Executive Summary
At the end of 2023, the United Arab Emirates hosted what was widely seen as a successful United Nations Climate Change Conference, COP28, in Dubai, where nearly 200 parties agreed to transition away from fossil fuels and step up renewable energy investments. The U.N. stated the outcome of COP28 marked the “beginning of the end” of the fossil fuel era.
One of the most important outcomes of COP28 was the first global stocktake, which reviewed what had been achieved on climate action since the 2015 Paris Agreement and identified the gaps. It recognized that by 2030 global greenhouse gas emissions need to be cut by 43% from 2019 levels to limit global warming to 1.5 degrees Celsius. The findings will form the basis for stronger climate action plans due to be submitted by all parties by 2025.
The final agreement at COP28, the “UAE Consensus,” included a pledge by participants to triple clean energy investment by 2030, which will require trillions of dollars in investments. All Gulf Arab oil producing states signed the agreement, so the clock is ticking to make good on the pledges made in Dubai and speed up economic diversification efforts to ease reliance on oil and gas revenue.
Since December 2023, OPEC has been driving home the message that a transition away from fossil fuels needs to be gradual to avoid a shock to the global economy. Successfully transitioning and reaching decarbonization goals will require greenhouse gas emissions to be tackled from all sources – shipping, aviation, road transportation, heavy industry, agriculture, water desalination, electricity generation, heating, and cooling. This, OPEC Secretary General Haitham Al Ghais has argued, cannot be done overnight.
In a March 11 article for OPEC, Ghais painted an apocalyptic picture of what a world without oil would look like: “If oil disappeared tomorrow, there would be no more jet fuel, gasoline or diesel. Internal combustion engine automobiles, buses, trucks, lorries and coaches would be stranded. Airplanes powered by jet fuel would be grounded. Freight and passenger rail powered by diesel would halt. People could not get to work; children could not get to school. The shipping industry, transporting both freight and passengers, would be devastated.” He added, “If oil disappeared tomorrow, the renewables industry would be impacted. The fibreglass, resin or plastic necessary for the construction of most wind turbines, would disappear. The ethylene used in the production of solar panels would vanish … Yet, despite these realities, there are calls saying ‘Just stop oil,’ ‘Keep it in the ground,’ or ‘don’t invest in new oil and gas projects.’” Ghais added that OPEC wants to see greenhouse gas emissions reduced, noting that the oil industry is “already proactive in this regard.”
Although Ghais did not mention the International Energy Agency, OPEC has been at odds with the Paris-based consumer watchdog over what it says is the “demonization” of the oil industry. The long-term demand forecasts of OPEC and the IEA have diverged, and repeated declarations by Fatih Birol, the executive director of the IEA, that fossil fuels are set to peak by 2030 have also made for a tense relationship between the two organizations. The IEA’s “Net Zero 2050” report published in 2021, interpreted by OPEC as a call on the industry to stop investing in new oil and gas production capacity, was another source of tension.
Saudi Aramco CEO Amin Nasser, speaking in Houston in March, noted that renewables today make up just 4% of the global energy mix, while fossil fuels have held steady over the past two decades at 80%.
Amid the energy transition, the crisis in the Middle East over the war in Gaza and the ongoing conflict in Ukraine have introduced new risk factors, pushing energy security concerns to the top of the political agendas of consuming countries.
Houthi attacks on commercial ships in the Red Sea have disrupted international trade flows and endangered the free flow of energy from the Middle East, though there has been no interruption to oil and gas supplies. Oil prices have remained relatively stable despite efforts by OPEC to steady prices by slashing production by just short of 6 million barrels per day in the last two years.
While the energy transition is taking hold in the Gulf, the Arab oil producing countries will need hydrocarbon revenue to drive the decarbonization of their economies, which are still heavily reliant on revenue from oil and gas sales. This will require stable oil prices at levels that allow for a smooth transition while avoiding fragmentation and social instability.
“The demonization of oil and gas for nearly the last decade … is turning, there is an understanding that there is a need for oil and gas for the long term,” Qatar’s minister of state for energy affairs, Saad bin Sherida Al Kaabi, said at the World Economic Forum in Riyadh.
The role of natural gas in the energy transition is still being debated, but several Gulf countries are expanding their production capacity in the expectation that the cleanest of the fossil fuels will displace coal and retain a significant share in the global energy complex for decades to come.
The next few years will be pivotal for the Gulf and the broader international community as the world’s energy architecture is redesigned to meet net-zero ambitions.
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About Petro Diplomacy
This paper is the scene setter for the 2024 Petro Diplomacy conference. Now in its 10th year, AGSIW’s Petro Diplomacy conference is a signature annual event that brings together stakeholders in the energy sector of the Gulf Arab states, global supply competitors in North America, analysts, and policymakers to discuss how changes in technology, fiscal priorities, and opportunities for growth continue to alter the relationship between politics and energy for both the region and the world.
