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OPEC warns IEA net-zero roadmap would lead to unstable oil market

Highlights

Disputes IEA's claim 2050 target requires no new upstream projects

Says oil investment jeopardized if IEA scenario gains traction

OPEC long-term forecast sees demand growing until about 2040

London — The International Energy Agency's advocacy for net-zero emissions could increase oil market volatility and jeopardize needed investment in fossil fuels, OPEC said in a report to its members.

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The oil producer group disputed the IEA's May 18 assessment that no new oil and gas upstream projects should be developed, if the world is to achieve carbon neutrality by 2050.

"The claim that no new oil and gas investments are needed post-2021 stands in stark contrast with conclusions often expressed in other IEA reports and could be the source of potential instability in oil markets if followed by some investors," said the OPEC report, which was seen by S&P Global Platts on May 20.

OPEC added that "while the [net zero] scenario seems overly ambitious in terms of assumptions and results, it will certainly influence investment decisions, which may curb demand (growth) for fossil fuels, such as oil and gas, as many policymakers and oil and gas companies use the IEA's scenarios for their strategic planning."

The IEA outlined its first roadmap for how the global energy sector can achieve net-zero emissions in its attention-grabbing report, seeing global oil supplies needing to shrink more than 8% annually. Under this scenario, oil demand would never regain its pre-pandemic peak in 2019, shrinking to 24 million b/d in 2050.

OPEC's most recent long-term oil market forecast, issued in October, projects global demand to rise from pre-pandemic levels of about 100 million b/d to peak at 109.3 million b/d around 2040, before declining to 109.1 million b/d in 2045 and plateauing "over a relatively long period."

Sultan al-Jaber, the CEO of Abu Dhabi National Oil Co., said May 20 that the ramp-up in coronavirus vaccination rates around the world was "very much encouraging" for global economic growth and the recovery in oil demand.

"The economic landscape is looking quite positive," he said at the Columbia Global Energy Summit, which was webcast. "We are seeing a healthy rebalancing of oil markets. Demand is back up to 95 million b/d."

ADNOC pumps the vast majority of crude in the UAE, which holds the seventh largest oil reserves in the world and is a key member of OPEC.

The UAE as a whole produced 2.61 million b/d in April, according to the latest S&P Global Platts survey of OPEC output, just under its quota under a supply accord between OPEC and its allies.

Jaber, who also is the UAE's minister of industry and its special envoy for climate change, said ADNOC's long-term forecast sees global oil demand increasing to 106 million b/d by 2030.

An industry-wide pullback in upstream investment due to oil price volatility and mounting environmental, social and governance concerns, will leave low-cost – and low-carbon – oil producers, such as ADNOC, in an advantaged position, said Jaber, who did not address the IEA roadmap.

ADNOC has previously announced plans to invest $120 billion over the next five years, with the aim of hitting a production capacity of 5 million b/d by 2030, and has touted its flagship Murban crude grade as having one of the lowest carbon intensities among the world's crudes.

"The energy transition is exactly that, a transition," he said. "Oil and gas will continue to play a role alongside the diversifying energy mix."