The debate about emissions reduction and the path forward for oil companies moved to a whole new level since the International Energy Agency (IEA) dropped last month the bombshell report suggesting no new investment in oil and gas would be needed if the world is to reach net-zero emissions by 2050.
Environmentalists and activist shareholders intensified pressure on large public oil firms to align their businesses with a net-zero scenario, while some of the international majors acknowledged they have a part to play in the energy transition.
But the leaders of the OPEC+ group, Saudi Arabia and Russia, will continue to invest in oil and gas because, they say, the world will still need those resources for decades, despite the growing push against fossil fuels and investment in new supply.
Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies’ Patrick Pouyanné say.
While international oil majors were somewhat more contained in their views on the IEA report—those that commented on it anyway—Saudi Arabia and Russia didn’t beat around the bush and said outright that the suggestion of no new oil and gas investments ever is “unrealistic,” “simplistic,” and taken out of a “La La Land” script.
BP’s chief executive Bernard Looney wrote that forecasts of much lower investments in oil and gas were “in many ways consistent with our approach – to reduce our oil and gas production by 40% in the next decade.” Eni’s CEO Claudio Descalzi commented on Looney’s post that “We are now at a historic turning point, where each of us needs to play an active role.”
But the Saudi Energy Minister, Prince Abdulaziz bin Salman, slammed the report in no uncertain terms, saying it was “a sequel of the La La Land movie. Why should I take it seriously?”
In Russia, the chief executive of the largest Russian oil producer, state-controlled Rosneft, warned that underinvestment in oil is setting the stage for a severe deficit in supply.
“[T]he long-term stability of oil supplies is at risk due to underinvestment. This is due to both requirements of various stakeholders to completely cease investments in the petroleum sector and the aspirations of majors to increase shareholder value and shareholder returns through stronger dividend payout and share buyback,” Rosneft’s CEO Igor Sechin said at the St. Petersburg International Economic Forum on Saturday.
“The world runs the risk of facing an acute deficit of oil and gas,” Sechin added, noting that “The world consumes oil, but is not ready to invest in it.”
Sechin warned against a rushed transition without considering the economic efficiency of green energy and said that the world should be “avoiding placing focus only on the alternative generation.”
On the sidelines of the same forum, Russia’s top oil policy negotiator, Deputy Prime Minister Alexander Novak, told CNBC that the IEA report used a “simplistic approach” and was “unrealistic.”
“There is no doubt we need to move in the green energy and toward the green agenda as there is demand for it in society, but we need to be clear what resources this can be done with, who is going to pay for it, what technologies and opportunities we have available to us, including in order to resolve outstanding problems that still await their solutions,” Novak said.
Russia will continue to invest in oil, gas, and coal, alongside investments in renewables, he noted, adding, “so we see the coming decade as using a mix of renewables and fossil fuels.”
Russia, as well as Saudi Arabia, have indeed very little interest in moving away from investments in fossil fuels as they and their state oil firms could be the big winners of the current climate activism against international oil companies, which face growing activist shareholder revolt about “keeping it in the ground.”
Saudi Arabia is “producing oil and gas at low cost and producing renewables. I urge the world to accept this as a reality: that we’re going to be winners of all of these activities,” Saudi Arabia’s Prince Abdulaziz bin Salman said last week.