The UAE has no plans to curb its oil production in favour of renewables, with the country’s climate minister pointing to strong global demand as a driver for greater crude output. As one of the few countries with the potential to increase its oil output, the UAE is continuing to boost its production in line with demand. However, the leader of state-owned oil company ADNOC worries that if other countries do not continue to invest in oil and gas, we could face energy shortages in the transition to renewables.
In September, the United Arab Emirates (UAE), announced plans to ramp up its oil production to 5 million bpd five years earlier than planned. Abu Dhabi National Oil Company (ADNOC) had been aiming for 5 million bpdof crude production by the end of the decade. However, thanks to greater investment, ADNOC now believes it can move this target forward to 2025 to take full advantage of the rising global demand – ahead of a demand dip in response to the transition to green.
While other oil-producing countries around the world are battling to get their production back to pre-pandemic levels, only the UAE and Saudi Arabia continue to have spare oil production capacity. The boost in production levels does not come without a cost but the UAE is hoping to sell more oil and natural gas while the price of fossil fuels remains high. Oil prices have continually broken records this year, and natural gas prices have soared in the face of global shortages, while oil-producing countries are benefitting.
ADNOC stated of its new target, “As we embrace the energy transition and future-proof our business, we will continue to explore potential opportunities that can further unlock value, free up capital and enhance returns.” The organization has also requested that international partners in its oil fields increase their crude output by at least 10 percent. Experts believe that if ADNOC meets its 2025 goal, it could increase its target to 6 million bpd for 2030.
In August, the UAE’s average output was 3.4 million bpd, although it blames OPEC caps on oil production for the low figure. Output could be hindered further by the most recent OPEC+ announcement stating that it will cut oil production further for fear of a drop in global demand due to economic pressures. OPEC+ will reduce production across member states by 2 million bpd starting in November. But the UAE’s Minister for Climate Change and Environment Mariam Almheiri has made it clear that As long as the world needs oil and gas, we’re going to give it to them.”
German Chancellor Olaf Scholz’s visited the UAE in September to deepen Germany’s ties with the oil-rich country and to move further away from reliance on Russian energy. The UAE signed a deal with Germany to deliver liquefied natural gas, with its first delivery expected by the end of the year. Although many European countries are shifting away from fossil fuels to renewable alternatives, natural gas is viewed as a vital part of the energy transition. The use of a ‘cleaner’ fossil fuel will help Germany, and other European countries, meet their energy demand while developing their green energy capacity.
While she continues to promote investment in oil and gas, Almheiri is also steadfast in her support for the development of a strong renewable industry in the UAE. She explained, “We need to be careful … because conversations are happening and it’s all about energy, but it’s really important we don’t lose context of economic growth, [and] climate as well within that.” When discussing the country’s renewable energy projects she said, “It’s not just about the production … you’ve got to look at the storage, you’ve got to look at the network, you’ve got to look at the distribution. It’s such a complex network.” She added, “It’s really important that economic growth, energy security and climate action must be worked at together.”
But not everyone’s so optimistic about the future of oil and gas. The CEO of ADNOC, Sultan al-Jaber, said in September that there was not much room to maneuver in oil markets that may be set for further disruption with minimal spare capacity. He suggested that underinvestment in fossil fuels may lead to a gap between supply and demand, while the world is only just beginning to develop its renewable energy capacity. He explained, "If people’s basic energy needs are not met, economic development slows down, and so does climate action." Jaber added, "If we under-invest in the energy system of today before the energy system of tomorrow is ready, we will only make matters worse."
The CEO believes that spare oil capacity equates to just 2 percent of global consumption at present, a challenge that OPEC+ has highlighted several times. Without greater investment in oil and gas beyond the UAE and Saudi Arabia, this cushion is not likely to get any bigger, meaning reliance will remain heavy on the two oil-rich states as demand continues to grow.
By Felicity Bradstock for Oilprice.com