Opec, Europe's winter energy crisis survival, & climate change from the G7 to the UAE

China drives oil demand optimism even as recession fears gather

Despite continuing economic concerns, Opec has?maintained its 2023 oil demand forecast?in its latest monthly report.

However, the oil exporters’ organisation pointed to possible summer demand weakness, supporting its case for the April 2 announcement of voluntary cuts totalling 1.66 million barrels per day across the Opec+ alliance.

It mentioned the risks of rising interest rates and high private and government debt, and drew attention to rising oil stocks in Organisation for Economic Co-operation and Development countries.

The group’s output already fell by 86,000 bpd in March to 28.8 million bpd because of the shutdown of Iraq’s pipeline through Turkey and the maintenance of a production complex in Angola.

It expects the call on its crude to be at 29.3 million bpd in 2023, implying a drawdown of stocks as its voluntary cuts come into effect.

While demand increases by 2.33 million bpd, non-Opec supply would grow by 1.43 million bpd (see chart), including an expected drop from Russia, meaning the group may need to think about raising output again later in the year.

Goldman Sachs has argued that less competition means that Opec production cuts are now twice as effective in raising prices as in the period from 1983 to 1997, and about eight times more effective than in the 2008-2016 shale era.

The International Energy Agency went one step further and actually?increased its demand estimates, projecting a record high in global consumption, based on expectations for a rebound in China as it continues to reopen after Covid-19 restrictions, and a continuing recovery in world air travel.

However, it is worried that the latest Opec+ supply cuts would raise inflation and slow economic growth.

Swiss bank UBS says the production cuts will?tighten the market?into May, resulting in a recovery towards $100 a barrel. Oil notched up a?fourth weekly gain?last week as markets digested the impact of the reductions, a drop in Russian shipments, the continuing reduction of Iraqi exports and a weaker dollar.

US weekly petroleum demand data contained no surprises, but Energy Secretary Jennifer Granholm told the Columbia Global Energy Forum on Wednesday that Washington would?seek to refill?its Strategic Petroleum Reserve to take advantage of lower prices.

Although data that day indicated inflation was slowing, oil prices?dropped on Monday?as a survey of American consumers showed rising expectations for inflation. They were down slightly on Tuesday, despite China's?higher-than-expected?first-quarter growth.

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How Europe survived the winter energy crisis

With winter behind it, Europe has?avoided a disastrous energy crisis?with a mix of luck, good decisions, hasty and pricey fixes, and unpunished errors. Gas prices are down and gas storage is at record levels for the time of year. The UK and the EU may have avoided recession entirely after predictions of a deep downturn.

An unusually warm winter — a harbinger of more climate change to come — reduced heating demand, while the industry made deep cuts. Renewable output has also soared.

Alternative gas to Russia has been sourced from Norway and the continent has tapped into the global liquefied natural gas (LNG) market, including via new terminals installed at great speed in Germany. Chinese LNG demand was unusually low because of Covid curbs, freeing up supply for Europe.

Many European countries introduced caps or subsidies on gas and electricity prices, and “windfall” taxes on domestic energy producers. Conservation measures included turning off lights and turning down the heating in public buildings. Germany could afford to be complacent and shut down its last remaining nuclear power plants.

From now on, things should be easier as the output of renewables keeps growing and French nuclear plants return from technical disruptions.

However, a hot and dry summer, a cold winter between 2023 and 2024, another supply disruption or a resurgence in Chinese LNG imports could all spell further trouble. Not until 2026 to 2027 does substantial new LNG arrive on the world market.

Employees of Lebanese utility Electricite du Liban have?called off a strike?after they were promised discounted electricity rates. The grid provides, at best, a few hours of power daily any way.

Caretaker Energy Minister Walid Fayyad complained that his plan to gradually restore supply had been?thwarted?by a lack of funding from the central bank. Lebanese bakers have turned to?solar-powered ovens?to help bake bread and save on diesel fuel.

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Saudi government transfers Aramco shares

The Saudi government has?transferred 4 per cent?of shares in Saudi Aramco, the world’s largest oil company, to Sanabil Investments, a unit of the Public Investment Fund.

The state retains a direct holding of 90.186 per cent. The transferred shares are worth about $77 billion at current market prices.

Fitch?upgraded Aramco’s credit ratings?to “A+” following last month’s increase to the sovereign rating, and cited the company’s strong cash generation, conservative financial management and net-zero target.

As the UAE's Adnoc continues to expand oil production, it has awarded?a $412 million contract?to subsidiary Adnoc Drilling for development of the key Upper Zakum field, the second-largest operational offshore field in the world and fourth-biggest overall.

Adnoc Logistics & Shipping has received five very large gas carriers, which were built in Shanghai, as it continues to expand its fleet.

Abu Dhabi-listed fertiliser producer Fertiglobe has approved a?Dh700 million dividend?for the second half of last year. Its net income rose 78 per cent last year on higher fertiliser prices.

Saudi developer?Acwa Power will build?a $677 million desalination plant with a capacity of 600,000 cubic metres a day in Rabigh, on the kingdom's Red Sea coast.

Abu Dhabi-based utility Taqa has launched a?green finance framework?for sustainability-linked bonds and sukuk as it plans to increase renewables to 30 per cent of its capacity by 2030. It raised $1.5 billion, including $1 billion from its?first green bond.

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G7 agrees to speed fossil-fuel phase-out

Dr Sultan Al Jaber, President-designate of the Cop28 climate conference in Dubai in November, met International Monetary Fund managing director Kristalina Georgieva in Washington to discuss measures to?hasten climate action.

He pointed out that only 20 per cent of clean energy finance goes to developing countries, who make up 70 per cent of the world population. Dr Al Jaber, who is also the UAE's Minister of Industry and Advanced Technology, had discussions with Japanese Prime Minister?Fumio Kishida?ahead of the G7 climate and energy gathering.

In addition, the G7 agreed on a joint plan for?critical mineral security, supported by the International Energy Agency. Clean energy systems are heavily dependent on cobalt, copper, lithium and rare earths from the Democratic Republic of Congo, Latin America and China.

Meanwhile, the UK has gone backwards by?eliminating the role?of top climate envoy. Nick Bridge had held the position with ambassadorial rank.

The Opec Fund for International Development plans to?raise its climate financing?to 25 per cent by 2025 and 40 per cent by 2030, apart from focusing on clean cooking, reforestation and food security. However, about half of corporate executives surveyed say a weakening global economy is?detrimental to progress on sustainability. Difficulty in measuring environmental, social and governance efforts was also cited.

Mubadala will invest $2.5 billion to?produce biodiesel and sustainable aviation fuel?at its Mataripe Refinery in the Brazilian state of Bahia, using soyabean, palm oil and macauba oil, which is derived from a Brazilian tree. And Masdar has?bought half?of a solar and battery storage project in California.

An invasive tree called Prosopis juliflora, which is mainly found in Central America, is now widespread across the UAE. However, a University of Sharjah researcher suggests?turning it into biochar, a soil additive and method of sequestering carbon.

Geothermal has historically received little attention compared to other renewable energy sources, but with new technology emerging and Masdar taking an interest, that?could change.

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“Climate change progress can be made in the UAE”

The UAE's clean technology sector can capitalise on rapidly improving technology and the global trend for more state-centric green energy spending. The Emirates can?become a centre?for green technology manufacturing. The Ministry of Industry and Advanced Technology hopes to encourage this with a two-day event where?24 sustainability-focused technology start-ups?will compete.

The Ministry of Climate Change and Environment hosted an event for 100 representatives of companies and government, as part of the?National Dialogue for Climate Ambition. Twelve UAE universities have launched the?University Climate Network?to encourage young people’s participation in Cop28.