In recent years, inconsistent investment policies within the oil sector led to instability in the energy markets. The OPEC+ group firmly believe in a dual approach of ramping up investments in the oil and gas industry to address the surging demand, while concurrently promoting investments to grow alternative energy sources.
The GCC countries have managed – exceptionally – to harmonize these objectives. In contrast, many major oil-consuming countries have adopted a divergent strategy. They either halted or minimized their investments in oil, compelling their leading corporations to follow.
Their primary focus has shifted towards expanding alternative energy sources. This shift engendered a mismatch between oil supply and demand.
The decline in hydrocarbon sector investments hasn’t been adequately compensated by those in renewable energy due to technological and financial barriers that demand significant effort, time and capital.
Recently, a convergence of the two trends emerged following a notable shift in the stance of oil-consuming countries. This change was particularly evident when major oil companies – diverging from their earlier reticence – announced the resumption of investments, propelled by forecasts of escalating demand over the next 20 years.
This shift was subsequently echoed by governmental actions. Notably, Norway declared its plan to funnel $3.8 billion into the development of the North Sea fields, and the UK greenlit the refinancing of exploration activities alongside approving the development and production of the Rosebank field in Scotland.
This synchronized approach is anticipated to, at the very least, fend off fresh crises in the energy sector and usher in price stability at levels acceptable to producers and consumers. The presence of OPEC+ is touted as a pivotal entity to ensure market equilibrium and sustained stability.
No let up in oil demand
A recent disclosure by OPEC in its ‘World Oil Outlook 2045’ underscored the sector’s requirement for a substantial $14 trillion through 2045, or $610 billion annually. It projected a climb in oil demand to 106 million barrels per day, further surging to 116 million by 2045 from the current 100 million barrels. The bulk of this is expected to emanate from OPEC members.
Given this approach and shared conviction, repercussions are expected both for the economies of these countries and on the global economy at large. Over the next two decades, oil-producing countries are predicted to maintain high production levels alongside fair pricing, thereby unlocking rare developmental opportunities.
These opportunities, if harnessed, could propel economic diversification and diminish the oil’s contribution to less than 20 per cent of their GDP—a chance that may not reoccur post-2045.
Net positive for state finances
As for the consuming states, the development of their production fields, coupled with potential new discoveries, will furnish additional financial resources and curtail energy imports, thus bolstering their trade balances. It’s noteworthy that these countries levy a tax ranging from 80-100 per cent on their oil imports, generating greater revenues than the producing countries.
The substantial taxes imposed on their major oil and gas corporations, which operate hundreds of fields and oversee exploration and production activities globally, further enhance their financial position.
This shift will not impede the momentum geared towards developing alternative energy sources, which is imperative. These two trajectories are seen to progress in tandem, as advocated by the GCC countries and OPEC+.
Such developments, validated by unfolding events, are poised to shield the global economy from looming energy crises and specter of soaring inflation rates. The transition towards renewable and clean energy sources is envisioned to unfold gradually and meticulously, aiming to curtail environmentally detrimental carbon emissions. And thereby epitomizing success for collaborative global endeavours.
