COP26: Energy transition confronts oil resilience

Sopuruchi Onwuka

The world would in the first week of November be in dilemma with dicey decision on the fate of fossil fuel as high energy prices spark off strong inflationary trends that hurt the economies of the rich industrialized nations.

The predicament is clearly visible in the role of fossil fuel in global warming as delegates gather in Glasgow for the 26^th meeting of Conference of Parties (COP26) to the Paris Agreement on the United Nations Framework Convention on Climate Change (UNFCCC). The meeting which is generating serious buzz among the community of environment activists is expected to particularly lay concrete groundwork for concerted global action in cutting fossil fuel consumption.

The meeting is coming as scientists, governments, industry captains and economists jointly ring the emergency bell on climate crisis. And world leaders meeting in Glasgow are billed to exact more ambitious commitments from governments and global business on actions in pulling the earth back from climate catastrophe.

The Oracle Today reports that record droughts, heat waves, furious hurricanes and raging forest fires have all signaled climate change red flags, making the COP26 one of the most emotionally charged U.N. Climate Change Conferences on curbing global warming.

The 197 countries whose delegates are expected at COP26 would seek to upgrade commitments on curbing greenhouse gas emissions that trigger atmospheric heat; and focus would be on how to drastically cut use of fossil fuel and evolve alternative energy sources to power global economy.

Thus, the agenda would also lay strategy paths for rapid development of cleaner energy sources that would wipe of carbon footprints on the environment.

There are also arguments about taking responsibility for the current high levels of emissions and associated global warming. And industrialized nations are expected to respond to funding calls to help developing nations meet their own emissions targets.

The existing climate agreements created mechanisms for gathering funds from wealthier countries, which are responsible for the vast majority of carbon emissions, and distributing the money to developing countries for adapting to climate change and growing economically without relying on fossil fuels.

The World Meteorological Organization said in a report that greenhouse gas concentrations have hit a new record high last year and increased at a faster rate than the annual average for the last decade despite a temporary reduction during 2020 pandemic lockdowns.

According to the report, concentrations of carbon dioxide, methane and nitrous oxide were all above the earth’s pre-industrial natural equilibrium before 1750.

Secretary-General, Petteri Taalas, said: “At the current rate of increase in greenhouse gas concentrations, we will see a temperature increase by the end of this century far in excess of the Paris agreement targets of 1.5 to 2 degrees Celsius (2.7-3.6 Fahrenheit) above pre-industrial levels.”

The report holds that global average concentration of carbon dioxide, the main greenhouse gas, hit a new high of 413.2 parts per million last year, adding that the 2020 increase was higher than the annual average over the last decade despite a 5.6% drop in carbon dioxide emissions from fossil fuels due to COVID-19 restrictions.

It is widely held that greenhouse gas emissions from fossil fuels like oil and other industrial activities account for about 70 percent of global warming.

The WMO report said the pandemic induced economic retreat of last year yielded a temporary decline in new emissions but did not have any discernible impact on the atmospheric levels of greenhouse gases and their growth rates.

The report also pointed at impacts of deforestation on the earth’s carbon sink and the role of forest fires in turning carbon sinks to carbon sources.

The United Nations climate office separately warned that the world remains off target for meeting its goal of cutting emissions as part of international efforts to curb global warming; pointing out that current efforts maght lead to a temperature rise of about 2.7C (4.9F) by the end of the century.

Experts argue that emissions must cut to half by 2030 compared with 2010 levels and essentially hit zero by mid-century, if the Paris goal of keeping global warming around 1.5 degrees Celsius is to be achieved.

Head of UN climate office, Patricia Espinosa, declared that “overshooting the temperature goals will lead to a destabilized world and endless suffering, especially among those who have contributed the least to the GHG emissions in the atmosphere. We are nowhere near where science says we should be.”

However, Alok Sharma, who is expected to pilot proceedings at COP26, said progress has been made since the Paris deal was struck in 2015, when projections of existing emissions cuts pointed to warming of up to 4.0 degrees Celsius.

Ironically, the COP26 agenda of fast tracking emission curbs and migrating energy demand from fossil sources coincide with strident calls from industrialized nations on OPEC and its allies to pump more oil to ease price hikes that stoke inflation and hurt their economies.

The Oracle Today reports that despite the collective sentiments that would pile up against fossil fuels at COP26, individual countries currently coping with high energy cost have sustained calls for increased petroleum production to ease supply tension in the market.

Thus, the league of world’s biggest oil and gas producers bound in a Declaration of Cooperation (DoC) would also be holding alternate meeting in the same period to reassess price developments in the oil market and explore intervention in the inflationary trends across the world.

OPEC and its allies in the 2016 DoC which pledged to unleash restrained output this year has proved unable to meet its supply projections since second quarter of the year when the pledged volume of increase became significant.

Falling investments in petroleum development and production accounts for inability of the producer groups to respond to calls from the market for increased supply volumes amidst the prevailing global supply crisis.

The Secretary General of OPEC, Dr Mohammed Barkindo, had in a chat with The Oracle Today, expressed concerns about the slow production recovery among member countries who had in 2020 withdrew nearly 10 million barrels per day to save the oil market from demand destruction inflicted by the global coronavirus pandemic.

OPEC and its allies in the DoC had resolved to restore more oil to the market as the global vaccine rollout enabled the economies of the world recover from the coronavirus pandemic.

However, the group’s production was 15% lower than planned in September; it fell short by 16% in August; and recorded a 9% deficit in July, according to several market intelligence reports.

The cuts were the outcome of steep in the production volumes from Angola, Nigeria and Azerbaijan; and total supply deficit according to the group’s quotas amounted to about 747,000 barrels per day in September. And the production deficits are bound to worsen with an already predicted 700,000 shortfall for the last quarter of the year.

The International Energy Agency (IEA) explained in its global energy outlook that the mounting demand for gas in Europe and Asia has spilled into about 500,000 barrels a day additional demand for oil in the next six months. The agency predicts that supply deficit of about 700,000 barrels a day would still haunt the market for the rest of this year in spite of the planned supply boost by OPEC.

The grim supply outlook by IEA exacerbates the existing supply deficit brought on by declines in some OPEC countries.

Survey of market reports shows that the prices for other energy commodities including oil and coal have also escalated to the upper range towards the $100/barrel mark. Benchmark Brent crude grade was heading towards $85 at the time of this report. That would be some 67 % from January levels. The U.S. benchmark West Texas Intermediate or WTI also followed the bullish trends at over $80 per barrel.

The inability of some members to meet their production quotas are attributed to falling capacity due to low exploration and development investments.

The Oracle Today reports that rising concerns about climate change and the drive by the world for energy transition have led to the demonization of the petroleum and coal industries. And the rich industrial economies have also pressured global governments, lending institutions, investors and environmental activists to drain incentives from fossil fuel development and flow resources towards green energy evolution.

The prevailing energy crunch and consequent price spikes have disrupted the narratives that support peak oil demand and energy transition from fossil fuels. Review of price forecasts by analysts propel doubts that the energy transition time frames and peak oil predictions are based on solid predictions.

The assertion of strong influence on the global economy by the hydrocarbon industry, The Oracle Today reports, would obviously challenge the key basis for huge global investments and sacrifices in energy transition when as it has proved that petroleum remains the prime factor of production with no viable alternative in the near term.

Obviously, there is an evident disparity between emissions ambitions and the capabilities to fulfill these ambitions at a time the renewable industry is still low in capacity. The signal is clear to even investors and fund managers.

With market incentives and price lucre pulling on investors and operating companies, funds have started flowing back to exploration and production investments despite the push into ESG investing over the past few years.

A recent report by the United National Environmental Programme (UNEP) cites plans by world’s biggest oil companies, which have duly committed to net zero targets, to drive bullish petroleum development projects under the prevailing market outlook.

Global fund managers seeking strong investment returns have also stepped back into petroleum industry stocks as prices contradict analysts’ predictions that fossil fuel had taken a final plunge.

Dr. Barkindo declared at a summit in Moscow that the global energy prices were responding to market forces and other evolutionary factors.

Russia which leads a group of 10 oil producing nations in the DoC with OPEC predicts even higher prices for oil. President Vladimir Putin stated that prices of oil could reach $100 per barrel as demand for all energy commodities grows amidst tight supply.

In maintaining its position on transition to green energy options, the IEA stated in its World Energy Outlook 2021 that the current global volatility in the energy market and stronger fossil fuel prices would continue without a major boost in clean energy investment.

The agency also reported that the prevailing energy crisis has led to a sharp rebound in coal and oil usage, putting the world on course for the second-largest annual increase in carbon emissions in history this year. It added that the situation demands triple investment in clean energy and infrastructure over the next decade to meet net-zero targets for carbon emissions in 2050.

Executive Director, Faith Birol, stated that robust financing is required to develop sources of new energy that would dilute the influence of coal and petroleum in the global energy market. He warned of a looming risk of greater turbulence and uncertainties for global energy markets if energy sources are not diversified from fossil fuels.

He said, “Some 70 per cent of that additional spending needs to happen in emerging and developing economies, where financing is scarce and capital remains up to seven times more expensive than in advanced economies.”

The IEA also admitted in the outlook that oil demand would not peak until the mid-2030s without further action. It advanced propositions that would commit governments to incentivize manufacturing of wind turbines, solar panels, lithium-ion batteries, electrolysers, and fuel cells.

The agency also marketed the renewable energy services industry as promising trillion-dollar opportunities for investors by 2050.

Despite the advocacies for clean energy and emission reduction, key issues that that would weigh on arguments and agreements at COP26 would center on specific needs of participating countries whose delegates are expected to present their positions from the prisms of peculiar in-country challenges.

Already, Asian industrial powerhouses including China and India appear not inclined to take commitments that would run into conflict with internal economic development plans. These countries, most significantly China, have so far refused to agree to stringent climate action commitments because they fear it could interfere with economic growth.

The United States and the rest of the Americas still need fossil fuel to optimize their resource, economic and industrial potentials. In these countries, there is internal dilemma of swinging too deeply into either side of the balance. But coal, oil and gas strongly dominate the energy mix.

Russia which is a leading global emitter and fossil fuels exporter is not expected to play into the hands of its European customers seeking independence from its gas.

According to data from the Organization for Economic Co-operation and Development or OECD, Russia is the world’s largest exporter of natural gas, and fossil fuel sales account for 36% of the country’s budget. Russia currently supplies more than a third of the European Union’s natural gas supply.

Russian President Vladimir Putin would not be attending the U.N. COP26 climate change conference in Glasgow in person; and he had earlier advised the world on smooth energy transition that would not unsettle both the earth and the world.

China’s President Xi Jinping has also apologized for inability to attend the COP26 conference, denting the highly hyped global climate action mandate expected from the summit.

Both Russia and China have also declined to meet the 2050 target for net zero carbon emissions, pointing at 2060 as possible time for them to arrive at compliance.

The United Stated which is the world’s second largest emitter of global greenhouse gasses after China has agreed to the 2050 goal. India which is third largest emitter has declined a pledge.

The pledges on climate action are not binding and punishable under any international treaty, The Oracle Today learnt. And commitments to climate action are mostly proportionate to renewable energy capacity and oil market dependence. So, the advanced industrialized nations of Europe are logically ahead of the game.

Other developed nations and emerging economies in Asia, South America, Middle East and Africa obviously cannot afford energy transition at this point due to peculiar country situations and economic challenges.

Experts point at the peculiar needs of China, Russia and India which have large geographical spaces, sparsely distributed but large populations and the requirement to meet energy needs of large numbers of people in far flung locations with available options.

An energy expert at the Center for Strategic & International Studies, Nikos Tsafos, stated in a report surveyed by The Oracle Today that Russia and many other countries have little renewable energy capacity to rapidly displace the economic and energy value of fossil industry.

Apart from China, most other non OECD countries have little capacity for electric vehicle production. Most countries in Africa, Middle East and Asia and have little or no laid out investment in renewable energy to displace hydrocarbon fuels or even absorb the volume of labour in their fossil industries.

Tsafos, whose work focuses on the world’s major oil and gas producers, says hydrocarbon states tend to go through phases of denial, market scramble and diversification when it comes to energy transition.

Dr Barkindo says that there is no denial in oil producing countries, explaining that the argument has always centered on the whims of the industrialized countries to drag other nations into a direction they have chosen for themselves.

He told The Oracle Today that taking a decision in saving the planet is not the exclusive preserve of the OECD states which, according to him, have emerged from energy poverty on the back of hydrocarbon fuels.

Dr Barkindo stated that even the poor developing countries, most of which rely on hydrocarbon resource wealth for development, also suffer worse impacts of climate change.

“There are no climate change deniers!” he said, adding that “even the oil producers suffer greater impact of climate change in terms of drought, flooding and soil erosion.”

The position of developing countries that still rely on hydrocarbon fuels is that the climate debate should be inclusive in order to capture the peculiar predicament of the poor countries that are faced with both energy poverty and climate impact, Dr Barkindo emphasizes.

He said climate debates must be more inclusive, stressing that OPEC and its allies are attuned to forging collaborations that would evolve comprehensive strategies in addressing all issues that surround climate change in a sustainable manner.

“The signs of climate change have taught us that this is a global challenge that requires global solutions. You cannot address this issue from the prism of the rich industrialized countries. The world goes beyond Europe, North America, Japan!” he pointed out.

Dr Barkindo faulted the projections that drive the energy transition activists, warning that oil and gas would remain the dominant fuel in the global energy mix by 2050. He made it clear that petroleum would account for 53 percent of total available energy to the global population in the next 30 years.

By then, he warned, global population would have grown by 1.8 billion people; driving rapid urbanization, propelling proportionate energy demand, and worsening energy poverty in developing countries of Africa and Asia.

Dr Barkindo argues that every form of energy would be needed to meet the rising demand from a rapidly growing global population. What is required, according to him, is to evolve strategies of addressing energy poverty across the globe in an environmentally sustainable manner. He said that OPEC and its allies are ready to work with global partners in addressing climate issues in an inclusive, comprehensive and realistic way.