Policymakers need to look beyond this winter and stop vilifying the oil and gas industry if they want to prevent the next energy crisis, according to the chief executive of the world’s biggest oil company and largest crude oil exporter, Saudi Aramco.
Amin Nasser criticized the short-term emergency responses to the energy crisis in Europe and said that the short-term view doesn’t help energy supply or energy security at all.
The ongoing energy crisis, while intensified by the Russian invasion of Ukraine, didn’t start with the war, according to Aramco’s top executive. Years of underinvestment, a lack of a backup plan, and alternatives not ready to step up and replace conventional energy are the real causes of this state of energy insecurity today, Nasser said in a speech at the Schlumberger Digital Forum 2022 in Switzerland.
“Let me be clear: we are not saying our global climate goals should change because of this crisis,” he said. However, the world and policymakers need a more credible energy transition plan, which has to recognize that “supplies of ample and affordable conventional energy are still required over the long-term.”
Aramco’s Nasser reiterated the long-held view of Saudi Arabia that the world will need oil and gas for the foreseeable future and will need more investment in the industry just to keep supply steady amid declining output from maturing wells, and even more investment to boost production capacity to meet the world’s energy needs.
“Oil fields around the world are declining on average at about 6% each year, and more than 20% in some older fields last year. At these levels, simply keeping production steady needs a lot of capital in its own right, while increasing capacity requires a lot more,” Nasser said.
Fossil fuels still account for more than 80% of global energy consumption, and with demand expected to rise at least this decade, underinvestment in oil and gas supply will continue to be a concern.
While many in the industry, including Aramco, have been warning for years that underinvestment would come back to haunt global energy markets, many policymakers in developed economies have ignored those warnings and have bet on renewables and unrealistic energy transition plans, according to Nasser.
Investment in oil and gas more than halved between 2014 and 2021, Nasser said, adding that “The increases this year are too little, too late, too short-term.”
“Meanwhile, the energy transition plan has been undermined by unrealistic scenarios and flawed assumptions because they have been mistakenly perceived as facts,” he noted.
“Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right,” Nasser said.
“Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged,” he added.
The emergency measures to tackle the crisis in Europe are just short-term attempts at alleviating consumer and business pain without addressing the cause of the current crisis: planning for an energy transition without securing energy supply first.
“Diverting attention from the real causes by questioning our industry’s morality does nothing to solve the problem,” Aramco’s Nasser said.
The EU’s plan to raise $140 billion (140 billion euros) to cushion the energy crisis blow to European citizens and the economy is an attempt at a short-term fix to a crisis that has been brewing for years, he added.
“Freezing or capping energy bills might help consumers in the short-term, but it does not address the real causes and is not the long-term solution. And taxing companies when you want them to increase production is clearly not helpful,” Nasser noted.
Calling for more investment in oil and gas, he added that “investing in conventional sources does not mean that alternative energy sources and technologies should be ignored.”
“This is the moment to increase oil and gas investments, especially capacity development. And at least this crisis has finally convinced people that we need a more credible energy transition plan.”