Dubai: More than geopolitical shocks, the current volatility in oil prices is caused by long-term under-investment in the energy sector, according to Sultan Al Jaber, UAE’s Minister of Industry and Advanced Technology.
The situation in the market is the “result of a deeper and underlying structural issue,” said Al Jaber, during the Atlantic Council Global Energy Forum. “Long term under-investment in oil and gas has left markets more exposed to risks of any kind.”
Due to the Russia-Ukraine crisis, global crude prices have swung wildly in recent weeks, briefly crossing the $130 a barrel. Brent crude is currently at roughly $115 after seeing an 80 per cent surge over the last few months.
The COVID-19-induced demand shock and a shifting momentum towards investment in clean energy are slowing the expansion of the world’s oil production capacity. “The push to divest from hydrocarbons has met a stark reality,” the minister, who is also the ADNOC CEO, said. “We must accept and acknowledge that when we fully embrace the energy transition, we need to recognize that policies should be tailored to real-world scenarios.”
Oil majors from US and Europe have significantly scaled back their production activity amid intense pressure from shareholders. That’s changing now.
“They are (now) starting to come to terms with these realities and they're starting to accept those facts,” said Al Jaber. “They are starting to acknowledge that the transition will take time (and) now, they are pivoting their policies to ensure that near-term energy security is not undermined by long-term goals.”
UAE’s Energy Minister Suhail Al Mazrouei said the country will work closely with OPEC+ to keep the markets stable even as sanctions on Russia remove roughly 10 per cent of the global oil supply. “We are investing and raising our capacity to 5 million barrels (a day).
“But that does not mean that we are going to leave OPEC+ or do something unilaterally - we will work with this group to ensure that the market is stable,” said Al Mazrouei.
He said that it had become difficult to keep oil production up with falling investments and lack of financiers. “Financial institutions are a bit hesitant to finance many oil and gas projects in the world – they are saying that we (oil and gas producers) need to increase the production only for a few years as if it’s a tap you can open and close.”
Several OPEC+ producers are also struggling to maintain their production rates, with some “exposed to a 15-20 per cent decline,” said the minister. “We need to replace at least 5 to 8 million barrels of oil that we lose every year by investing and keeping the production where it is – we also have growing demand.”