Some time back, the major global oil companies significantly curtailed their oil investments, a move that put a dent in production capacity after coming under pressure from their governments and ‘green-focussed’ institutions to reduce carbon emissions.
These companies have more recently modified their policies aimed at reducing these investments, with major spikes to be expected from them in the near future. This approach had resulted in a significant increase in funding for clean and renewable energy sources. According to the International Energy Agency (IEA), solar energy funding will surpass oil investments for the first time in 2023, with about $2.8 trillion expected to be invested globally in energy this year.
Increasing investments in renewable energy sources encourages optimism about improvements in environment and climate conditions after the string of natural disasters caused by climate change in the recent past. Some oil-producing countries, particularly the UAE and GCC countries, have contributed to the development of renewable energy, with the world’s largest solar power plants currently operating in the GCC. They have also assisted and financed the implementation of solar, wind, and estuary projects in many countries around the world.
Dual track energy policy
In fact, there is a big difference between energy policies implemented by oil-producing countries such as the GCC and those by consuming countries. In oil-producing countries, renewable energy investment runs parallel to funding into oil and gas energy. In the sense that investment in renewable energy did not harm or diminish their investments in fossil energy sources, and were distributed in a balanced and intelligent manner across these two areas.
This is in contrast to energy policies of consuming countries, which forced their companies to cut investments in oil and gas under threats of sanctions and windfall taxes. While they were unable to implement their program for the development of renewable energy sources in accordance with their needs.
Such policies resulted in sharp rises in energy prices, which have been mitigated by the oil-producing countries increasing investments and production capacity to meet the growing global demand for energy in general.
Where will rest of oil supply come?
As pointed out by the International Energy Agency, oil demand is expected to increase by 2.5 million barrels per day this year, reaching 104.5 million barrels. The OPEC+ alliance produces 40.5 million barrels per day, with the potential to increase its production capacity to 44.5 million barrels.
This requires the provision of 60 million barrels per day from outside the OPEC+ alliance, which is difficult due to the declining investment in oil energy in the past. This was what recently prompted major oil companies to increase their investments, disregarding the stance of their respective governments, which have turned a blind eye to it, recognising its importance in maintaining stability in oil production and prices, as well as energy supplies.
Reassuring global markets
Although the results of these investments may take some time to contribute to increasing production, they can help reassure markets. Part of the disrupted production capacities can accelerate production processes. This comes at a time when there is a growing dependence on the output of OPEC+ alliance, whose members have not stopped pumping more investment into the oil industry.
This necessitates addressing energy and economic issues based on fundamental needs and available capabilities, while maintaining a balance between supply and demand away from emotional influences.
The issue of environment and climate change is a concern to all countries, including oil-producing nations. Holding the COP28 climate conference in the UAE later this year serves as evidence of the global attention to this issue. The outcomes from the conference should contribute to helping improve the environment and climatic conditions and easing on their repercussions.
Addressing this issue of great importance to humanity requires a balanced and practical vision to avoid creating further complexities that can lead to severe economic damage. One that can impact living standards through inflation, as has happened in the past four years.
