Analysis: OPEC’s rebuttal to keep-it-in-the-ground activists: The world needs more oil

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Ever since OPEC landed itself in the crosshairs of climate change activists earlier this year, the oil producer’s group has amped up its defense, staking its claim as a crucial provider of affordable energy, especially for the developing world.

To bolster its case, the organization on Tuesday released its latest annual World Oil Outlook, forecasting that global oil producers would need to pump 12% more oil in 2040 from current levels to meet expected demand of 110.6 million b/d.

Though renewables will gain market share, oil will still retain the largest share of the energy mix by 2040, accounting for more than 28% — down from 31% in 2018 — with gas not far behind at 25%, said OPEC, which will mark its 60th anniversary next year.

And OPEC’s share of global liquids supply, including NGLs, is expected to rise to 40% in 2040 from 37% in 2018, as non-OPEC production peaks in 2026 and then declines, according to the outlook.

“What is clear is that the world will need a great deal more energy in the decades to come,” OPEC Secretary General Mohammed Barkindo said in the foreword to the report. “We also believe that the oil industry must be part of the solution to the climate change challenge.”

As such, the outlook, which attempts to take into account policy and technological developments, serves as OPEC’s roadmap for “a possible pathway for oil and energy in the future.” Banning oil and gas development, as some environmental campaigners have championed, would ignore the reality of rising energy demand, driven by population growth and global economic expansion, OPEC said.

The sentiments were echoed by OMV CEO Rainer Seele, who co-hosted OPEC’s release of the World Oil Outlook in Vienna.

“Protecting our planet and the climate is without any doubt part of our agenda,” Seele said. “We also need to acknowledge that the modern way of life and the way out of poverty is purely possible through the contribution of the energy industry and the related petrochemical industries.”

BARKINDO VS THUNBERG
It was just four months ago when, after OPEC’s most recent meeting in Vienna, Barkindo lashed out at climate change activists.

Asked what was the biggest threat to OPEC members, Barkindo railed against “a growing mass mobilization of world opinion in this energy transition against oil, which is totally unscientific.”

“Civil society is being misled,” he continued. “Our children are asking us about their future because they are watching what is happening, they are seeing their peers on the streets campaigning against this industry.”

It was a thinly veiled shot at Swedish teenager Greta Thunberg, who gained prominence by protesting outside Sweden’s parliament and inspired many other students to launch their own protests over political inaction on climate change.

“Thank you! Our biggest compliment yet!” Thunberg tweeted, after Barkindo’s comments were reported in the media. The activist has gone on to address the UN and the US Congress, castigating leaders for their “betrayal” of her generation for not doing more to curb greenhouse gas emissions, including from oil, the primary fuel for transportation.

OPEC, for its part, says it is committed to the UN climate change goals of the landmark 2015 Paris Agreement, though the pact’s future may have been subverted by the US’ announcement Monday that it would withdraw.

Rather than try to force a stop to oil production, activists should focus on technological innovations to improve energy efficiency and reduce or capture emissions, OPEC said.

“The science tells us that we need to reduce emissions; it does not tell us that we need to choose one energy over another,” Barkindo wrote in the World Oil Outlook.

The biggest victims would be developing countries, which will account for 90% of the world’s population growth, according to OPEC’s analysis, which noted that “energy poverty remains a scourge.”

Policies that discourage investment in energy production, such as financial climate-related disclosures, could lead to a supply gap that would only drive energy prices up and disproportionally hurt the most vulnerable, the outlook stated. Some $10.6 trillion of investment across the upstream, midstream and downstream sectors will be needed through 2040 to meet expected oil demand, OPEC estimated.

“We need to continually look to develop, evolve and adopt cleaner energy technologies across the board, ones that enable us to meet expected future energy demand, in a sustainable and ever more efficient manner and where no one is left behind,” Barkindo wrote.

HELP US HELP YOU, OPEC SAYS
Concern for the developing world aside, OPEC members themselves have existential imperatives, with their budgets overwhelmingly reliant on the revenues they earn from exporting crude.

Many have made halting steps to wean their economies off of oil dependence, but progress has been slow.

But even successful implementation of these diversification plans may not be enough to insulate OPEC members from the long-term implications of climate change regulations that are expected to put the brakes on oil consumption, OPEC conceded in the outlook.

Already, OPEC has revised down its long-term demand growth forecast. This year’s 2040 projection is lower by 1.1 million b/d than last year’s World Oil Outlook, with GDP expected to rise more slowly than previously forecast.

The outlook called on the international community to assist OPEC members and other natural resource dependent countries in mitigating the impact of climate change policies by lowering trade barriers, facilitating more foreign investment and offering technology transfer and financial support.

“International cooperation is crucial to support energy-exporting developing countries and allow them to grow sustainably,” the report stated.

OPEC, even as it forecasts itself as a force in the global energy mix of the future, seems to need a helping hand, too.

Source: Platts

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