COP26: OPEC's Saudi Arabia, UAE push emissions reduction, not fossil fuel extinction

While highlighting their green investments, core OPEC members Saudi Arabia and the UAE on Nov. 10 defended the embattled oil industry to the UN Climate Change Conference, saying environmental policies should be balanced with energy security and economic development.

Both countries are spending billions to expand their crude oil production capacity.

Rather than seek to pivot the world away from fossil fuels, the focus of COP26 should be to contain emissions, which would allow oil and gas to continue to be used and smooth the energy transition, especially for poorer nations that cannot afford renewables, the Saudi and UAE energy ministers said.

"It is imperative that we recognize the diversity of climate solutions and the importance of emissions reduction as stipulated in the Paris Agreement, without any bias towards or against any particular source of energy," Saudi energy minister Prince Abdulaziz told the summit.

UAE counterpart Sultan al-Jaber said the energy transition would bring many economic opportunities for technological innovation, but sustainable development must be maintained.

"We must recall that our main goal is to reduce emissions, not impede growth and development and progress," said Jaber, who also serves as CEO of Abu Dhabi National Oil Co.

Saudi Arabia, which has been accused of pressuring the UN to downplay the urgency of addressing climate change, is the world's largest exporter of crude and pumps about one out of every 10 barrels in the market. It is seeking to boost its production capacity from 12 million b/d to 13 million b/d by 2027.

The UAE's oil production is comparatively smaller, but it is still OPEC's third-largest producer and responsible for about 3% of the world market. It is aiming to achieve 5 million b/d of production capacity from its current 4 million b/d by 2030.

They, along with OPEC, have blamed the recent volatility in energy prices on what they say has been misguided efforts by western governments and environmental activists to shift investment away from fossil fuels.

A natural gas supply crunch, which has caused the Platts JKM marker to balloon from a 2021 low of $5.56/MMBtu in March to a high of $56.33/MMBtu in early October before falling by half, has spilled over into the oil market, where Dated Brent is up almost 70% year-to-date at close to $85/b.

Hurt most by the volatility are the world's poor, OPEC Secretary General Mohammed Barkindo said in his remarks to COP26.

"Climate change and energy poverty are two sides of the same coin," he said. "The delicate balance between reducing emissions, energy affordability and security requires comprehensive and sustainable policies, with all voices being heard, and listened to. Focusing on only one of these over the others can lead to unintended consequences: market distortions, heightened volatility and energy shortfalls."

Circular carbon economy

Saudi Arabia and the UAE have some of the world's highest per capita carbon footprints.

The UAE is the world's second-largest emitter of carbon emissions per capita at 26.52 mt/year, behind Singapore, according to the S&P Global Platts Atlas of Energy Transition, while Saudi Arabia ranks fifth at 14.59 mt/year.

Even so, both have been keen to proclaim their green bona fides. The UAE has pledged to bring its carbon emissions down to net-zero by 2050 and Saudi Arabia by 2060.

The efforts involve hundreds of billions of dollars in promised investment on a range of initiatives, from hydrogen development to tree plantings to solar power plants. Saudi Arabia, for example, is targeting 4 million mt/year of blue and green hydrogen production.

But the net-zero goals only apply to emissions produced within their borders – and not to crude exported to and consumed in other countries.

Saudi Arabia has heavily promoted the concept of a "circular carbon economy," which involves capturing emissions and either using them in industrial applications or abating them in storage sites or carbon sinks. OPEC as a whole has endorsed it, as well.

CCE would enable oil and gas to remain relevant in a carbon-constrained world. Critics have doubted the viability of CCE, due to the enormous costs of carbon capture, utilization and storage, as well as a lack of industrial demand for CO2 at the scale needed for it to be impactful.

Prince Abdulaziz said Saudi Arabia is committed to demonstrating the effectiveness of the concept, with a $10 billion fund for deploying CCE technologies in the Middle East, Africa and developing countries.

"This will help ensure that the kingdom maintains and enhances its leadership role in promoting the security and stability of energy markets," Prince Abdulaziz said.