Amin Nasser, president and chief executive officer of Saudi Aramco, issued a warning to the energy sector about making poor decisions in what seemed to be a very deliberate effort to inject some reality into the hasty transition to renewable energy.
He gave the opening keynote address on Tuesday in Luzern, Switzerland, at Schlumberger’s Digital Forum 2022. In addition to outlining his own strategy for an energy transition, Nasser sought to remedy what he perceived to be certain industry errors.
The global energy crisis, according to Nasser, “promises a colder, harder winter, particularly in Europe,” as autumn officially begins this week. We have little prospect of resolving the crisis very soon since, regrettably, the response to date shows a profound ignorance of how we got here in the first place.
As a result, I’d want to concentrate on the true causes this morning because they cast a clear light on a much more dire course of action.
He claimed that historians who look back on this disaster will note that there were early warning indicators for the global energy market for almost a decade. Nasser noted that “many of us have been adamant for years that investment in oil and gas would continue to decrease.
” The global economy, markets, and people’s lives would be impacted by the global supply growth falling behind demand. In fact, from $700 billion in 2014 to just over $300 billion in 2017, oil and gas investment fell by more than 50%. This year’s gains are too little, too late, and too brief.
Bad plans are the result of flawed assumptions. Nasser claimed that because analyst scenarios and false presumptions were treated as fact, the energy transition plan had been compromised.
He gave the following example: “One possibility that many of us predicted was that substantial oil use in sectors would switch to alternatives, virtually overnight, and, as a result, oil consumption would never return to pre-Covid levels. This has since come to pass.
In actuality, oil consumption as well as gas demand surged back once the world economy began to emerge from lockdowns. In comparison, barely 10% of the world’s power is produced by solar and wind energy, and less than 2% of the world’s primary energy supply.Even with the high electricity tariffs now in place, less than 2% of all automobiles are electric.
Most harmful of all, though, was the notion that contingency planning could be safely disregarded. Your transition strategy had better be sound if you plan to demolish oil and gas companies, investors, coal and oil-fired power facilities, fail to diversify your energy sources, disregard fair energy analysis, and reject nuclear power.
Denying previous theories. Nasser went into more detail on his contempt for conventional wisdom regarding the energy transition. The plan was nothing more than a “collection” of sandcastles that the seas of reality had washed away, as this crisis had demonstrated, he claimed. Accordingly, the CEO of Aramco claimed that a large number of people currently experience problems gaining access to electricity, which might have serious and lasting effects.
“Underinvestment in oil and gas, the lack of preparedness for alternatives, and the lack of a backup plan are crucial at this level of energy instability.
But based on the comments up to this point, you wouldn’t know that. Energy bill freezes or caps may benefit customers in the near term, but they do not address the underlying problems and are not a sustainable solution. Additionally, it is obvious that taxing businesses when you want them to expand production is ineffective.
According to Nasser, while Europe actively supports alternatives and types of renewable energy to lessen one set of dependencies, it might just be substituting the new ones for the old ones. He stated, “As for conventional energy purchasers, who expect producers to make big investments only to satisfy their short-term demands, they should lose those expectations soon.
” He was criticising the actions of some nations. Furthermore, questioning the morality of our profession does not help the situation by deflecting attention from the real issues. The world needs to be clear about the many causes and deal with their effects.
Aspects of underinvestment. The CEO of Aramco thinks that preparation for emergencies has been neglected along with investments made in the finding of natural gas. On the other hand, he pointed out that “world consumption of coal is likely to increase this year to roughly 8 billion tonnes.
” “This would bring it back to the high point from over ten years ago. Oil stocks are also low, and the effective global spare capacity is currently 1.5% of the total demand. The fact that oil reserves are falling by an average of 6% annually and more than 20% in certain older fields last year is also worrying.
He went on to say that at these levels, merely maintaining production demands a significant amount of capital in and of itself, and expanding capacity requires considerably more. Yet, he added, “unfortunately, a fear element is still forcing big oil and gas investment to decline in large, long-term projects.
” “And the fact that the discussion is dominated by excessively short-term demand factors does not improve the problem. The demand for oil is increasing globally despite significant economic hurdles. But when the world economy turns around, we may anticipate a significant increase in demand, which will eliminate what little spare oil production capacity there is. And it might be too late to change course by the time the world realises these blind spots.