Petro-states start looking beyond oil
The precipitous slide in global oil prices below $30 barrel is spurring some of the world’s most prolific oil exporters to curb domestic consumption of fossil fuels and ramp up investment in alternative energies. Barely two months after the signing of a historic climate agreement in Paris, Gulf petro-states Saudi Arabia, the UAE, Kuwait and Iran have all been overhauling their domestic energy policies, slashing fuel subsidies and seeking out alternatives to oil and gas for electricity.
Saudi Arabia, which faces a $98bn budget deficit and recently raised eyebrows by disclosing that it is considering listing its iconic national oil champion, Aramco, on the stock exchange, has set a goal of cutting electricity demand 8% by 2021, while the UAE, which diverts about a quarter of its production for domestic energy has increased household electricity rates and committed to sourcing 24% of its power from non-fossil sources within roughly the same timeframe.
Perhaps the shift in mood was most palpable at last month’s World Future Energy Summit (WFES), hosted by none other than leading hydrocarbon exporter, Abu Dhabi. Speaking to Focus Reports, French Foreign Minister, Laurent Fabius, heralded the event as “demonstrative of the endurance of the spirit of COP21”. Praising the UAE on its “thought leadership and valiant actions on alternative energy” he stressed that, “though the oil and gas community will have to adapt to a low carbon world, hydrocarbon producers can now appreciate that what were once considered as sacrifices are actually opportunities for sustainable growth.”
In his keynote address, Dr Sultan Al Jaber, UAE Minister of State, closely mirrored those sentiments. “Never before has the political will to address climate change and achieve sustainable development been so resolute and never before have market forces aligned so closely with political choices. Today, we convene at a time of complex geopolitical circumstances, but we also convene at a moment of unprecedented unity,” he declared.
Some commentators astutely point out that these newly adopted ‘environmental credentials’ are dubious and that the overriding motivation is a concern that oil endowments need to be better managed while there is still time. “Oil exporters would much rather sell their fossil fuels abroad than burn them away at home…when you scrutinize the fine print of Abu Dhabi’s 2021 initiative, actually 83% of the new energy sources would be nuclear and coal,” notes one. “Some of these states are beginning to realize that history is not on their side and they need to act fast to diversify their economies or face the consequences… if your economy is so deeply dependent on fossil fuels, then it’s prudent to plan for the inevitable transition while you still enjoy respectable revenue,” analyzes Anthony Hobley of the Carbon Tracker Initiative.
Meanwhile, as the global oil price continues to hover around the $30 per barrel mark on the back of a glut and lagging demand, OPEC appears steadfast in its refusal to cut its own output and thereby support prices. On the very day that the International Energy Agency (IEA) forecast “significant declines in global oil demand’ for 2016 due to predicted slowdowns across Western and Far East Asian economies, OPEC announced that its own supply had increased in January, with crude production averaging 32.33 mb/d, thus well above it’s own official output ceiling of 30 mb/d.