Energy This Week: Upstream Underinvestment (?), the new gas paradigm, & heat-waves

Impact of investment in the energy industry

Goldman Sachs says that a?fall in oil demand ?would not necessarily lead to lower crude prices. A long-term decline in consumption due to decarbonisation could be outpaced by the natural 5 per cent annual decline in oil production without new investment.

However, the bank does say that oil prices are?unlikely to hit $100 ?this year, as the prospect of deeper Opec+ cuts diminishes and China accumulates near-record inventories.

Consultancy Wood Mackenzie suggests that current investment of about $500 billion annually is?enough ?to meet projected peak demand for oil and gas in the 2030s, countering persistent suggestions of “under-investment”.

The Riyadh-based International Energy Forum, however, says there is need for investment of about $640 billion by 2030.

Oil prices?gained by about $2 last week ?as inflation eased, Opec+ cuts worked their way through and?US crude stocks dropped . Prices were?up again on Monday ?and?Tuesday , with Brent crude reaching $83.56 a barrel as concerns of tight supplies grew. Goldman Sachs expects a supply deficit in the second half of this year.

Three key central banks – those of the US, the EU and Japan – make decisions on rates this week, with an expectation of a quarter of a percentage point increases, although this marks the peak of the tightening cycle.

The IMF has modestly boosted its forecasts for the global economy but expects a?fall in oil prices ?this year and the next, and a slowdown in the Mena region.

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Europe becomes Japan and China becomes Europe in the reshaped global gas market

Russia’s invasion of Ukraine has?overturned the global paradigm ?of gas security and flexibility that emerged in the 1970s and was revamped in the 2000s.

Europe now depends on liquefied natural gas imports ferried by ship, as Japan has long done, while China can pick and choose between its own domestic gas and coal, pipelines from Central Asia and Russia, and seaborne LNG.

Algerian president Abdelmadjid Tebboune’s?visit to Beijing ?has led to several agreements between China and the North African country, covering infrastructure, petrochemicals, nuclear power and renewables.

Algeria, a leading gas and LNG exporter to Europe, has expressed interest in joining the Brics group that includes China and several other large developing economies.

Global electricity demand growth will?slow this year ?to less than 2 per cent, from 2.3 per cent last year, because of weak economic conditions, says the International Energy Agency.

But electricity needs will grow more quickly from next year, driven by electrification of transport, home heating and cooling, and fast-growing developing economies.

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Iran will retaliate for oil unloading

The navy commander of Iran's Islamic Revolutionary Guard Corps has said the country?will retaliate ?against any company that unloads oil from the?Suez Rajan, a tanker detained by the US off the coast of Malaysia in April.

The skeleton crew of the?FSO Safer?did “everything humanly possible ” to prevent an oil spill from the decaying vessel moored off Yemen, and the UN-led operation to?drain oil from the ship ?has finally commenced.

The US has?issued ?a new 120-day national security waiver allowing Iraq to pay for electricity from Iran, using non-Iraqi banks. Moody’s Investors Service notes that Iraq’s?credit profile is weak ?because of over-reliance on hydrocarbon revenue, weak institutions and governance.

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Saudi Aramco builds its Asian petrochemical position

Saudi state oil company Aramco has?completed ?its $3.4 billion purchase of a 10 per cent stake in China’s Rongsheng Petrochemical, a key part of strengthening its position in growth markets.

Meanwhile, the net profit of India’s Reliance Industries?dropped by 10.8 per cent ?in the first quarter, dragged down by lower refining and petrochemical performance.

The UAE’s clean energy company Masdar has raised $750 million from its?debut green bond , and First Abu Dhabi Bank has issued the UAE’s?first ?dirham-denominated green sukuk.

Adnoc Distribution, Abu Dhabi Maritime and the Department of Municipalities and Transport will?build fuelling stations ?at marinas in Abu Dhabi.

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Heatwaves expected to drag into a fiery August

The current heatwaves in the Northern Hemisphere are expected to?continue into August , says the World Meteorological Organisation, and similar events will become more common as climate change progresses.

As temperatures?hit 48°C ?in Algeria, wildfires?ravaged it and Tunisia , killing 34 people, while the Greek islands of?Corfu ?and?Rhodes , and more than 45 million people in the US are in areas with?advisories of extreme heat .

Egypt has been struck by a?heatwave and power cuts , blamed on a lack of gas fuel. This year could well be the hottest on record, and July the?hottest month ?for hundreds, if not thousands of years.

Cop28 President-designate Dr Sultan Al Jaber, who is also UAE Minister of Industry and Advanced Technology, has?encouraged ?additional countries to join the more than 20 who have already signed up for the Global Cooling Pledge, to deliver sustainable cooling in a hot world.

The aviation industry is increasingly?planning for extreme weather ?by reinforcing airport buildings and weighing down planes to resist typhoons.

But despite bad results for Britain’s Conservative Party in two other parliamentary by-elections, they held on to the seat of Uxbridge and South Ruislip, formerly the seat of Boris Johnson.

This was because of opposition to plans of London mayor Sadiq Khan to expand the capital’s “ultra low emissions zone ” for vehicles to outer boroughs, an important step in reducing air pollution.

However, Labour leader Keir Starmer said the party must “learn lessons ” after voters apparently rejected a policy said to save the lives of 500 Londoners a year, and Prime Minister Rishi Sunak now faces pressure from his Conservative Party to water-down net-zero carbon pledges.

Swedish climate activist Greta Thunberg, 20, was?fined about $240 ?by a Swedish court for her part in a demonstration blocking oil tanker lorries from gaining access to Malmo harbour.

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Cop28 'most consequential' since Paris

The G20, which is meeting in India, did not agree on a road map to phase out “unabated” fossil fuels, that is, without carbon capture and storage. France’s Energy Transition Minister?blamed Russia .

There are concerns that the EU’s voice at the Cop28 climate conference, to be held in Dubai from November,?could be weakened ?as the bloc’s climate supremo Frans Timmermans plans to run in Dutch general elections in November.

Mr Timmermans aims to become prime minister and might have to step down from his EU Commission role.

Global energy decision makers ?met in Goa, India, on Friday, to prepare for Cop28, with Dr Al Jaber saying: “Building a new energy system can only happen at speed and scale with united action on the supply and the demand sides together.”

Fatih Birol, executive director of the International Energy Agency, proposed an agenda that “includes tripling global renewables capacity, doubling energy efficiency progress, slashing emissions from the oil and gas industry, boosting clean energy finance for developing economies, redirecting fossil fuel investment into clean energy and putting fossil fuel demand into sharp decline”.

The UAE will work with Cop28 participants to triple renewable energy capacity and double hydrogen production worldwide by 2030, Minister of Energy and Infrastructure Suhail Al Mazrouei said at a?gathering of the International Solar Alliance ?in Abu Dhabi on Tuesday.

The Emirates hopes that Cop28 will be the?most consequential climate conference ?since the 2015 event that birthed the Paris Agreement, says Roger Martella, chief sustainability officer of General Electric.

This requires a focus on outcomes, steps to set and stick to indicators for progress, innovation and being open to a diversity of approaches.

A dedicated day will?focus on trade , for the first time at the event. Companies such as Ikea are?rethinking their supply chains ?and investing vertically to make them more sustainable and resilient to geo-economic shocks.

Mariam Al Mheiri, the UAE’s Minister for Climate Change and Environment, and Minister of State for Food Security, has revealed the “food systems and agriculture agenda ” for the talks.

The Arab League and the US will include a “diverse range ” of women’s voices at Cop28, and Dr Al Jaber says the most vulnerable must?benefit first ?from climate action, after meeting Sheikh Hasina, Prime Minister of Bangladesh.

The gathering is set to bring a?boom for Dubai hotels , with demand exceeding New Year’s Eve levels and 70,000 visitors expected.

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Sharjah moves with Sumitomo on carbon capture

UAE entities are seeking to do their part in delivering the country’s climate goals.

Sharjah National Oil Company has agreed with Sumitomo of Japan to study a?full value-chain carbon capture and storage project , which would be the first in the UAE outside Abu Dhabi.

Mubadala Energy and Indonesia’s Pertamina will?explore carbon capture initiatives ?in the south-east Asian country, which plans to be carbon-neutral by 2060 or earlier.

The Environment Agency Abu Dhabi has laid out a plan to?cut greenhouse gas emissions ?22 per cent within five years. The initiative includes low-carbon transport, government procurement of green materials, building codes, solar power and the restoration of mangroves.

Dubai’s?new urban planning law ?focuses on sustainable building, environmental effects and high-yield agriculture, and it has launched a?stamp of sustainability ?for hotels.

Sharjah Taxi has begun to?test electric vehicles ?from Skywell, a Chinese manufacturer.

Militaries are trying to?reduce their fuel use ?– for good logistical, security and cost reasons, as well as environmental.

Fuel delivered to the US air base at Bagram, in Afghanistan, cost $150 a litre, and British forces suffered a battle casualty once in every 24 times they resupplied their bases in Iraq and Afghanistan.

Improvements could include solar panels on bases, mini-nuclear reactors, water extraction from air and synthetic fuels for warships.

Biodegradable plastic could be an answer to the problem of waste – but it?may not be so simple . And?wind power projects globally are suffering ?from rising costs and higher interest rates, with several cancelled or delayed projects in the US and UK. This is a problem as the technology needs to be installed rapidly, especially in windy but less sunny countries.

Electric cars are increasingly popular in the UAE, but they need?care to protect their batteries ?from hot weather.

Students at the Canadian University in Dubai have developed a?solar-powered driverless car .

However, Tesla shares?fell by about 10 per cent ?on Thursday after the electric car maker reported lower operating income and margins because of price cuts.