Oil and gas will be needed for ‘decades to come’ amid energy security concerns

The world is losing 5 million to 7 million bpd every year due to the natural decline of mature oilfields, Crescent Petroleum CEO says

Majid Jafar, chief executive of Crescent Petroleum. Photo: World Economic Forum

Oil and gas will be needed for “decades to come” as the renewable energy sector struggles with scaling up storage and geopolitical conflicts raise energy security concerns, the chief executive of Sharjah-based Crescent Petroleum has said.

“When the sun isn’t shining or the wind isn’t blowing, you need something else to back it up,” Majid Jafar told The National.

Battery energy storage systems enable electricity produced during the peak periods of solar and wind energy generation to be stored, allowing it to be supplied to the grid during times of high demand.

But existing battery technology has a high upfront cost and is vulnerable to supply chain disruptions.

“Batteries can only get you so far and it's very cost prohibitive. It takes $200,000 worth of batteries to store the energy of one barrel of oil,” Mr Jafar said.

The Cop28 climate conference in the UAE is set to begin this week and is expected to bring together all stakeholders including the fossil fuel industry.

“At the Cop26 in Glasgow, oil, gas, nuclear and coal were all excluded. These are the industries responsible for 90 per cent of the world's energy. How can you have realistic talks … without these industries there?” Mr Jafar asked.

Dr Sultan Al Jaber, Cop28 President-designate, recently said that more than 20 oil and gas companies had answered the call to end methane emissions by 2030.

Last week, Crescent Petroleum committed to eliminating methane emissions from its operations by the end of this decade as part of its carbon neutrality goals.

The International Energy Agency expects global demand for oil and gas to peak by 2030 amid rising adoption of renewable energy technology and electric vehicles.

In a report last week, the Paris-based agency said that with geopolitical instability and rising demand, some investment in the production of fossil fuels would be needed to ensure the security of energy supply.

Even if oil demand were not increasing, the world is losing 5 million barrels per day to 7 million bpd of oil every year due to the natural decline of mature oilfields, Mr Jafar said.

“That means the world needs to add a new Saudi Arabia in terms of capacity every two years, and there isn't enough investment happening at the moment to do that,” he said.

In a recent report, the agency said the oil and gas industry was facing a “moment of truth” at Cop28 and warned against excessive reliance on carbon capture to reduce emissions.

On Monday, Opec Secretary General Haitham Al Ghais called the agency’s criticism of the industry “undiplomatic”.

“Energy security, energy access and energy affordability for all must go together with reducing emissions. This requires major investments in all energies, all technologies and an understanding of the needs of all peoples,” Mr Al Ghais said.

Oil and gas prices have been volatile since last year due to fears of supply disruptions, high interest rates and demand concerns.

Mr Jafar expects crude prices to be stable at about $80 a barrel “plus or minus” next year driven by the Opec+ alliance’s output cuts.

The group is set to meet on Thursday to decide its production policy for the first half of 2024.

With several liquefied natural gas (LNG) projects set to come online over the next few years, there could be a situation of oversupply in the longer term, Mr Jafar said.

Global LNG trade hit a new high last year amid a surge in European demand following Russia’s invasion of Ukraine.

Iraq push

Crescent Petroleum and its affiliate Dana Gas will increase their natural gas output from the Kurdistan Region of Iraq to 750 million cubic feet per day by “next summer”, compared with the current output of 500 million cubic feet per day, Mr Jafar said.

“We're also producing about 15,000 barrels a day of condensate plus over 1,000 tonnes of LPG [liquefied petroleum gas] and that will increase as well,” he said.

Mr Jafar, who is also the managing director of Dana Gas’s board, said the Abu Dhabi-listed company may participate in a bidding round for oil and gas projects in Iraq after the Opec’s second-largest producer announced new licensing rounds last month.

In October, Iraq announced that it would award 30 new oil and gas projects in its “fifth +” and sixth licensing rounds.

The fifth + comprises 16 new projects, some of which were not awarded in the fifth licensing round.

“Dana Gas is interested to look at the opportunities for the next bid round in Iraq,” Mr Jafar said.

“The Iraqi government improved the contract model for the fifth bid round and now we heard for the new bid round there are even more improvements.”

Last month, Crescent Petroleum and the Iraqi Oil Ministry put into effect three agreements to develop oil and gasfields in the country.

The company is expected to produce 400 million standard cubic feet per day of natural gas within a period of one and a half years.

Iraq has been looking to boost its natural gas production as it is heavily reliant on gas imports to feed its power grid.

Many Iraqi cities continue to experience significant power shortages and rolling blackouts even with substantial investments in infrastructure following the US-led overthrow of Saddam Hussein in 2003.

“There is a big need for natural gas in Iraq. The country still has only maybe eight hours of electricity a day,” Mr Jafar said.

“There's heavy reliance on domestic generators, burning liquid fuels, imported gas, and so that's not good for the economy. That's not good for social needs and it's not good for the environment.”

Iraq, which has among the fastest growing populations in the Middle East, will continue to require imports to meet the growing demand for energy, he added.

The Arab country may emerge as a natural gas exporter in the future, but the current priority must be its own domestic needs, he said.