By Ellen R. Wald, a non-resident senior fellow at the Atlantic Council’s Global Energy Center and president of Transversal Consulting, and Jonathan H. Ferziger, a Jerusalem-based nonresident senior fellow at the Atlantic Council and a former Middle East correspondent for Bloomberg News.
While U.S. President Joe Biden preaches a net-zero emissions goal for 2050 to slow global warming, and activist shareholders force Exxon Mobil Corp. to embrace solar and wind power, Saudi Arabia sees a bright future for what it knows how to do best: pumping oil.
Let others indulge their fantasies that alternative fuels can nullify the need for new investment in petroleum supplies, said Saudi Energy Minister Prince Abdulaziz bin Salman. Asked about a report by the International Energy Agency that made such a recommendation, the 61-year-old royal was ready with a snappy comeback. “I believe it is a sequel to the La La Land movie,” he said at the online OPEC+ press conference on June 1. “Why should I take it seriously?”
Prince Abdulaziz, who brings his message to Wall Street this week at the JP Morgan/Robin Hood investors conference, is not alone in warning that the pressure to shift away from fossil fuels is getting ahead of itself. While U.S. and European oil majors and other energy companies are busy selling off assets to comply with decarbonization mandates, global demand for fossil fuels continues to rise—especially in China and India, the world’s most populous countries. This leaves national oil companies such as Saudi Aramco with the opportunity to reclaim market power, earn vast profits, and shift the center of oil and gas production back to OPEC.
It also points to the potential for a new energy crisis in the West. In the United State, the shale revolution’s boom days appear to be in the rear-view mirror. Fracking companies, such as Devon Energy and Occidental Petroleum, are now more concerned with paying down debt than drilling new wells. They are fearful of shelling out cash to expand now that the Biden administration has frozen permits for new wells on federal land. As a result, the United States is back to being a net importer of petroleum, including crude oil and petroleum products such as gasoline, after finally becoming a net exporter in 2020. Oil and gasoline prices are almost at six-year highs.
As soon as he took office in January, Biden made reducing fossil fuel use a banner priority, creating a cabinet position for former Secretary of State John Kerry as climate envoy and pledging to pursue the goal of net-zero emissions by 2050, a target also set by nearly 60 other nations.
Institutional investors are paying attention. In late January, the world’s largest asset manager, BlackRock, formally warned the companies it invests in that they would need to disclose their own long-term net-zero strategies. The IEA report said that if the global campaign is to meet its zero-emissions timeline, then investment in new oil and gas production must be halted. At the same time, however, the report predicts demand for carbon-based fuels will expand for the next two decades.
Prince Abdulaziz’s mocking of the report was echoed by Igor Sechin, the CEO of Rosneft, Russia’s largest oil producer. Speaking at the St. Petersburg International Economic Forum on June 5, Sechin said the world “runs the risk of facing an acute deficit of oil and gas” if investment in production is cut. He warned against focusing primarily on alternative energy sources.
State-owned oil companies in OPEC+ countries may be the only ones that can resist the pressure to wind down fossil fuel production. A small activist hedge fund, Engine No. 1, managed to unseat three board members of ExxonMobil because the activists felt the oil major hadn’t sufficiently adjusted its corporate strategy to climate change.
Similar pressures led French oil company Total to rebrand itself under the new name TotalEnergies and pledge to devote 20 percent of its current annual investment budget to renewable energy sources. A Dutch court, meanwhile, ruled that Royal Dutch Shell will have to reduce its carbon emissions by 45 percent from 2019 levels by 2030. Total, Shell, and BP are all reorganizing their assets to drop less profitable fossil fuel projects and add renewables.
