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Days after COP26 deal, oil producers angle to pump more

While the ink on which the climate change agreement was written has barely dried, oil producers gathered at a conference in Abu Dhabi are angling to pump more crude oil to achieve what they call energy security.

One failure of COP 26 was the inability of parties to reach an agreement on eliminating subsidies for fossil fuel. The proposal was killed by Russia, Australia, and Saudi Arabia, the countries mounting a full-throated defence for oil at the conference.

Hosted by the Abu Dhabi National Oil Company (ADNOC), ADIPEC is the world’s most influential meeting place where oil, gas and energy companies and professionals engage and identify the opportunities that will unlock new value in the energy landscape.

Unlike in Glasgow, at ADIPEC, the industry’s largest gathering has no place for climate campaigners and anti-fossil fuel advocates. It was a gathering where some of the biggest oil producers announced big plans for new oil fields.

Sultan al-Jaber, CEO, Abu Dhabi National Oil Co, in his opening address said some $600 billion would need to be spent by the oil industry every year through 2030 just to keep up with expected consumption levels.

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“After almost a decade of under-investment in our industry, the world has sleep-walked into a supply crunch. It is time to wake up,” Jaber said. “Yes, renewable energy is the fastest growing segment of the energy mix, but oil and gas is still the biggest and will be for decades to come. In short, the future is coming, but it is not here yet.”

Al-Jaber also represented the UAE at the COP26 talks as the country’s special envoy for climate change. The UAE will also host the 28th session of the Conference of the Parties (COP28) to the UNFCCC.

On his part, Hardeep Singh Puri, the Indian oil minister, said his country, one of the world’s major drivers for demand, was in great need of affordable energy, largely in the form of fossil fuels.

At COP26, India, China and a few others torpedoed the proposal to phase out coal. The negotiators in Glasgow spent nights agonising how to word the deal in a language that captures a compromise that works for all. They ended up with ‘Phase down’ of coal.

Mele Kyari, NNPC group managing director, in an interview at ADIPEC, was full of praise for Nigeria’s new regulation that had brought fiscal and regulatory clarity and which was now driving financing towards new oil and gas investments in the deep-water space.

“Our partners are coming in to invest particularly in the deep water, and efforts are going on to bring out all the production we have lost,” said Kyari.

On energy transition, he said the challenge was raising financing to improve gas production and consumption. Nigeria considers gas as its transition fuel and has released a swath of new policies designed to encourage investment into gas.

At COP26, Nigeria committed to reaching net-zero emissions by 2016 partly based on the condition that rich countries will meet their requirement to contribute $100 billion yearly to help vulnerable countries including Nigeria, finance the mitigation of climate change impacts.

Rich nations agreed to ramp up financial support for developing nations but failed to create an adaptation fund for this purpose contrary to the expectation of developing nations.

“The transition will have to be managed in a pragmatic way,” Puri said in his remarks to ADIPEC. “The transition will need to take into account the precise requirements on how it affects the larger consuming countries.”

India has pledged to bring its carbon emissions down to net zero by 2070, while Saudi Arabia says it would do the same by 2060 and the UAE by 2050, even as both oil producers are spending billions on expanding their crude output capacity.

Oil producers at COP events are quick to rehash their climate commitments and pledges to invest more in renewables but when the rubber hits the road, they queue behind fossil fuels.

The same is true of international oil companies who were denied the opportunity to make speeches at COP26. Their acknowledgement that climate change presents existential threat to humanity has done little to dent their thirst for crude.

Nicolas Terraz, president of oil major TotalEnergies, said that due to natural reservoir depletion, the industry has to find some 4 million per day of new production capacity annually just to serve a 100 million per day market that is expected to rise along with the world population.

Estimates of peak oil demand vary from the 2030s to the 2050s and beyond, but no matter the scenario, “we need a lot of investment to meet that demand because of that [natural production] decline,” Terraz said.

Some of the executives said the current gas supply squeeze in Europe should serve as a lesson for the world in not keeping up with demand growth.

They warned that energy transition presents a big risk and needs to be managed so as not to harm their economies. In the short-term, the oil cartel, OPEC and its allies said they would continue to manage the oil market to lay the groundwork for the investment needed to sustain production to meet demand.

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