal.
"I know this is a noble goal, and I think it should absolutely be pursued. But the key point is to recognize this is going to create a lot of frictions across the commodity complex," said Currie, referring to the recent market turmoil.
In principle, high prices for fossil fuels could make green energy more competitive. But the path of the energy transition is uneven, as demonstrated by the forces that more than doubled global gas prices this year, said Tarun Kapoor, secretary of India's Ministry of Petroleum and Natural Gas.
"[We] plan to move into renewables and biofuels in a big way, but that will take time. So, in the intermediate period, our plan is to get more and more…gas," Kapoor told the conference.
"Now this very high gas price has given us this message that probably we can't rely on natural gas," he added.
Indian utilities shifted back to coal in recent months as they could secure domestic supplies. Renewable energy can't be installed quickly enough to solve the immediate crisis, according to Kapoor.
"We may move much faster into renewables…But in the short run, it's very difficult," he said.
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