Energy This Week: Oil drops further, El Nino, Cop28, & UAE electric cars

Oil drops further after Goldman Sachs cuts estimates

Oil prices dropped sharply last Thursday and were down again on Friday to close the week at $74.79 a barrel. Continuing gloom over demand was exacerbated by suggestions of a possible US deal with Iran that could bring some of its oil exports back to the market, although the two countries denied the reports. Prices rose on Tuesday amid hopes that the US Federal Reserve may pause its rate-increase cycle.

Chinese exports slumped in May, with its growth uneven since it lifted Covid-19 measures. However, Opec raised its forecast again for the country’s oil demand in its latest monthly report.

Opec is battling “uncertainties and sentiments”, said Saudi Energy Minister Prince Abdulaziz bin Salman at an Arab-China business conference in Riyadh. “I think the physical market is telling us something and the futures market is telling us something else.” He announced a voluntary production cut of a million barrels per day by Saudi Arabia at the last Opec meeting, but after a temporary bump, this has not stopped prices from falling further.

On Monday, investment bank Goldman Sachs, which has been a prominent market bull, cut its oil price forecast for December to $86 a barrel, from $95. The bank also lowered its demand forecasts for Europe and East Asia because of lower petrochemical consumption.

The US Energy Information Administration has forecast Brent crude at $79 a barrel in the second half and $84 a barrel next year. Consultancy Wood Mackenzie pegs this year’s average at $84.70 while Abu Dhabi Commercial Bank has it at $87.50.

Lower prices have spurred the US to begin refilling its strategic petroleum reserve, buying 3 million barrels and asking for bids for another 3.1 million barrels in September. The US sold 180 million barrels from its stockpile to head off potential shortages after Russia’s invasion of Ukraine.

Adnoc Logistics & Services has been awarded a $975 million contract to build an offshore island as part of the expansion of the Lower Zakum oilfield.

Salvage of oil from the dangerous abandoned storage vessel off Yemen, the FSO Safer, has moved ahead after the UN Development Programme agreed on an insurance plan for the operation. Following the destruction of Ukraine’s Kakhovka dam, occupied by Russian forces, the reservoir has dropped but the Zaporizhzhia nuclear power plant is still managing to pump in cooling water.

El Nino bringing extreme weather: How will the energy system cope?

The powerful Pacific climate phenomenon brings hot conditions and extreme weather worldwide. An overstretched and turbulent global energy system has to deal with the threats.

Poverty and society’s decisions can make the impact of climate change worse. Freetown, the capital of Sierra Leone, has suffered landslides after heavy rainfall due to deforestation that has destabilised hillsides.

Climate change is also worsening air turbulence for flights, especially over the North Atlantic. This has raised airline costs and can cause injuries. Despite the drop in fuel prices, flight ticket prices are expected to remain amid high demand at a time when airlines are try to recoup coronavirus-related losses while struggling with higher labour costs and shortages of new planes.

Decarbonisation targets, including more use of sustainable aviation fuels, will also push up costs, even to 2040. The head of the International Air Transport Association says that Middle Eastern airlines are some of the most proactive in addressing climate challenges.

Energy transition vision for Cop28 has to address four challenges

Four challenges face the global energy transition, according to Mahmoud Mohieldin, who was high-level climate champion for Cop27 in Egypt. These are the return of energy security concerns, the acceleration of emissions cuts from 2030 to 2050, the divide between developed and emerging economies and the creation of new supply chains.

Scaling up renewable energy would assist in phasing down fossil fuels, but transformational shifts must come in hand with energy security and all countries and regions must be included in a just package. These were three of the key messages of Dr Sultan Al Jaber, Cop28 President-designate, at preparatory talks in Bonn.

Dr Al Jaber met European Commission President Ursula von der Leyen last Wednesday in Brussels and agreed to make progress on renewables and energy efficiency at the climate conference. He then held talks with Qu Dongyu, director general of the UN’s Food and Agriculture Organisation on how to advance its agenda at Cop28.

The chief executive of Cop28, Adnan Amin, said in Bonn that the UAE recognised the “high expectations” for the summit. He emphasised the need to triple renewable energy capacity and double hydrogen output by 2030 and to decarbonise the oil and gas industry.

Women are heavily underrepresented at Cop events, making up only 34 per cent of committee members at last year’s Cop27. However, they bear a disproportionate burden of the damage from climate change. The UAE’s Cop presidency has two prominent women as champions.

The new British ambassador to the UAE, Edward Hobart, says Cop28 is critical and it should reach a deal that is as ambitious as possible.

“We see the real benefit in Dr Sultan [Al Jaber] chairing Cop28 because of the experience he brings. He is a renewables man. Then he was an oil person … We need the big energy companies to switch their investment priorities to renewable energy from hydrocarbons. That’s about engaging them. He has got credibility. It is not the UAE’s responsibility to deliver the solution to climate change globally.”

Dr Al Jaber’s American counterpart as climate envoy, John Kerry, told the UN Security Council, that it was “now indisputable that the climate crisis is one of the top security threats, not just to the developed world but to the entire planet”. Yet financial institutions do not think they are materially exposed to climate-related losses until the early 2030s.

We all have options to reduce our carbon footprint, including following a less meaty diet, being selective about travel choices, buying less stuff, switching off unused appliances, using air conditioning thoughtfully and encouraging friends to do likewise.

The GCC’s new cultural infrastructure – museums, theatres, concert venues – needs to be sustainable. This could save at least 1.9 million tonnes of carbon dioxide emissions annually.

Two thirds of UAE drivers would consider switching to electric cars

Battery vehicles are an increasingly common sight on UAE roads. More than two thirds of motorists in the UAE and Saudi Arabia would consider buying an electric car. They are motivated by environmental concerns and rising fuel costs. Their ideal range is between 325km and 360km, which new models can achieve.

Al Futtaim Automotive, one of the UAE’s biggest car distributors, led a $15 million investment in River, an Indian start-up making electric two-wheelers. Ford and General Motors have decided to adopt Tesla’s charger, which will mean years of additional revenue for the Texas-based company. China’s Gotion High-Tech has revealed a lithium-iron-manganese-phosphate battery that it says will offer 1,000km of range while being relatively cheap.

A consortium comprising Abu Dhabi’s clean energy company Masdar has secured land in Egypt for a 10-gigawatt wind farm, which would be one of the world’s largest. Masdar has also advanced a one-gigawatt wind plant in Kazakhstan, the latest in a string of agreements in the Caspian-Central Asian region. And Acwa Power of Saudi Arabia will develop a $1.5 billion one-gigawatt wind and battery project in Kazakhstan.

Solar power has been beamed from space to Earth for the first time. The California Institute of Technology demonstrated that its system works. China and a Saudi-backed British company have plans for commercial solar power in space, which takes advantage of much stronger sunlight and could achieve nearly 24 hours of generation on a daily basis. But the costs of launching and assembling solar panels in space remains a big challenge. The British government has established a £4.3 million fund to advance the technology.

Carbon credits are moving ahead in the Gulf. The UAE Carbon Alliance brings together several leading local energy and financial companies, with the aim of establishing the country as a centre for carbon markets. Saudi Arabia’s Regional Voluntary Carbon Market Company plans to launch a carbon credit exchange early next year.

Global energy efficiency improved at twice its average rate last year, encouraged by high prices and conservation efforts. More than 30 start-ups have been awarded $50,000 each from Expo Live Innovation to advance climate-focused businesses. And Abu Dhabi will host the World Association of Nuclear Operators biennial meeting in September next year.