The head of OPEC warned that underinvestment in oil is a “dangerous” threat to energy security and dismissed the idea that renewables alone will be able to meet the future energy demand.
“The underinvestment in the oil industry is dangerous,” OPEC secretary-general Haitham Al Ghais said in an interview with CNN on Monday. “And I believe it is critical that the world gets this right, that by underinvesting, we are actually endangering energy security. The world will require at least $12 trillion of investments globally for the oil industry from now to the year 2045. There are serious possibilities that prices, the volatility will be increasing as demand grows.”
Mr. Ghais called underinvestment as one of the key factors that could push oil to $100 per barrel. Brent crude oil was trading at around $91 per barrel as of 04:40 p.m. EDT, up from around $71 in late June.
“We are talking about a global population, within the next six, seven years, by 2030, we’ll have over half a billion people moving into cities globally. There is no way on earth that we can meet this requirement for future energy demand by relying on renewables alone.”
He also criticized the International Energy Agency (IEA) for claiming that within the next six to seven years, “demand for oil could drop by as much as 25 or 30 percent.”
“Let me answer it this way by saying that 30 years ago, fossil fuels consumption was 80 percent globally. Thirty years on today, it’s still 80 or over 80 percent,” Mr. Ghais said.
“So, to come and project that in five or six years, with all the challenges that are facing the introduction of electric vehicles, penetration of EVs globally, availability of critical minerals globally, and the geopolitical, the supply chain logistical issues, the sheer size and volume of electrification required globally to be able to move to an electric world—it’s a monumental challenge.
Underinvestment in oil is something that “keep[s] me awake at night,” he said. “I say, if we worry about volatility today, I don’t know what it’s going to be like in the future.”
Saudi Aramco, the world’s largest oil company, also warned about the situation earlier this year. In an interview with CNBC in March, CEO Amin Nasser said that a “persistent underinvestment in oil upstream and even downstream is still there” in the sector.
Moreover, with maturing oil fields, “you need more investment,” he said, referencing the fact that costs of drilling keep rising as oilfields mature and become depleted.
The average decline rate of an oil field is around 6 percent, meaning that in an oil production system that is meant to output 100 million barrels yearly, “you need 6 million barrels just to offset decline.”
“So there is a need for investment. And policymakers and regulators and investors need to ensure that there is adequate available investment in the sector … Otherwise, it’s going to have an impact on supply over the mid-to-long term,” Mr. Nasser stated.
ESG Policies Puts Pressure on Oil and Gas
Mr. Nasser also blames the proliferation of environmental, social, and governance (ESG) policies for the underinvestment in the oil industry.
In remarks delivered during the Saudi Capital Markets Forum 2023 in February, Mr. Nasser said that ESG is “clearly a rising trend” in the capital markets. Though he feels ESG is a move in the “right direction,” Mr. Nasser expressed worries about these policies targeting the oil sector.
“If ESG-driven policies are implemented with an automatic bias against any and all conventional energy projects, the resulting underinvestment will have serious implications; for the global economy, for energy affordability, and for energy security,” he said.
“Unfortunately, that is exactly what is already happening. The cost of capital for oil and gas projects has risen due to a higher perceived risk, and capital scarcity is a common phenomenon, driven by ESG.”
In line with the ESG movement, 114 banks representing 38 percent of global banking assets signed the Commitment Statement of the U.N. Net-Zero Banking Alliance (NZBA) in which they pledged to “transition” their lending portfolios to hit net-zero emissions by 2050 or sooner. NZBA was launched in April 2021.
Banks involved in the pledge include Bank of America, Citibank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
In addition, an investor-led initiative called Climate Action 100+ has received support from 700 investment companies representing $68 trillion in global assets. Its aim is to ensure that “the world’s largest greenhouse gas emitters take necessary action on climate change.”
In an interview with The Epoch Times last year, Anthony Gallegos, CEO of Independence Contract Drilling, said that “our industry is being starved for capital.” He pointed out that banks are more unwilling to provide revolving lines of credit or asset-based lending facilities [ABLFs] to the oil and gas sector.
“There’s probably a third as many banks today that are willing to provide revolvers and ABLFs to [oil and gas] service companies compared to what there would have been six years ago,” he said.
“There are investors, there are endowments, there are limited partnerships, some of which have historically invested in energy, that today have a mandate that they cannot make investments in fossil fuel industries.”
The Biden administration’s anti-fossil fuel policies worsen things for the American oil and gas industry.
Since coming to power in 2021, President Joe Biden has enacted several steps to promote renewable energy and suppress fossil fuels. This includes restricting oil and gas leases, rejoining the Paris Climate Agreement, and pushing for the expansion of electric cars.
Late last month, the Biden administration’s Department of the Interior announced that it would sell only three offshore oil and gas leases over the next five years, which it claimed was the “fewest oil and gas lease sales in history.”