The energy transition and the shift toward renewable energy have to be managed very carefully in order to prevent a surge in oil prices as energy demand continues to rise, according to Saudi Arabia’s finance minister.
“We have very serious concerns that the world could run short of energy if we are not careful in managing the transition,” Mohammed Al-Jadaan, the finance minister of the world’s largest oil exporter, said on Monday, as carried by Bloomberg.
“In Saudi Arabia, we have an interest in maintaining demand. We are also worried that demand is increasing and there are no alternatives to fill that gap and we don’t want oil prices to go too high,” Al-Jadaan said.
The Kingdom’s finance minister reiterated recent warnings from other officials and industry executives in Saudi Arabia that the world should not rush to an unmanaged energy transition.
Last week, for example, the chief executive of Saudi Aramco, Amin Nasser, warned at the World Petroleum Congress in Texas that a rushed transition into renewable energy would cause spiraling inflation and social unrest. Investments in oil and gas still need to continue in order to avoid such a scenario, Aramco’s top executive added.
“I understand that publicly admitting that oil and gas will play an essential and significant role during the transition and beyond will be hard for some,” Amin Nasser said as quoted by the Financial Times.
Oil and gas investments post-COVID are still lagging behind pre-pandemic levels, industry officials and analysts have warned in recent weeks.
Upstream oil and gas investment must rise to the pre-pandemic levels of around $525 billion per year through the end of the decade so that the industry can ensure a demand-supply balance, Saudi Arabia-based International Energy Forum (IEF) and IHS Markit said in a report last week.
This year, upstream investment is still depressed for a second year in a row and is estimated at around $341 billion, they added.
OPEC Secretary General Mohammad Barkindo warned the audience at the World Petroleum Congress last week that cutting investments in oil and gas production is misguided. Insufficient investment in new oil and gas supply would lead to energy shortages, as well as market imbalances and higher prices, Barkindo added.
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By Tsvetana Paraskova for Oilprice.com
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While the process of global energy transition will continue to move forward, a total energy transition is an illusion. Even a partial one will never succeed without huge contributions from natural gas and nuclear energy.
A hasty energy transition could lead to energy insecurity, rampant inflation and social unrest as energy prices become intolerably high.
This is not something that a lot of people want to hear. It is certainly not what the Biden Administration, leaders of the European Union (EU), the International Energy Agency (IEA) the environmental activists want to hear. Yet, it appears to reflect a hard reality.
Oil and gas will continue to drive the global economy throughout the 21st century and probably far beyond.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London