Energy transition

Aramco Chief Blasts Energy Transition Policies as Washed-Away 'Sandcastles'

Amin Nasser said the European energy crisis is a direct result of underinvestment in the oil and gas industry and poor contingency planning.

Sand Castle
Global energy policies were compared with sandcastles at an industry gathering, and not in a good way.
Source: Getty Images.

Saudi Aramco CEO Amin Nasser on Tuesday issued a stinging rebuke of energy transition policies that he considers to be the root cause of an unfolding energy crisis facing much of Europe and other parts of the world.

Nasser was speaking during a Schlumberger forum in Switzerland where he said warning lights have been “flashing red for almost a decade” ahead of this year’s turbulent energy market that has seen consumers around the world paying record-high fuel and electricity prices.

The chief of the world’s largest oil company cited years of under investment in the upstream industry along with the immaturity of renewable energy generation as primary drivers of today’s extreme tightness between supply and demand.

Nasser connected these two factors to what he considers to be arguably the “most damaging” assumption of all.

That is the notion that the energy transition could be accomplished “almost overnight” and that increased supplies of oil and gas would not be needed in case that didn’t happen. He also dismissed the idea that Russia's invasion of Ukraine is the ultimate root cause, arguing that while it has worsened the situation, even a sudden end to the 6-month-long war would not end the globe's energy troubles.

Nasser told industry professionals at the forum: “Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies—especially gas—oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right.

“Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged.”

Upstream Investments Are “Too Little, Too Late”

Nasser pointed out that between 2014 and 2021, investments into the oil and gas industry have more than halved from $700 billion to just over $300 billion. Adding to his concern over future supplies is that production from the world’s oil fields is declining at a rate of 6% on average.

Nasser linked all of this to global spare capacity which stands at just 1.5% of total crude demand. As markets around the world eventually recover from the ripple effects of COVID-19, he expects that small margin to be fully exhausted.

“Yet, incredibly, a fear factor is still causing the critical oil and gas investments in large, long-term projects to shrink,” he said. “And this situation is not being helped by overly short-term demand factors dominating the debate. Even with strong economic headwinds, global oil demand is still fairly healthy today.”

The CEO said Saudi Aramco is attempting to do its part to boost supplies by ramping up its own production from around 12 million B/D this year to 13 million B/D by 2027. However, Aramco is unlikely to buoy markets all by itself.

Nasser said while this year's high oil and gas prices have spurred a general uptick in upstream investments, the added inflows are “too little, too late, too short-term” to correct the current trajectory.

In alluding to the recent moves in the UK to freeze electric bills and impose windfall taxes on oil and gas companies, he suggested such actions will backfire by discouraging many energy producers to step up output. Nasser extended the suggestion to what he considers to be a dubious push across most of Europe to rapidly phase out oil and gas in favor of nascent alternatives.

“As for conventional energy buyers, who expect producers to make huge investments just to satisfy their short-term needs, they should lose those expectations fast. And diverting attention from the real causes by questioning our industry’s morality does nothing to solve the problem,” remarked Nasser.

Alternatives Not Ready

Nasser’s comments in Switzerland come 9 months after he issued similar warnings on the current approaches being taken in the energy transition. In December, he characterized transition efforts as growing “ever more chaotic” and called on public stakeholders to acknowledge the need for sustainable supplies of oil and gas in the decades to come.

This week, he reemphasized that energy transition plans were largely based on “unrealistic scenarios” including recently made assumptions that pre-pandemic levels of oil demand would not be revisited as alternative energy sources enjoyed rapid scale.

“In reality, once the global economy started to emerge from lockdowns, oil demand came surging back, and so did gas,” he said, while alternative sources have proven unable to fill the gap.

To drive home his point, Nasser underscored that solar and wind power account for just 10% of global electricity supply and less than 2% of primary energy supply. “Even electric vehicles comprise less than 2% of the total vehicle population and now face high electricity prices,” he added.

Nasser related that his criticisms of energy policies are not an indictment against global climate change goals. Nor, do they imply a view that alternative energy sources are undeserving of further investment. “But the world deserves a much better response to this crisis,” he said.

“This is the moment to increase oil and gas investments, especially capacity development. And at least this crisis has finally convinced people that we need a more credible energy transition plan.”

Nasser included in his remarks a three point initiative to reframe the discussion and expectations around the global energy transition:

  • “Recognition by policy makers and other stakeholders that supplies of ample and affordable conventional energy are still required over the longterm. 
  • Further reductions in the carbon footprint of conventional energy, and greater efficiency of energy use, with technology enabling both. 
  • And new, lower-carbon energy, steadily complementing proven conventional sources.”

The full text of Nasser’s speech can be found here.