Persistently low investment in conventional energy sources risks leaving the world running out of spare production capacity for crude oil, refined products, and natural gas, the energy ministers of two of OPEC’s top producers, Saudi Arabia and the United Arab Emirates (UAE), said on Tuesday.
Officials from the oil and gas producing countries in the Middle East have been warning for months—even before the Russian invasion of Ukraine—that recent low investments in new fields and production capacity would lead to dwindling energy capacity production once the global economy recovers from the COVID slump of 2020.
At a conference in Abu Dhabi today, the Saudi Energy Minister, Prince Abdulaziz bin Salman, said that “The world needs to wake up to an existing reality.”
“The world is running out of energy capacity at all levels,” Prince Abdulaziz bin Salman said, as carried by Bloomberg.
Not enough investment in global refining capacity is one of the key drivers of the global rally in gasoline, diesel, and jet fuel prices, Prince Abdulaziz bin Salman said on Monday, reiterating the Kingdom’s view that a rushed transition to cleaner energy fails to take into account realities.
If the industry is discouraged from investments, this will lead to a lack of supply, which will translate into inflation, and that will affect the end consumer, the minister said at the Future Aviation Forum in Riyadh.
At the Tuesday conference in Abu Dhabi, the UAE’s Energy Minister Suhail al-Mazrouei said that OPEC+ may not be able to guarantee enough supply when the world fully recovers from the COVID crash in demand.
The UAE minister also said that the extreme volatility in the oil market in recent weeks is the result of some buyers boycotting certain crudes; it is not connected with OPEC+ and is outside the alliance’s control, in an apparent reference to the boycott of Russian oil from Western buyers.
The UAE and Saudi Arabia are actually the only two oil producers believed to have sufficient spare oil production capacity, but they are unwilling to tap it, saying the market is balanced and any extreme volatility is the result of geopolitical factors.
By Tsvetana Paraskova for Oilprice.com
ADVERTISEMENT
More Top Reads from Oilprice.com:
- China’s COVID Lockdowns Force Aramco To Slash Oil Export Prices
- Saudi Energy Minister: Insufficient Investment To Blame For High Fuel Prices
- China’s COVID Lockdowns Push Copper Prices Lower
Underinvestment in oil and gas is indeed a major underlying reason behind the rise in energy prices and the shrinking global spare production capacity including OPEC+. Other reasons are the green policies of the Biden administration, the incessant pressure by environments activists on the global oil industry to divest of its oil and gas assets, the hasty policies of the EU to accelerate energy transition at the expense of fossil fuels and the IEA’s la-la-land roadmap to 2050 calling for immediate halt of investments in oil and gas.
And yet the US continues to blame OPEC+ for not raising its production. However, OPEC+ believes rightly that the global oil market is balanced and that whatever small spare production capacity it has, it wants to keep to when the market becomes unbalanced.
The United States has been even threatening to use the NOPEC bill if necessary as a last resort against OPEC and its former allies like Saudi Arabia and UAE to force them to lift production but it will amount to nothing.
Even if NOPEC bill becomes a law, it is unenforceable against OPEC since it isn’t a cartel. Moreover, NOPEC will only have jurisdiction in the United States but no extraterritorial jurisdiction under international law. Furthermore, Saudi-led OPEC will retaliate by replacing the petrodollar with the petro-yuan. That would be the most serious retaliation against the US. Once Saudi Arabia and UAE have made the switch, the overwhelming majority of OPEC members will follow suit exactly as happened in 1975. This will literally pull the rug from under the petrodollar and the US financial system it underpins.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London