Good morning, Ladies and Gentlemen.
Thank you Olivier for inviting me to join your Forum, here in beautiful Luzern.
After two summers lost to Covid, I hope everyone has enjoyed a well-earned break with family and friends. This week, however, autumn begins, and the global energy crisis promises a colder, harder winter, particularly in Europe.
Unfortunately, the response so far betrays a deep misunderstanding of how we got here in the first place, and therefore little hope of ending the crisis anytime soon. So this morning I would like to focus on the real causes as they shine a bright light on a much more credible way forward.
When historians reflect on this crisis, they will see that the warning signs in global energy policies were flashing red for almost a decade. Many of us have been insisting for years that if investments in oil and gas continued to fall, global supply growth would lag behind demand, impacting markets, the global economy, and people’s lives.
In fact, oil and gas investments crashed by more than 50% between 2014 and last year, from $700 billion to a little over $300 billion. The increases this year are too little, too late, too short-term.
Meanwhile, the energy transition plan has been undermined by unrealistic scenarios and flawed assumptions because they have been mistakenly perceived as facts. For example, one scenario led many to assume that major oil use sectors would switch to alternatives almost overnight, and therefore oil demand would never return to pre-Covid levels.
In reality, once the global economy started to emerge from lockdowns, oil demand came surging back, and so did gas.
By contrast, solar and wind still only account for 10% of global power generation, and less than 2% of global primary energy supply. Even electric vehicles comprise less than 2% of the total vehicle population and now face high electricity prices.
Perhaps most damaging of all was the idea that contingency planning could be safely ignored.
Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right.
Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged.
These are the real causes of this state of energy insecurity: under-investment in oil and gas; alternatives not ready; and no back-up plan. But you would not know that from the response so far.
For example, the conflict in Ukraine has certainly intensified the effects of the energy crisis, but it is not the root cause. Sadly, even if the conflict stopped today (as we all wish), the crisis would not end. Moreover, freezing or capping energy bills might help consumers in the short-term, but it does not address the real causes and is not the long-term solution. And taxing companies when you want them to increase production is clearly not helpful.
Meanwhile, as Europe aggressively promotes alternatives and renewables technologies to reduce one set of dependencies it may simply be replacing them with new ones. As for conventional energy buyers, who expect producers to make huge investments just to satisfy their short-term needs, they should lose those expectations fast. And diverting attention from the real causes by questioning our industry’s morality does nothing to solve the problem.
That is why the world must be clear about the real causes and face up to their consequences. For example, as investments in less carbon intensive gas have been ignored, and contingency planning disregarded, global consumption of coal is expected to rise this year to about 8 billion tonnes.
This would take it back to the record level of nearly a decade ago. Meanwhile, oil inventories are low, and effective global spare capacity is now about one and a half percent of global demand.
Equally concerning is that oil fields around the world are declining on average at about 6% each year, and more than 20% in some older fields last year. At these levels, simply keeping production steady needs a lot of capital in its own right, while increasing capacity requires a lot more.
Yet, incredibly, a fear factor is still causing the critical oil and gas investments in large, long-term projects to shrink. And this situation is not being helped by overly short-term demand factors dominating the debate. Even with strong economic headwinds, global oil demand is still fairly healthy today.
But when the global economy recovers, we can expect demand to rebound further, eliminating the little spare oil production capacity out there. And by the time the world wakes up to these blind spots, it may be too late to change course.
That is why I am seriously concerned.
Let me be clear: we are not saying our global climate goals should change because of this crisis.
All of us have a vested interest in climate protection. And investing in conventional sources does not mean that alternative energy sources and technologies should be ignored. But the world deserves a much better response to this crisis.
This is the moment to increase oil and gas investments, especially capacity development. And at least this crisis has finally convinced people that we need a more credible energy transition plan.
In turn, I believe that requires a new global energy consensus built on three rock-solid and long-term strategic pillars:
- Recognition by policy makers and other stakeholders that supplies of ample and affordable conventional energy are still required over the long term;
- Further reductions in the carbon footprint of conventional energy, and greater efficiency of energy use, with technology enabling both;
- And new, lower carbon energy, steadily complementing proven conventional sources.
At Aramco, we are addressing all three.
We are working to increase our oil production capacity to 13 million barrels per day by 2027. We are also growing our gas production, potentially increasing it by more than half through 2030 with a mix of conventional and unconventional gas.
At the same time, we are working to lower our upstream carbon intensity, our gas flaring, and our methane intensity, which are already among the lowest in the world. We are also intensifying efforts to advance key enabling technologies, particularly CCUS which is mission-critical to a sustainable future.
Meanwhile, chemicals will become a much larger and more strategic part of our portfolio, showcasing the non-combustible uses of oil.
Importantly, we are steadily adding new, lower carbon energy to our own portfolio such as blue hydrogen and blue ammonia, renewables, and electro-fuels. This is our plan to be part of a practical, stable, and inclusive energy transition; others need theirs.
But transforming the massive existing worldwide energy system, and delivering a secure and sustainable future for everyone, is a truly formidable task. So the entire global energy ecosystem and its stakeholders have to work as an “industry plus” team.
We must partner to drive innovation and value on an unprecedented scale and speed to successfully deliver results across the three pillars. In my view, technologies of the Fourth Industrial Revolution are ripe for such partnerships, especially the rapid digital transformation of our industry. Because the right digital investments now could help deliver greater efficiency, lower costs, lower emissions, higher reliability, and higher profits over decades.
For example, at Aramco we have deployed machine learning techniques to predict and prevent safety hazards, monitor emissions, avoid breakdowns, optimize energy use, and predict potential cyber threats. These AI-powered systems are saving us time and money. And improving our ability to reliably supply energy to our customers.
But we want to go further, and we are stronger when we act as a network. That is why I am proud to announce that Aramco and Schlumberger are working on a smart sustainability platform that could commercialize a number of digital solutions and support our net-zero ambitions.
It is the latest chapter in our shared history which goes back to 1941. And I hope it inspires similar projects that will connect a bright future for our industry and the world.
Ladies and Gentlemen, as the pain of the energy crisis sadly intensifies, people around the world are desperate for help. In my view, the best help that policy makers and every stakeholder can offer is to unite the world around a much more credible new transition plan, driving progress on the three strategic pillars I have outlined this morning.
The new plan will not be perfect. In life, nothing ever is.
But that is how we deliver a more secure and more sustainable energy future, with our industry still at its heart. That is how we can ease people’s pain.
And that is how spring will come again.