Two of the world’s largest oil-producing countries plan to defy the International Energy Agency’s (IEA) recommendations and continue investing in oil and gas, rejecting calls to drastically scale back the use of fossil fuels despite a deepening climate crisis.
Almost 200 countries, including Russia and Saudi Arabia, ratified the Paris climate accord in 2015, agreeing to pursue efforts to limit the planet’s temperature increase to 1.5 degrees Celsius above pre-industrial levels. The agreement requires net-zero greenhouse gas emissions by 2050.
Remarkably, the IEA delivered its starkest warning yet on global fossil fuel use last month, saying the exploitation and development of new oil and gas fields must stop this year if the world wants to reach net-zero emissions by the middle of the century.
Speaking at the St. Petersburg International Economic Forum on Thursday, Russian Deputy Prime Minister Alexander Novak said the IEA had ostensibly arrived at its findings “by using reverse calculations” on how to achieve net-zero emissions by 2050.
“It is a sequel of the ‘La La Land’ movie. Why should I take it seriously?” Abdulaziz said, according to Reuters.
His reaction to the report came shortly after OPEC and non-OPEC partners agreed to gradually ease production cuts in the coming months amid a rebound in oil prices.
Igor Sechin, the head of Russian oil major Rosneft, said recently that the world was facing an acute oil shortage in the long-term due to underinvestment, amid a drive for alternative energy while demand for oil continued to rise.
Rosneft is the world’s second-largest oil-producing company by output after Saudi Aramco. It produces more than 4 million barrels of oil per day.
He expected some shortages to kick in from the second half of 2021.
Meanwhile, a court order to deepen carbon cuts for Shell was a new form of risk for oil majors, he said.
Oil giants’ emissions under pressure
Three major firms, Royal Dutch Shell, ExxonMobil, and Chevron, have all taken serious hits to their business models of late.
A quarter of Exxon’s board of directors is now composed of critics who have argued the company has been too slow in moving away from traditional carbon power.
Chevron also saw its own investors vote for a proposal to cut emissions from their customers at a recent conference, even after its board urged them not to.
Meanwhile, Shell recently lost a major case in a Dutch court. It recently ordered the Anglo-Dutch company to slash its global greenhouse gas emissions, which stood at around 1.6 billion tons of CO2 equivalent in 2019, by 45% by 2030 in keeping with European climate promises.
More lawsuits demanding other companies to cut back their emissions are likely to follow, in Europe and elsewhere.
The world is in the middle of a rapid energy transition. The use of coal in utility-scale American electricity generation has fallen by 62 percent since 2007. Much of that slack has been taken up by natural gas, but wind and solar account for most of the rest, and renewables are starting to make inroads into gas too.
The main reason being prices: Between 2010 and 2020, the cost of wind power fell by about 70%, and solar power by 89%. Other technologies like energy storage will also contribute to making renewables easier to deploy.
It may take decades, but the long-term business prospects of oil and gas are weak.
The world’s most important oil-importing region, Asia, is showing signs of weaker physical demand with lower cargo arrivals in May and crashing refining margins as a COVID resurgence depresses fuel demand in India and other South Asian markets.
Imports into the Asian region are estimated to have dropped in May to the lowest monthly level so far this year. Asia imported 23 million bpd of crude oil last month, down from more than 24 million bpd in each of April and March, and from 25.2 million bpd in February, according to data from Refinitiv Oil Research cited by Reuters’ Russell.
Still, crude oil futures prices rallied to a two-year high last week after OPEC+ reaffirmed plans to unwind another 840,000 barrels per day (bpd) of its total cuts in July.
Most analysts, forecasters, OPEC, and the IEA continue to expect strong global oil demand in the second half of this year that would offset weakness in some Asian markets this quarter.