Investing in a secure energy future

OPEC Bulletin Commentary – February-March 2022

Although the COVID-19 pandemic is not done with yet, the milder Omicron variant in tandem with increasing global vaccination rates have helped provide the world with a collective sigh of relief. At least for now.

After two years of pandemic-driven restrictions and lockdowns, this has meant at least a partial return to business as usual.

In the world of energy industry events, this has been good news as organizers are once again beginning to open their doors to in-person attendees for oil and gas conferences and exhibitions around the world.

OPEC has joined the thousands of industry stakeholders returning to airports for travel to these industry events.

OPEC Secretary General, Mohammad Sanusi Barkindo, who is no stranger to international travel, was back on the event circuit, starting the year with a “pilgrimage” visit to OPEC Founding Member Iraq. The mission was significant and symbolic as Baghdad was the site of OPEC’s birth in September of 1960.

This was followed in February and March by OPEC missions to Egypt, Nigeria and the United States.

These annual industry events are always valuable forums for energy leaders to sit and discuss the pressing issues of the day. And indeed, this round of events was no exception to the rule.

In addition to discussions related to the short-term volatility that was challenging the oil market, one of the trending topics that pervaded the panel discussions was the critical issue of industry investment.

Underinvestment is one of the great challenges the industry is currently facing, particularly in the aftermath of the global pandemic, when we saw capex in the oil sector plummet by more than roughly 30 per cent in 2020. Today, the industry continues to lag far below pre-pandemic levels for spending.

This makes it increasingly difficult to imagine how the industry will meet rising energy demand from a burgeoning global population, expected to reach 9.5 billion by 2045.

OPEC’s World Oil Outlook forecasts global energy demand rising by a robust 28 per cent in the period to 2045. This translates to an increase from 275 million barrels of oil equivalent per day (m boe/d) in 2020 to 352m boe/d by 2045. All energies are expected to see growth, with the exception of coal, and oil is forecast to retain its position with the largest share in the global energy mix until 2045.

To meet this rising demand, the global oil sector will need to fork out cumulative spending equal to around $11.8 trillion for upstream, midstream and downstream projects to the year 2045.

Speakers at these events have repeatedly warned of the consequences related to underinvestment, which could include oil market imbalance, heightened volatility and energy insecurity.

Part of the culprit for this crisis of dwindling investment is the insistence by some activist voices that a near immediate transition away from fossil fuels is required to address the climate change issue. This, in turn, has put up financial barriers for access to much-needed capital for investment in future projects.

This frantic transition approach to reaching net-zero in record time is both unrealistic and potentially disruptive to the industry.

An energy transition that is fair, equitable and responsible will not happen overnight, and it must ensure that the needs of all the world’s people will be taken into consideration.

The Secretary General, in his recent recorded remarks to the 5th Nigeria International Energy Summit, said: “We must bear in mind that climate change and energy poverty are two sides to the same coin.”

Noting that 759 million people worldwide still did not have access to electricity in 2019 and around 2.6 billion, or 34 per cent, were without access to clean cooking fuels and technologies, Barkindo emphasized that developing countries have their hands full just meeting their most basic needs. Not to mention, Africa, for example, which accounts for just three per cent of global emissions.

When all is said and done, the highly complex challenges facing the energy industries will require no less than the combined efforts of all industry stakeholders.

“As an industry, we must approach these critical issues together through dialogue and cooperation, ensuring all voices are heard and all viewpoints are considered,” Barkindo proclaimed. “We need to connect all aspects of the energy trilemma. This means working with each other, and not against each other. It is in the interests of each and every one of us to evolve a sustainable energy future that works for all.”

OPEC Bulletin February-March 2022

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