11.07.2021 – 09:57
The UAE surprised oil market observers this month by refusing to agree to an extension of the current OPEC + production control agreement under its original terms.
The Emirates demanded an adjustment to basic production levels, noting that November 2018 was difficult to reflect current production realities. Traditionally one of Saudi Arabia’s closest allies, the UAE has gone against its largest regional partner, fueling fears of much greater insecurity.
However, behind the scenes, everything makes sense. The UAE is simply preparing for a post-oil world and trying to make the best of the oil it has before demand starts to shrink for good. At least, that’s according to knowledgeable sources who talked about policy change in the Wall Street Journal this month.
“This is the time to maximize the value of the country’s hydrocarbon resources, while they have value.” said one of the WSJ sources. “The purpose of the investment is to generate revenue for the diversification of the economy, both for investments in new energy and, most importantly, in new revenue streams.”
If this sounds familiar, it’s because it’s familiar. Russia is doing the same. The world’s third-largest producer has enough oil to keep production at current rates until 2080 and has enough gas to extend it for another 103 years, but is investing billions in new oil reserves in Eastern Siberia. According to estimates, the giant Vostok project could capture about 100 million tonnes gross per year.
This is happening in the context of the forecaster as the forecaster warns that peak oil demand is appearing on the horizon of oil producers.
BP, for example, predicted that in the worst-case scenario peak demand for oil has already arrived and in the best-case scenario, it will come in 2030. Norway’s Equinor expects oil demand to peak sometime in 2027 or 2028. Rystad Energy sees demand peak in five years, and the International Energy Agency expects peak demand over the next decade. In general, the forecasts are within the 2030 interval.
This means that Russia, the UAE and all the other major oil producers have very little time to diversify away from their main export commodity.
At the same time, they need money to boost their economic diversification efforts. The clearest place from which this money can come is oil exports.
And that is why the UAE is sticking to its OPEC partners. While publicly it remains committed to curbing the production of the cartel and its non-OPEC partners agreed last year, privately, like any self-respecting economy, the UAE is looking for itself.
“Market share is a key factor here.” told the WSJ an oil industry executive from the Emirates. “We want a bigger market share, to make as much money as we can from our reserves, especially when we have spent billions to develop them.”
At the same time, the UAE will need oil revenues to divert its economy from oil, something that, according to recent reports from the IMF and Moody’s, could prove a challenge.
Like other Gulf producers, the UAE has relied on oil revenues to power the non-oil parts of its economy for decades. It would be difficult to break this habit without any social or economic consequences.
Translated and adapted for Konica.al by RT