After opening 2022 at around $78 per barrel, Brent crude oil prices rose sharply over the next few months to surpass $127 on March 8 – the highest price in 14 years, driven in part by Russia’s invasion of Ukraine – before moderating slightly to around $106 as of mid-March. Although investment in oil and gas has fallen by about 30% since the outbreak of the Covid-19 pandemic, there are signs that increased demand and the rise in prices could lead to a reversal of that trend.
Carbon Tracker, a London-based climate change-focused think tank, noted in January 2022 that higher oil prices might encourage energy companies to invest in new exploration and production projects. Indeed, on February 1, 2022 energy giant ExxonMobil announced a 45% increase in its budget for drilling and other activities that year. However, in October 2022 members of the Organisation of the Petroleum Exporting Countries (OPEC) moved to cut output to mitigate volatility and prevent a crisis. OPEC’s February 2022 report then revised the forecast for demand in 2023 upwards to 2.3m barrels per day (bpd) due to China’s relaxation of its stringent Covid-19 policies and Russia’s plans to cut oil production by 500,000 bpd in March 2023.
At the same time, there are concerns that higher oil prices could incentivise the consumption of coal, which rose by an estimated 1.2% in 2022 to more than 8bn tonnes, according to the International Energy Agency. In addition to its lower price, coal use is being driven by rising energy demand – headed by China and India – and insufficient levels of investment in renewables.
Boon for Renewables
Although high oil prices have the potential to incentivise new investment in oil and gas projects, renewables could ultimately benefit from the current situation. Rather than directly challenge renewables and slow the energy transition, many industry analysts believe that the high prices in early 2022 – and the associated financial windfall – could lead governments and oil majors to play the long game and further increase their investment in renewables.
For example, in September 2021 French energy giant TotalEnergies said it would take advantage of high oil prices to buy back $1.5bn in shares to boost investment in renewable energy, while in early February 2022 BP – upon announcing its highest annual profit registered in eight years, at $12.8bn in 2021 – stated it would increase spending on low-carbon energy to 40% of total expenditure by 2025 and 50% by 2030.
A Greener Future
A prime example of an oil-producing region that has recently reaffirmed its commitment to renewables is the Gulf. Indeed, many Middle Eastern countries have identified the development of renewable energy as key to their long-term economic diversification plans. For example, Saudi Arabia aims to generate 50% of its electricity from renewables by 2030 and has set a net-zero target of 2060. To help achieve these goals, in December 2021 the government announced that it would invest SR380bn ($101.3bn) in renewable energy production by 2030, while in April 2021 it inaugurated the Sakaka solar power plant, the country’s first utility-scale renewables project.
Meanwhile, in October 2021 the UAE pledged to invest Dh600bn ($163.4bn) in renewables by 2050, at which point it hopes to achieve net-zero emissions. The announcement came just a few weeks after the inauguration of the first stage of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The park is expected to have a capacity of 5 GW by 2030.
In late January 2022 Oman inaugurated the 1.5m-panel, 500-MW Ibri II solar field, the country’s largest utility-scale renewables project. The sultanate aims to produce about 1m tonnes of green hydrogen per year by 2030 and roughly 8m tonnes by 2050, with Oman expecting to invest an estimated $140bn to achieve this. Qatar, one of the world’s largest exporters of natural gas, has also increased its focus on renewables. Major projects include the 800-MW Al Kharsaah solar plant, one of the Middle East’s largest renewable energy developments. The project was inaugurated in October 2022.