Energy policymakers are ringing crisis alarm bells that will reshape global markets. OPEC+ producers are reasonably increasing production to control market share after decades of collective declines in the interest of high oil prices. Policymakers are warning that by not spending trillions of dollars’ worth of investment now, the world risks losing supply deficits that will ensnare economies and deny millions of steady access to energy in the coming decades.
How OPEC rationalizes gargantuan fossil fuel investment needs
OPEC Secretary General Haitham Al Ghais presented stern messages during a speech at the Russian Energy Week forum, highlighting that emerging populations, emerging economies, and urbanization are imposing stern messages for rising energy demand. The group is estimating that primary energy demand will grow by 23% by the year 2050, and oil will still take its share of 30% of the energy mix of the world, while advanced renewable energy technologies are available.
This is in contrast to International Energy Agency forecasts that peak oil demand will be much further in the future relative to OPEC forecasts. The cartel’s yearly World Oil Outlook reports put oil demand at 123 million barrels per day to 2050, from around 104 million currently. The numbers underpin OPEC’s key assumption that fossil fuels remain unreplaceable for ten years or two, and the need to keep previous investment to sustain the developing and industrial world’s demand growth.
Investment needed by the sector
- Upstream development: $8.5 trillion to place new fields on stream
- Capacity expansion: $4.2 trillion to processing facilities
- Transportation networks: $3.1 trillion to pipeline and transportation networks
- Depots: $2.4 trillion to deposit and distribution plan
Why energy security trumps climate transition concern
Saudi Energy Minister Prince Abdulaziz bin Salman ventured into OPEC’s domain by stating that energy security and economic development are twin pillars on which ambitious climate action programs can be founded. Jumpy and cash-strapped himself, he is sure such programs cannot be executed well if they are to stay sustainable. The recent European experience with energy transition woes is the best in terms of risk of jumping from existing regimes to testing new ones without a proper basis.
The minister categorized Europe’s failure to diversify away from the conventional sources of energy, cautioning against the swift dismantling of the fossil fuel apparatus that would lead to energy shortages and economic crises. That is a view squarely at odds with climate activists’ budget-penal renewable energy timetables and part of global powers calling for the acceleration of decarbonisation.
“As long as you’re not going to have economic prosperity and energy security, I don’t think that you’re going to be able to address sustainability and climate change” – Prince Abdulaziz bin Salman
What titan-sized investment gaps can foretell for the world?
The $18.2 trillion of investment needed is over twice the GDP of most countries in a year and puts into perspective the jaw-dropping cost of ensuring energy around the world. OPEC recognizes that by reducing expenditure on oil and gas installations, apocalypse supply shortages from here to 2027 are released, with probable energy crises dwarfed by a titanic magnitude. The company severely criticized the previous hesitance of the International Energy Agency to be opened up to new investment in oil and gas, particularly pointing out how recently the IEA had changed its position towards accepting such investment in new reservoirs due to declining production from existing ones.
OPEC investment needs to introduce an organic contradiction between advocates of rapid energy substitution and the feasibility and pace of fossil fuel substitution. Rising world energy needs continuously further transforming the world imply conservatism by the organization in responding to the deficit on the supply side will have every likelihood of being justified if investment fails to keep pace with the levels required to see projected growth in consumption.