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Russia-Ukraine crisis shows how sensitive oil prices are to geopolitical tensions: UAE Minister

Oil sector faces $200 billion under-investment

The oil sector is witnessing an underinvestment of $200 billion while demand continues to grow and will reach its pre-pandemic level in the fourth quarter of this year, said Dr Sultan Ahmed Al Jaber, Special Envoy for Climate Change, Minister of Industry and Advanced Technology, UAE, managing director and group CEO, Abu Dhabi National Oil Company (Adnoc).

While speaking at the World Government Summit at Expo 2020 Dubai, Al Jaber said the world is witnessing how sensitive energy markets are to geopolitical shocks after the Russia-Ukraine crisis.

“Yet, the current volatility in oil prices is a result of a deeper underlined structural issues. Long time under investment in oil and gas has left markets more exposed to risks of any kind and wherever they take place,” the minister said.

Quoting International Energy Agency data, the minister added that annual investment in oil and gas is still $200 billion below where it needs to be. “That is just to keep up with the demand through 2030. In the near term, we are also seeing markets tightening with demand up almost three million barrels over last year and expected to reach pre-pandemic level by Q4 of this year,” Al Jaber said during the opening speech of the summit.

“Let us continue to invest in new and future energies. But let us not de-fund the current energy system before the new one can take its place.”

Oil prices had surged to over $130 a barrel after the Ukraine-Russia military conflict. The Western countries have been asking oil-producing countries to boost their production to help bring down the crude prices. Brent crude price was trading at $115.8 per barrel on Monday morning.

Al Jaber stated that the energy policies should be tailored to real-world scenarios. “We should follow the basic rule of progress that if we fail to plan, our plan will definitely fail. An unrealistic approach that ignores basic economics will only lead to tighter markets that are even more exposed to geopolitical shocks.”

The World Government Summit 2022 is expected to be the largest gathering yet with more than 30 international organizations. This year’s summit will receive more than 4,000 global figures, government officials and specialists, aiming to discuss the future of governments with more than 500 decision-makers and thought leaders from all over the world hosting up to 110 sessions and workshops.

Al Jaber stressed that the world must not unplug the current energy system before it has built a new one as this transition to new energy resources will take time to materialise.

Hold back emission, not progress

He noted that near-term energy security should be not undermined by long term goals.

“We need to hold back emission – not progress. This is a balanced and positive approach that we have adopted in the UAE. This approach is pro-sustainable, pro-prosperity, pro-growth and pro-climate.”

The minister added that UAE is increasing investments in low carbon and no carbon resources. “We are expanding the production capacity of the world’s least carbon-intensive oil to over five million barrels per day. We are also growing our renewable portfolio five-fold. We are making more carbon-free energy available through our first-in-the-region nuclear programme” Al Jaber told the audience on Monday.

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The minister added that this strategy is based on a sound business case as a realistic balanced energy transition will provide a resilient pathway for new industries, new jobs and long-term sustainable economic growth.

“In the UAE, we are taking this pathway to adopt a new low-carbon high-growth economic model. A model that will guide our development for the next 50 years,” he added.

Al Jaber revealed that the UAE will continue to focus on practical and positive solutions that drive progress for climate and economy as both go hand in hand.

“We intend to make COP28 conference (which will take place in UAE in 2023) as inclusive as possible by bringing energy sector because it simply makes perfect sense to include energy experts in the dialogue. Let me take this opportunity to invite all of you to come to us with your innovative ideas and solutions to work together – solutions that are climate-friendly yet commercially viable,” he added.