What price levels are good for the climate and OPEC?
Despite the frenzied talk of the huge rise in oil prices, what the market is witnessing is nothing new, as prices have reached higher levels in the past, depending on political, military and economic developments. If we compare the purchasing power in dollars that a barrel of oil can bring today with what it could bring twenty years ago, we will find that it has decreased. The trajectory of fossil fuel prices has often been slower than the upward trajectory of inflation rates. According to the sovereign right of States to exercise control over their natural resources, within the framework of respect for commercial contracts and international agreements, neither party has the right to impose restrictions on the levels of production and export. . This argument is intended to help answer the question of whether the wide swing in prices is in the interest of oil-producing countries and how it relates to environmental goals and commitments to reduce carbon emissions.
When Arab oil producers imposed an export ban in 1973, the price per barrel was below $3; within a year it went to about $12. This price correction was necessary, as the price of oil had hitherto been very low compared to other vital raw materials. Since then, the price of oil has begun to be increasingly tied to real market prices as a commodity governed by supply, demand and reserves, with the Organization of the Petroleum Exporting Countries (OPEC) becoming more capable of defending the rights of its members. . During this period malicious comments spread in some key importing countries, the nastiest of which probably came from an American politician who said, “God put the oil in the wrong place”. This represents the highest level of racism and arrogance, suggesting that developing countries do not have the right to freely use their resources for the benefit of their people and obtain their full rights to commercialize them.
In 1973, climate change was not yet a major problem. Therefore, talking about renewable energy at the time was not in the context of reducing carbon emissions, but rather in the context of harnessing energy from the unlimited resources of the sun and the wind, at the instead of rapidly depleting finite and non-renewable oil reserves. The real interest in renewable energy without carbon emissions began in the mid-1990s, after studies proved that human activities were the main cause of climate change, in particular carbon emissions from the combustion of fuels. fossils. With each new commitment made by climate summits to further reduce emissions, efforts have been increased and budgets multiplied to introduce forms of renewable energy as clean alternatives, in addition to adopting efficiency and develop practical technologies to capture carbon from the combustion of fossil fuels, for harmless reuse and safe storage. While investments in renewables have declined in the past with each wave of falling oil prices as they have become less attractive investments, the past decade has seen a steady expansion of solar and wind projects at a steady pace. , even during the significant drop in oil prices. prices, with the price per barrel falling below $30 for a long period between 2015 and 2020. In recent years, OPEC countries have tried to maintain stable supplies and fair prices, although some voices in the States States have recently returned to accusing the Organization of monopolistic practices.
It is natural that we defend the right of oil-producing countries to decide on supply levels, in the sense that this is an indisputable sovereign right and a fair means of obtaining fair compensation for the sale of their natural resources and to ensure sustainability. However, the world today is experiencing unprecedented changes, which require new approaches to deal with them. When the price of a barrel of oil was around 10 dollars in 1975, the cost of solar panels to produce a watt of electricity exceeded 100 dollars, whereas today it has fallen to less than a dollar. In other words, while the price of oil has increased more than tenfold, the cost of building solar power plants has decreased 100 times. Today, solar and wind power plants offer the cheapest electricity prices to consumers in most parts of the world, after the significant rise in oil and gas prices. As for the reservations that prevailed in the past about the inability of the sun and the wind to store energy, technological advances have overtaken most of them, thanks to high-efficiency batteries and the development of efficient and good methods. hydrogen production market as a carrier and safe storage. energy, relying on renewable electricity at peak times and on water, even from the sea.
Although the basic facts have not changed, the economic and geopolitical repercussions of the coronavirus and the invasion of Ukraine have imposed a new pace, reinforced by the significant rise in oil and gas prices, alongside a decline global economy and unprecedented rates of inflation. The shortage of supplies and the partial embargo imposed by EU countries on Russian gas and oil prompt a rapid search for alternative solutions, first and foremost a return to coal and nuclear, which certainly contradicts the climate commitments to reduce emissions, at least in the short term. However, this has been accompanied by a significant acceleration of transition programs to renewable energy sources in the medium term, a development that could expose the smooth transition in oil-producing countries to uncalculated obstacles. The EU’s recently announced plans to reduce dependence on gas and oil supplies from Russia or any other outside source are perhaps the most striking example of this. Along with building new pipelines and liquefied gas processing plants to import fossil fuels from other countries, the plan included new goals to improve efficiency and accelerate the transition to renewable energy at a pace no one else can. had imagined before. These include reducing Europe’s overall energy consumption by 13% and increasing the share of renewable energy to 45% by 2030, eventually eliminating the use of fossil fuels by here 2045. While the plan may seem overambitious, simply circulating it sends a clear signal of dramatic change.
It is in the interests of both producers and consumers to stabilize supplies and maintain moderate oil and gas prices. The inability to meet demand pushes importing countries to resort to polluting and dangerous alternatives in the short term, and to hasten to do without fossil fuels by quickly switching to renewable energies in the medium term. While the first phase causes significant damage to the environment, the second phase leads to a sudden and unregulated abandonment of traditional sources, hindering the harmonious deployment of alternatives and harming producers and consumers.
Arab oil and gas producing countries can maintain their leadership position in energy markets and protect their long-term interests by working as much as possible to meet market needs, while ensuring stable supplies and thus securing moderate prices. This solidifies their position as a major player, extending the period in which they can make the most of oil and gas revenues, pending the development of efficient and cost-effective technologies for carbon capture and reuse and safe storage.
Najib Saab is Secretary General of the Arab Forum for Environment and Development – AFED (www.afedonline.org) and Editor-in-Chief of Environment and Development magazine (www.afedmag.com).