Europe is counting on the Middle East as a key LNG supplier to replace Russia, but EU pressure on Gulf states to embrace energy transition faster is already driving a wedge between them.
In a report outlining the European Commission’s priorities for engagement with the Gulf, EU leaders said on May 18 that they aimed to step up cooperation with the region on climate action and energy. clean, but challenged fossil fuel producers in the Middle East to take “bold steps to move away”. of their oil and gas-based economies.
At the same time, they said the Gulf countries “can help limit volatility in markets affected by the energy transition, in particular by increasing exports of liquefied natural gas as an alternative to the pipeline”.
And they added that they would continue to emphasize “measures to stabilize oil markets, cooperation on hydrogen, energy efficiency and faster deployment of renewable energy”.
Gulf officials have argued against what they see as the cognitive dissonance of Western agitations on climate change while demanding more oil and gas supplies to curb soaring prices and ease a supply squeeze. exacerbated by US and European sanctions against major producers, including Russia for its invasion of Ukraine.
Dated Brent has been on a two-year bull run since the worst of the pandemic, with S&P Global Commodity Insights valuing the benchmark at $116.51/bbl on May 17, from a 14-year high of nearly $140. /b in March, as volatility has increased since the start of the war.
Gas prices fell even more erratically, as the Platts JKM LNG marker hit an all-time high of $84.75/MMBtu in early March, but stabilized at lows of $20/MMBtu in recent days. .
Consumer countries, such as the United States, India and Japan, have said that OPEC’s Middle Eastern oil producers are artificially holding the crude market by not tapping their spare capacity, but OPEC ministers countered that market instability was largely caused by a lack of upstream and downstream investment.
The pandemic has played a role in delaying and canceling oil and gas projects, but Western funding has also dried up, with investors and policymakers urging divestment from fossil fuels to accelerate the energy transition.
Saudi Energy Minister Prince Abdulaziz bin Salman told a recent industry conference that the current crisis should be “a reality check” for countries that have not granted enough energy. pay attention to energy security.
“If the market signals are not favorable, people will refrain from investing,” he said. “If people refrain from investing, there is a consequence to that, and that consequence will show up in the form of available supply.”
OPEC Secretary General Mohammed Barkindo said the push for renewables over fossil fuels has created a “transition premium” on oil and gas prices.
The battle lines remain firmly entrenched, even as the Middle East prepares to host the next two UN climate summits: COP27 in Egypt in 2022 and COP28 in the United Arab Emirates in 2023.
Gulf producers, who derive the vast majority of their GDP from oil and gas revenues, have spent heavily to develop their vital industries, betting on hydrocarbons which will remain the main source of fuel for decades to come.
But they say they are also playing their part in the energy transition, rapidly building hydrogen plants and large-scale solar power projects, including the world’s largest photovoltaic power plant in Abu Dhabi.
OPEC heavyweights Saudi Arabia and the United Arab Emirates aim to be able to pump some 2 million additional bpd of crude oil combined over the next decade, while committing to achieve net zero carbon emissions targets by 2060 and 2050, respectively.
Meanwhile, gas giant Qatar plans to increase its LNG capacity by nearly two-thirds to 126 million tonnes per year by 2027, promoting it as a cleaner, more reliable alternative to coal than renewables.
All three countries have come under heavy pressure from consumer nations desperate for more supplies.
Harmony in partnerships
“We are all trying to come together around the idea of reducing emissions of all greenhouse gases,” Prince Abdulaziz said in January. “We have to be honest, are we really trying to achieve this goal or are we trying to use this hope as an excuse to… get rid of hydrocarbons? I would really like to see everyone’s true colors.
While it needs hydrocarbon supplies now, in the long term the EU wants to replace gas-fired power generation with renewables, including hydrogen, and reduce the share of oil in transportation.
EU leaders said in their report that Gulf countries could not just export hydrocarbons, but were also becoming major investors in renewable energy and energy efficiency projects around the world. global scale.
“Given the magnitude of the challenges related to climate change and the opportunities that the green transition can provide, joining forces is paramount for the EU and the Gulf region,” the report said.
Europe will explore green hydrogen partnerships and encourage closer cooperation on power grid connectivity and sustainable transport, he said.
But for now, the current energy crisis remains a rift between European consumers and the Middle Eastern producers they rely on.