Last week, the Secretary-General of the Organization of Petroleum Exporting Countries (OPEC), Mohammad Barkindo of Nigeria called climate protesters the “greatest threat” to fossil fuels. This outburst probably stemmed from the realization that climate change activists were the vanguard of a growing consumer movement around the world that could bring in governments with an explicit mandate for a greener economy that relies less on fossil fuels and more on renewable forms of energy.
Despite the secretary-general’s warning, many OPEC member countries, including the six-nation Gulf Cooperation Council (GCC) bloc have begun to hedge their bets on fossil fuels and are embracing renewable energy sources. Even though hydrocarbons form the life-blood of GCC and their economies are to a large extent, if not totally, reliant on oil and gas revenues, they have over the years been significantly investing in various renewable forms of energy.
Kuwait, which has the fifth-largest reserves and fourth-largest production of oil among the 14-member OPEC, remains committed to realizing His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah’s vision of meeting at least 15 percent of the country’s energy needs from renewable sources by 2030.
Currently, oil and gas provide around 70 and 30 percent respectively of the energy needed for electricity generation. In a bid to increase the amount of oil available for export and lessen gas emissions, Kuwait decided to raise the use of gas in its power generation plants. But the country, which is not self-sufficient in gas production has been importing gas at an added cost.
But the import of gas to fuel power generation is not an ideal solution as the government bears the brunt of the cost of power generation through its subsidy programs. Increasing power usage in Kuwait has meant that the government’s electricity and water generation subsidies have grown significantly in recent years. In presenting its development plan report for the 2019-2020 period to parliament, the government warned that fuel subsidies to operate energy and water utilities have increased to 10 percent of annual revenues. Saying that this situation was untenable in the long-term, the government called for increasing spending on renewable energy projects.
Renewable energy is not something new to Kuwait, as with most other initiatives the country was the leader in renewable energy generation in the entire region. Back in 1978, a team from Kuwait Institute for Scientific Research (KISR), with German support, designed and created a pilot solar energy station. But then, as with everything else, enthusiasm for renewable energy waned, until quite recently after most other GCC states had gone well ahead in renewable energy projects of their own.
Nevertheless, KISR still remains at the forefront of renewable energy research and development in the country. It is now working on the huge Al-Shaqaya renewable energy complex which involves a renewable-energy operated water desalination plant. The renewable energy complex is set on a 100-sq-km plot in western Kuwait and the area has been specifically allocated for generation of various forms of renewable energy.
In the meantime, several other projects in renewable energy, both by the government and through public-private partnerships, are also either underway, or in the planning stage, including a project to install solar panels over the Subbiya water reservoirs by the Ministry of Electricity and Water. Ironically, Kuwait Petroleum Corporation (KPC), the giant parent company responsible for all oil and gas related activities in the country, has also embarked on its own renewable energy projects.
Kuwait National Petroleum Company (KNPC), a subsidiary of KPC, plans to build the Dibdibah solar power plant at Al Shaqaya renewable energy complex. The project aims to replace the need for 5.2 million barrels of oil a year and reduce carbon emissions by 1.3 million tons annually. The project covers the construction of 1000 MW solar power plant spread over a land area of 32,000 square meters and is projected to produce 1.5 MW of power.
Kuwait and other hydrocarbon-endowed nations in the GCC have apparently read the writing on the wall and are hedging for a day when oil revenues are not sufficient to fuel their economies. But many fossil fuel companies, especially giant energy companies in the West continue to bet on oil. The light at the end of the tunnel for them is to dig more oil. They remain oblivious that the light at the end of their tunnel is light from the renewable energy train.
Understandably, most oil company boards tend to follow the demand of shareholders for more dividends and it is no surprise that the ‘drill baby drill’ mentality prevails among some politicians and their oil company patrons. But astute companies and shareholders are beginning to realize that the social license for their operations come from consumers and consumer-demand, which is what keeps the drilled oil flowing out through the pumps.
The notion that oil companies could drill wherever and however they pleased and the public would make a beeline to buy their product is growing obsolete. More and more it is consumers who are dictating through their buying power the form of energy they want to see developed.
Increasingly, public demand is turning away from fossil fuels and towards renewable sources of energy. People are realizing that climate change is for real and have begun to link the deleterious impacts of changing global weather patterns on greenhouse emissions, especially from the burning of fossil fuels. The chorus of demand to keep fossil fuels where they belong, under the ground, is gaining in volume and influence around the world.
This paradigm shift away from fossil fuels may not be apparent on the surface, but an underlying sense of responsibility for their role in exacerbating climate change is urging many consumers to do a rethink on their energy use. At the moment there may not be any other viable option to the use of fossil fuels, but consumer demand is slowly but steadily fueling the growth of various renewable sources of energy.
The writing on the wall, in large black oily painted letters, is that there may not be a ‘peak oil supply’ anytime soon, but there definitely is a ‘peak oil demand’, and it is just around the corner. US President Donald Trump and his coterie of fossil fuel supporters may not want to read the writing on the wall, but that does not make the letters fade.
It is not just consumers, increasingly investors are also growing wary of the ability of oil companies to handle climate change. Even as oil supply continues to grow and support increased profits for these companies, the share of oil and gas stocks on the S&P 500 has halved in the past six years. Adding to their woes, oil and gas companies could also face greater regulatory pressure to disclose their financial risks to climate change, if President Trump does not triumph in the elections scheduled for 2020.
Last week senators reintroduced a legislation in the US Senate that would require publicly-traded companies to report their risks related to climate change. The legislation would force oil and gas companies to report their exposure to climate change, such as the likelihood of damage to property and operations from flooding, severe storms, drought and other climate-related effects.
As consumers clamor for more renewable forms of energy, investors begin to have second-thoughts on investing in fossil-fuel companies and governments begin to legislate pro-climate policies, including bringing in legislation similar to that tabled in the US Senate, the index valuations of fossil fuel companies could plunge. Many of their assets could become worthless as their vulnerability to climate change becomes apparent under new legislation.
Industry experts and analysts estimate that if the world makes the changes necessary to meet the emissions goals of the Paris climate accord, at least 82 percent of global coal reserves, 49 percent of global gas reserves, and 33 percent of global oil reserves will become unused assets in the next 30 years. No wonder, OPEC secretary-general was so vitriolic in his comments about climate activists.
The Times Report
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