Feature: At ADIPEC, oil industry defends fossil fuels in COP26 aftermath at Abu Dhabi expo

After weeks of being in the crosshairs at the UN Climate Change Conference, the global oil industry converged on Abu Dhabi on Nov. 15 for a full-throated defense of fossil fuels and a call for producers and consumers alike to unite behind the cause of energy security.

A faster-than-expected global recovery from the pandemic highlights the need to keep pumping crude and investing upstream, a range of energy ministers and oil company executives said at the ADIPEC conference, one of the industry's largest annual gatherings, where anti-fossil fuel advocates were neither seen nor heard.

In opening the event, Abu Dhabi National Oil Co. CEO Sultan al-Jaber, who also represented the UAE at the COP26 talks as the country's special envoy for climate change, said some $600 billion would need to be spent by the oil industry every year through 2030 just to keep up with expected consumption levels.

"After almost a decade of under-investment in our industry, the world has sleep-walked into a supply crunch. It is time to wake up," Jaber said. "Yes, renewable energy is the fastest growing segment of the energy mix, but oil and gas is still the biggest and will be for decades to come. In short, the future is coming, but it is not here yet."

Indian oil minister Hardeep Singh Puri said his country, one of the world's major drivers for demand, was in great need of affordable energy, largely in the form of fossil fuels.

India, along with fellow Asian growth engine China, has been blamed -- or credited -- for watering down the final COP26 agreement to "phase down" coal use, rather than "phase out," much to the disappointment of environmental campaigners.

The text also included an accelerated phase-down of inefficient fossil fuel subsidies.

"The transition will have to be managed in a pragmatic way," Puri said in his remarks to ADIPEC. "The transition will need to take into account the precise requirements on how it affects the larger consuming countries."

Focus on emissions

On that front, India and OPEC oil producers are aligned, despite recent feuding over crude prices supported by the bloc's production cuts that Puri said remain a concern for his country.

India has pledged to bring its carbon emissions down to net zero by 2070, while OPEC kingpin Saudi Arabia has committed to doing the same by 2060 and the UAE by 2050, even as both oil producers are spending billions on expanding their crude output capacity.

Puri and Saudi counterpart Prince Abdulaziz bin Salman both fended off accusations of blocking more environmental progress at COP26.

The prince said Saudi Arabia was serious in its commitment to the Paris agreement aiming to limit the rise of global temperatures to 2 degrees C and has implemented a number of green initiatives, though he acknowledged: "I can understand the skepticism."

But he said that all along Saudi Arabia has advocated for climate policies to be aimed at emissions reductions, rather than eliminating fossil fuel use.

"In order for everybody to be inclusive, you have to look first at emissions, not resources," he said. "We have to be mindful of national circumstances, and we also have to be mindful that things are not even, [that] there are categories of less developed countries."

For the international oil companies at ADIPEC, the rhetoric was much the same: the energy transition can't be ignored, but neither should the world's thirst for crude, which still makes up the vast majority of their earnings.

Nicolas Terraz, president of exploration and production for TotalEnergies, said that due to natural reservoir depletion, the industry has to find some 4 million b/d of new production capacity annually just to serve a 100 million b/d market that is expected to keep growing as the world's population increases.

Fostering investment

Estimates of peak oil demand vary from the 2030s to the 2050s and beyond, but no matter the scenario, "we need a lot of investment to meet that demand because of that [natural production] decline," Terraz said.

OMV CEO Alfred Stern said the current gas supply squeeze in Europe was a lesson for the world in not keeping up with demand growth.

"This is a big risk in energy transition, that people will get impatient or upset if we do not manage the transition quickly," he said. "But it is clear energy demand will grow, and supplying that energy over time will be critical."

In the short-term, Prince Abdulaziz said OPEC+ management of the oil market was laying the groundwork for the investment needed to sustain production to meet demand.

OPEC and 10 allies have instituted a series of production cuts to support prices since 2017 -- none more critical than the record 9.7 million b/d in cuts implemented during the pandemic-seeded market crash, which rescued Dated Brent from a 21-year low of around $13/b in April 2020 to more than $82/b now.

The group aims to bring output back to pre-pandemic levels by late 2022 by gradually raising production quotas by 400,000 b/d each month.

"We have delivered a stable, less volatile oil market," Prince Abdulaziz said.