We live in an interesting energy climate. As nations look to lower their emissions, they are simultaneously facing the increasing energy demands of a growing global population. While geopolitics has played an influential role in the current energy situation, the roots of today’s market volatility and ensuing supply crunch run far deeper. However, as complex as the situation may seem, the solution may be simple.
As the International Energy Agency pointed out earlier this year: “Investment trends in recent years have contributed to the situation we see today.” Last November, I warned that underinvestment in the industry would inevitably lead to price hikes. For too long, the sector has not developed the resources that would enable it to respond to changes in supply routes and upticks in demand.
Over-reliance on any one kind of fuel or supply route leaves nations and the global market vulnerable to disruption, and that is what we are seeing today.
Handle with care
Underinvestment in traditional energy has damaged global energy security but it has also put strain on the energy transition. As we approach winter, the scramble to make up shortages is pushing countries away from their green agendas, as we have seen in supply crunches across the world. It is evident that without careful, planned investment in both hydrocarbons and renewables, energy transition plans will keep being rewritten whenever the market tightens.
Renewable forms of energy will play a significant and growing role, but oil and gas will remain an essential part of the energy mix in the decades to come. While this may be an uncomfortable reality for some, it remains an undeniable fact, and the past few months have made that clear. We cannot make a success of this transition if we neglect the foundations upon which the industry stands.
Investment in capacity-building and in boosting efficiency will allow the world to increase its overall global production, ensuring that energy markets can operate effectively and maintain global economic stability.
We must come together to move at a pace that reflects the urgency of the challenges we face
Furthermore, investment can unlock the modernisation of the value chain and, in turn, have a direct impact on meeting climate targets. The sector is already pioneering multiple projects to this effect and, with the right finance flows, we can supercharge these innovations. But we need to face the reality that, in the decades to come, the world’s energy needs will be met by a mix comprised of oil and gas, as well as renewables.
The UAE has recently announced massive increases in new energy projects, locally as well as internationally. We are committing $163bn to renewable energy, opening up an entirely new frontier of energy production, which can help us solve our environmental crisis and to spur development across the world.
Included in our investments, for example, is the Etihad 7 programme, which is helping some of the world’s least developed countries to provide clean power for 100 million people by 2035 by funding renewable projects across Africa. Additionally, at a local level, Masdar developed the third phase of Mohammed bin Rashid Al Maktoum Solar Park in Dubai, with a capacity of 800 megawatts and potential to be the largest single-site solar park in the world.
Constant dialogue
Of course, this is not the responsibility of one country, or group of countries, but a vital global project. We must come together through bilateral and multilateral partnerships to move at a pace that reflects the urgency of the challenges we face.
Institutions like the International Monetary Fund and World Bank are essential to this, in facilitating global finance flows, incentivising capital markets and supporting investment across the developing world in particular.
Equally important is engagement with the private sector, which ultimately must be the driver of the necessary innovation and technology to power the energy transition. Dialogue between governments, international financial institutions, network operations centres and the private sector must be constant and productive.
Ultimately, by exploring these bilateral and multilateral avenues, we have the tools to advance this energy transition in the most efficient and stable way, but that must start by addressing the current energy situation in a responsible and pragmatic way.
Suhail Mohamed Al Mazrouei is the minister of energy and infrastructure of the UAE.
