Hydrocarbons will remain an integral part of energy mix for the foreseeable future, says Haitham Al Ghais.
Underinvestment in the oil and gas industry could lead to increased oil market volatility, Opec secretary general Haitham Al Ghais said on Monday as he urged the industry to ensure that the energy transition is inclusive.
“Investment is urgent to account for an annual decline rate in production … and despite the urgent need for investment, we have heard disheartening calls to divest from hydrocarbons,” Mr Al Ghais told attendees at the Middle East Petroleum and Gas Conference in Dubai.
The Opec chief said lack of investment in the sector would “endanger” energy security and economic growth.
The oil producers group estimates that the world needs $12.1 trillion in investment to meet rising oil demand by 2045.
Demand for oil as a primary fuel is expected to increase to 101 million barrels equivalent a day in 2045 from 88 million barrels equivalent a day in 2021, Opec said in its World Oil Outlook last year.
“The reality … is that oil and gas will continue to be an integral part of the energy mix for the foreseeable future,” said Mr Al Ghais.
With global oil demand growing at 8 million barrels per day, the world could face a supply crunch due to western sanctions on Russian crude exports, Fereidun Fesharaki, chairman of FGE Consultancy, told delegates.
Russia can maintain production at about 10 to 11 million bpd, but 2 million bpd of future growth is unlikely to materialize amid price caps, he said.
China, the world’s second-largest economy and top crude importer, reopened its borders in January after enforcing a strict zero-Covid policy for about three years.
The Asian country, which is aiming for gross domestic product growth of 5 per cent this year, is set to be a big driver of crude demand this year.
“China’s fundamentals are shaky, but strong enough to take us through … its oil demand will peak by 2027 or 2028,” said Mr Fesharaki.
Brent, the benchmark for two thirds of the world’s oil, has lost more than 12 per cent of its value since the beginning of the year amid demand concerns and a regional banking crisis in the US, which rattled financial markets
There are a lot of “negative signals” in the US, but unemployment is low, Mr Fesharaki said.
“Until the unemployment situation changes in a big way in the US, there is no signal that there is a recession.”
Brent was trading 0.34 per cent lower at $75.56 a barrel at 01.07pm UAE time on Monday. West Texas Intermediate, the benchmark for US crude, was down 0.66 per cent at $71.45 a barrel.
Last month, Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria announced voluntary output cuts of 1.16 million bpd.
The cuts, which will be in place from May until the end of the year, are meant to ensure oil market stability, the producers said at the time.
The oil market has been “more at ease” with the current supply and demand outlook, Mike Muller, head of Vitol Asia, said at the event.
This is in part due to the “elimination” of the risk premium arising from sanctions on Russian crude, he said.
“There was a real concern that Russian oil would not come into the market because players would not be able to cope with the impact of sanctions,” he said.
The Vitol executive said he expected crude demand to rise by 2 million bpd in the second half of the year, compared with current levels, thanks to higher consumption in Asia.
“This is primarily the winter effect in Asia … but also a strong view that we still have that pre-Covid demand yet to come,” said Mr Muller.