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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%.
Oil money
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."
Issues unsolved
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.
Posted 22 October 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability