“General Winter”, so often Russia’s most effective commander, has gone AWOL from the European gas market this season. An unusually warm winter has led European gas prices to fall to their lowest level since October 2021, about the time when Russia’s Gazprom began restricting supplies to drain storage before the invasion of Ukraine in February. 2022 was the hottest year on record in Europe and the Middle East, good news for European gas consumers, bad news for the climate.
There are still concerns that, with virtually no Russian supply this year, Europe will struggle to refill its stocks before the 2023-4 winter. Foreign investment in the UK is suffering in particular from the toxic combination of costly fuel and political dysfunction, with the government’s latest support for businesses’ energy bills about 70 per cent less than the previous scheme. But high prices, industrial savings and a surge in renewable installations are likely to restrain demand enough for the continent to keep the high ground.
Like oil and gas prices, food prices have eased after the initial disruptions from the fighting in Ukraine. Still, food security remains a concern for the UAE and other big importers such as Egypt. Sharjah has opened a desert wheat farm that leverages artificial intelligence to use water more efficiently.
Life is tough for the Middle East’s commodity importers. Egypt, Lebanon, Israel and Turkey are facing inflation and further currency depreciation. Though Iraq is major oil exporter, the dinar has come under pressure as the US sanctions several banks over links to Iran. The Iranian rial has also hit record lows because of civil unrest and the further isolation of Tehran because of its support for Russia.
After a choppy opening to the year, oil prices soar
Oil prices have picked up after an initial slump at the year’s start. The sudden reversal of China’s Covid-related border controls will boost air travel. Less aggressive US interest rate rises and a weaker dollar have also contributed to stronger oil prices, while eurozone inflation appears to be easing. Demand could hit a record high in the second half of this year, while Russian oil exports drop with the growing impact of the European ban.
This will be welcome relief to producers, after prices slumped in the opening week of trading, their worst start to a year since 2016. Even with reopening, there are concerns over Chinese demand as the pandemic depresses activity, the real estate sector struggles and the share of electric vehicles grows. Brent crude closed at $78.57 per barrel on Friday and gained to $79.65 on Monday. Emirates NBD forecasts it to average $105 this year, and Goldman Sachs also predicts Brent will be at $105 by the fourth quarter of the year as demand grows strongly, allowing Opec+ to unwind its production cuts.
Afghanistan is one possible new frontier for oil production. The new Taliban government signed its first petroleum production deal with a unit of China National Petroleum Corporation, which will operate in the Amu Darya Basin in the country’s north, adjoining important producing areas in Turkmenistan and Uzbekistan. The deal still faces logistical and political hurdles.
Adnoc stepping up its low-carbon strategy
The Abu Dhabi state oil company has committed $15 billion by 2030 to its low-carbon businesses, including powering its operations from clean electricity, boosting energy efficiency, scaling up carbon capture and storage (CCS), and developing renewable and hydrogen products through its new stake in Masdar. It will reach five million tonnes of carbon dioxide captured annually by 2030.
The company’s new gas division began operations on January 1 and plans to list a minority stake on the Abu Dhabi Securities Exchange this year. Part of Adnoc’s petrochemicals expansion includes the Borouge 4 project, for which the company secured contracts worth Dh55 million to supply polyolefins to two local companies, Ducab and Union Pipes Industry.
These investments are a crucial part of Adnoc’s and the UAE’s road to net zero. It and other state oil corporations have to meet near-term global energy demand, while rapidly adding low-carbon solutions.
Adnoc also plans to decrease its greenhouse gas emissions intensity by 25 per cent by 2030. As Farid Al Awlaqi and Omar Al Hashmi from Taqa note, the state utility is supporting the national net-zero goal by providing zero-carbon electricity and more efficient water desalination.
The Cop28 conference in the UAE in November is a key part of advancing international climate action as well as focusing on domestic policies. The UK’s Business Secretary Grant Shapps will visit the UAE this week as part of preparations for the event, hoping to “strengthen ties particularly in areas of energy, space and critical minerals”. The World Economic Forum in Davos next week will sign a preliminary agreement to support Cop28.
In addition to a huge expansion of its liquefied natural gas business, Qatar, like Adnoc and Saudi Aramco, is growing in petrochemicals. On Sunday, it announced it is going ahead with a $6 billion ethylene and polyethylene complex in partnership with Chevron Phillips, a joint venture of two of the largest US oil companies.
Electric vehicles leaping, with Europe in the lead
Battery cars in the UK overtook diesel to take a 17 per cent market share last year. Bans on sales of new petrol and diesel vehicles will come into effect in Europe between 2030-2035, and the continent is forecast to overtake China in electric vehicle penetration by the end of this decade. The US, too, is predicted to see a sudden jump in uptake, reaching almost half of new sales by 2030. The higher the oil prices, the faster this adoption will be. In the UK, though, rail strikes and higher fares are pushing commuters back to their cars.
Chinese car makers can produce an electric vehicle for about €10,000 less than their European counterparts, giving them a major competitive advantage. Tesla has had to cut sales prices in the Chinese market as Beijing ended a subsidy programme.
Masdar has continued its expansion in renewable energy in the Caspian and Central Asian region by agreeing to develop up to 1 gigawatt of projects in Kyrgyzstan.
The EU has become a global leader in patents related to the clean fuel hydrogen, with 28 per cent of total patents. Germany, France and the Netherlands were the three top countries within the EU. Japan came next with 24 per cent, and the US with 20 per cent was the only major country where activity declined over the past decade. Hydrogen patents in South Korea and China are low, but rising.
Mukesh Ambani, chairman of Reliance Industries and one of India’s richest people, will focus on the conglomerate’s shift to green energy. The company will spend $75 billion in its quest to be carbon net zero carbon by 2035.
The UAE’s representative to the International Renewable Energy Agency, Dr Nawal Al Hosany, reminds us of the importance of putting young people at the top of the climate agenda.