Oil price rise underscores need for net-zero push and investment in global energy security

Government and private companies from across sectors need to rally around the cause, experts say

Wind turbines turn behind a solar farm in Rapshagen, Germany. Higher energy prices have underscored the need for energy transition. AP

The sharp rise in energy prices on the back of Russia’s military aggression in Ukraine has accelerated the push to achieve net-zero goals and invest in oil and transition fuels to ensure global energy security.

Although it is an uphill task and governments and private companies from across sectors need to rally around the cause, the world has the resources and the technology and is moving in the right direction, panellists told Bloomberg’s UAE Capital Markets Forum on Thursday.

“We have the tech, we have the capital and we have the skills, we just need to get going,” said Marco Alvera, chief executive of Italian energy infrastructure company Snam.

“The $100 [per barrel] oil and $130 gas is really putting the foot flat down on the accelerator to get to net zero faster.”

However, bottlenecks in the drive to achieve carbon neutrality come from people, materials and the evolution of technology, he said.

The panel also included Tony Douglas, group chief executive of Etihad Aviation Group, Rola Abu Manneh, chief executive of Standard Chartered Bank UAE, and Klaus Froehlich, chief investment officer at Adnoc Group.

Robust demand for crude last year drove oil prices 67 per cent higher. However, prices this year have risen sharply amid a rise in geopolitical tension, with the Ukraine conflict threatening to disrupt global energy supplies, especially to Europe.

Brent, the global benchmark for two thirds of the world's oil, which soared to a notch under $140 per barrel this month, has since given up gains amid talks between Russia and Ukraine and concerns of demand growth in China amid rising Covid-19 cases.

Brent was trading more than 8.52 per cent to $106.37 at 8.45pm UAE time on Thursday while West Texas Intermediate, the gauge that tracks US crude, was up 7.64 per cent at $102.3 a barrel.

Snam has started a $25 billion programme to start moving green hydrogen from Africa into Europe in a decade, and the “good news” is that a lot of existing infrastructure, including natural gas pipelines and storage, can be used for the cleaner fuel, Mr Alvera said.

“It will be a price-driven acceleration for green hydrogen, for renewables and for blue hydrogen in parts of the world where natural gas is very cheap.

“We will continue to need a lot of oil in the market [in the meantime] as it is clearly tight from a supply point of view and places like the Middle East with the cheapest source of oil will continue to gain market share even past a peak oil [demand point],” he said.

Mr Froehlich said both green and blue hydrogen are big on Adnoc's agenda as it continues to invest in its oil and gas output capacity to remain a reliable energy provider to global markets.

The company has “the reservoirs and technology” to produce blue hydrogen and is part of the hydrogen alliance with Abu Dhabi’s ADQ and Mubadala Investment Company, which aims to make the UAE a global hydrogen hub.

An Adnoc plant in Abu Dhabi's downstream centre of Ruwais. Adnoc is an early pioneer in the emerging hydrogen market. All photos: Adnoc

An artist's impression of hydrogen-powered lorry. Gulf oil exporters such as Adnoc are looking to capitalise on their oil trading relationships with buyers in Asia to sell hydrogen.

Fertiglobe, the joint venture between Adnoc and Amsterdam-listed OCI, is developing a large blue ammonia plant in Ruwais that will have a production capacity of 1,000 kilotonnes a year.

Ruwais, Abu Dhabi. Adnoc formed a hydrogen alliance with ADQ and investment company Mubadala for the development of the hydrogen economy in the UAE.

The ammonia market was valued at about $48.65 billion in 2016, according to Grand View Research.

Blue ammonia is a chemical compound produced using hydrogen that is manufactured through steam methane reformation.

A fertiliser plant in Ruwais. Ammonia, which is used in fertiliser production, allows for the easy transport of hydrogen.

Adnoc already produces 300,000 tonnes of hydrogen on an annual basis for its downstream operations and plans to increase its output significantly.

Adnoc and ADQ signed an agreement with Japan's Mitsui and South Korea's GS Energy to help develop a blue ammonia project in Ruwais, in partnership with Ta’ziz and Fertiglobe.

Adnoc, which has $125bn in investment plans over the five-year period to 2026, is among the few companies investing in capacity expansion.

“It is an important aspect for the transition as no one else is investing. We produce the cleanest barrels, so to speak, in the globe given our low carbon intensity,” Mr Froehlich said.

The rise in oil and commodities prices have also stoked inflation, which is clouding the global economic outlook. Slower economic momentum will make it difficult for governments to continue investing in meeting their net-zero goals, panellists said.

The $100 [per barrel] oil and $130 gas is really putting the foot flat down on the accelerator to get to net zero faster

Marco Alvera,
chief executive of Snam

About $50 trillion in incremental investments is required by 2050 to achieve net-zero goals and cut greenhouse emissions by about 51 billion tonnes per year. Much of the existing emission abatement can happen with existing technology but to accelerate the transition, investment in “breakthrough” technologies is needed.

In October, the International Monetary Fund urged the $50tn global investment funds industry to step up efforts to finance the transition to a greener economy and help mitigate the effects of climate change.

There is an increased drive in the broader Middle East and Africa region to achieve carbon neutrality goals.

The region requires about $10tn in investments “so we need to move very fast”, Ms Abu Manneh said.

Last year, the UAE, the Arab world’s second-biggest economy, became the first country in the Middle East to set a net-zero target, which it seeks to achieve by 2050. It plans to invest $160bn in clean and renewable energy sources over the next three decades.

The aviation industry, which took the “beating of all beatings” during the pandemic, needs to do a lot more to be able to achieve its net-zero goals, Mr Douglas said.

“I think now is the time for commercial aviation to do more than it has ever done before.”

Etihad is “doubling down on its sustainable agenda” and last year achieved 72 per cent carbon reduction in its flight from Heathrow to Abu Dhabi when compared to an equivalent flight in 2019.

The feat was achieved by using 38 per cent sustainable aviation fuel in the fuel mix.

However, it is difficult to repeat these achievements as sustainable fuel is not widely available and is three times more expensive than conventional fuel, he said.

“What it gives is an indication that there’s a route through this that’s going to require [support from] everybody from the policy sector, governments and regulators through to consumers as well,” Mr Douglas said.