Dr. Sultan Ahmed Al Jaber, Minister of Industry and Advanced Technology and President-Designate of the 28th Session of the UN Climate Change Conference (COP28), speaking at the India Energy Week’s Asian Ministerial Energy Roundtable in Bengaluru last week, made the point that hydrocarbons-based energy system cannot be wished away and they will remain during the transition time to low-carbon energy system. He said, “The world still needs hydrocarbons and will need them to bridge from the current energy system to the new one. We cannot unplug the current energy system before we have built the new one.” The International Energy Agency (IEA) deputy executive director, Mary Burce Warlick, echoed Al Jaber’s argument in Riyadh said, “Despite the emergence of a new energy economy led by low-carbon energy sources, the role of oil and gas will remain prominent, even in a low-carbon energy system.”

But the energy experts are arguing for increase in investments in low-carbon technologies, and it is being argued that by 2030 investments in clean energy should touch $2 trillion. There is also the argument that it is the oil producing economies who should invest more in low-carbon systems and it is implicit that oil producing countries can remain world energy leaders because they can lead the way to new energy systems. Warlick was pointing to the possibility of synthetic fuels and hydrogen as the future energy sources.

There has also been concern over the need for stability in the energy markets, and the view expressed at the Riyadh meet is that there is need for investment in upstream supply side and there has also to be transparent policy. It has been held for some time now that oil producing countries are not investing enough in finding new sources of oil and in the technology of mining the oil as also refining it.

This has made oil extraction expensive and inefficient because of the time-worn methods. Helen Currie, chief economist at the petroleum refineries company ConocoPhillips, said, “There are things that could happen to try to restore stability to the markets: one is investment on the supply side and then there are transparent policies that acknowledge the stability of energy affordability and energy security for the long term.”

 She pointed out that there has been an upstream investment of $435 billion in 2022. She said that changes in government in several countries around the globe and the war in Ukraine have influenced the oil markets as well.

The man who was optimistic and who thought that things were getting back to the pre-COVID 19 normal was Peter Wood, chief energy adviser to oil giant Shell. He said, “Consumption patterns and behaviours have largely gone back to where they were. There’s a bit more working from home, you see that in vehicle miles travelled in the US.” And he was more than optimistic when he observed, “People have got in their cars, got in airplanes, and have gone back to the way of life that they liked, and more people want that way of life. So, demand looks strong in the short-term and medium term.”

There are two things that are causing concern in the oil producing countries. First, the possibility of economic recession because of rising inflation and the raising of interest rates by the central banks. Then there is the pressure to move away from the fossil fuels-based economy because of the acute challenge posed by the climate change crisis. The pressure to reduce dependence on fossil fuels is increasing but many of the governments and climate change policy activists are keen to end the use of fossil fuels at once. The world is not ready for that kind of a radical switch. The realistic view would be to look at a longer transition period.