OPEC warned the International Energy Agency (IEA) last week that it should be “very careful” about discouraging oil investments. This comes following reports the previous month about the severe underinvestment in oil and gas, as demand for fossil fuels remains high. While organizations such as the IEA and IRENA are calling on companies to shift their funding away from oil and gas to renewable alternatives, to accelerate the green transition, many energy experts are concerned about the lack of funding for fossil fuels, which will still be needed to bridge the gap to green energy security.
Last week, the IEA’s Executive Director Fatih Birol said that OPEC+ should be “very careful” about raising oil prices, saying this would provide an “additional boost” to the global energy transition away from fossil fuels. He also suggested that OPEC’s short-term and medium-term interests seemed to be contradictory and that increased oil prices could put greater pressure on the already weak global economy, hitting developing states particularly hard.
Late last week, OPEC Secretary General Haitham al-Ghais addressed the criticism from the IEA, stating that finger-pointing and misrepresenting the actions of OPEC and OPEC+ was “counterproductive.” He added that OPEC+ was not targeting oil prices but was, instead, focusing on market fundamentals. Al-Ghais explained “The IEA knows very well that there is a confluence of factors that impact markets. The knock-on effects of COVID-19, monetary policies, stock movements, algorithm trading, commodity trading advisors and SPR releases (coordinated or uncoordinated), geopolitics, to name a few,” and blaming oil for higher inflation was “erroneous and technically incorrect as there are many other factors causing inflation.”
In early April, OPEC announced surprise oil cuts, which threatened the already weak energy security of many countries worldwide. The group said it planned to restrict crude production to 1.16 million bpd until the end of the year. The decision was quickly criticized by the White House, with a spokesperson telling media sources that “We don’t think cuts are advisable at this moment, given market uncertainty — and we’ve made that clear.” This follows a trend over the last year of President Biden condemning OPEC for restricting the oil supply and making several cuts at a time when the world is trying to transition away from Russian gas and strengthen its energy security.
Al-Ghais threatened the IEA, stating “If anything will lead to future volatility it is the IEA’s repeated calls to stop investing in oil, knowing that all data-driven outlooks envisage the need for more of this precious commodity to fuel global economic growth and prosperity in the decades to come, especially in the developing world.”
This statement follows warnings in March about the severe underinvestment in oil and gas being seen at present. The CEO of Saudi Arabia’s oil giant Saudi Aramco, Amin Nasser, told media sources that “A persistent underinvestment in oil upstream and even downstream is still there. The latest report from the IEA talks about a demand of 101.7 million barrels — going from 100 million barrels in 2022 to almost 2 million barrels more with China opening up and the aviation industry,” which has not yet returned to pre-Covid levels. Nasser added, “with China opening up and the lack of investment, there is definitely a concern in the mid-to-long term in terms of making sure there are adequate supplies in the market.”
Although the demand for oil and gas is still strong, as much of the world’s renewable energy capacity is still under development, investment has fallen significantly in recent years. Upstream spending has decreased from around $700 billion in 2014 to between $370 to $400 billion today. In addition, much of today’s production is coming from mature oil fields, that will begin to dry up over the coming decades, with greater funding needed to avoid a shortfall. Many energy companies are shifting their attention to renewable energy to ensure their relevance in a green economy, meaning that several are avoiding investments in the exploration of new regions. Stronger climate policies, as well as fiscal incentives for green energy projects, are supporting this decision.
However, groups such as the IEA and IRENA suggest that much less funding is required for oil and gas than OPEC and several oil majors are suggesting. They are calling for much of the investment destined for oil and gas to be used for renewable energy projects to speed up the green transition and reduce the global reliance on fossil fuels. IRENA has repeatedly emphasized the need for greater funding to meet the world’s climate aims, suggesting that much of the money going into oil exploration could be better used to rapidly develop the world’s renewable energy capacity. In a recent report, the organization stated “Some 41 per cent of planned investment by 2050 remains targeted at fossil fuels. Around USD 1 trillion of planned annual fossil fuel investment by 2030 must be redirected towards transition technologies and infrastructure to keep the 1.5°C target within reach.”
It appears that the world’s major energy organizations and OPEC cannot see eye to eye on the future of energy investments and oil pricing, with each viewing their approach as key to global energy security. Both claim a severe underinvestment in energy – either fossil fuels or renewables, that needs to be rectified to ensure the world’s energy supply. This will most likely divide the opinions of state governments and private companies around the globe, as they split financing across fossil fuels and green energy projects.
By Felicity Bradstock for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- The 10 Countries With The Largest Natural Gas Reserves
- The Brent Oil Benchmark Is About To Change Forever
- The 10 Most Incredible Oil And Gas Discoveries Of All Time
The IEA and its chief Fatih Birol have been calling for immediate halt of investments in oil and gas (retracted on and off) to enable global energy transition to progress and to achieve net-zero-emissions by 2050 in what became globally known as the La-La-Land 2050 roadmap. Moreover, the IEA always promotes low crude oil prices in order to serve the interests of its members (overwhelmingly Western consumers). On the other hand, OPEC+ has two major goals. One is to maintain a stable global oil market and the other defending the interests of its members by wanting a fair crude oil price.
The conflict between them came to a head two years ago when OPEC+ dropped the IEA as a source of energy data because of lack of objectivity, pro-western bias, shallowness and being anti-oil and fossil fuels.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert