Page 4 - AfrElec Week 13

AfrElec COMMENTARY AfrElec
Saudi oil surge and its threat to the energy transition
The Saudi-led oil glut leaves the energy transition and decarbonisation efforts hanging in the balance, write Richard Lockhart
GLOBAL
WHAT:
Saudi Arabia opened the taps on April 1, raising exports to 10mn bpd
WHY:
OPEC+ supply restriction talks collapsed on
March 6
WHAT NEXT:
The fall out for decarbonisation could be huge, although there are opportunities available if governments act
THE coronavirus (COVID-19) has caused an immediate decline in demand for electricity, creating a global energy crisis that IEA executive director Fatih Birol has called “unprecedented.”
This accompanies a collapse in oil prices whose “impacts will be felt throughout oil’s global supply chains and ripple into other parts of the energy sector,” said the IEA.
Meanwhile, Aramco kept good on its prom- ise to raise output on April 1 after the OPEC+ talks collapsed on March 6.
The move by Aramco is seen by analysts as an attempt to win and consolidate market share from both higher-cost oil producers in the US shale industry and from Russian rivals.
This supply shock and the coronavi- rus-caused collapse in demand have created two shocks for oil markets that will have cata- strophic effects across the oil industry and the wider energy market.
“The scale of the collapse in oil demand, in particular, is well in excess of the oil industry’s capacity to adjust,” warned the IEA.
One major development that is vulnerable to all this disruption is the decarbonisation of the energy industry. The growth in renewables and the emerging commitments by investors and oil companies to the energy transition and the
green economy look to be hanging delicately in the balance.
Saudi actions
On April 1, Saudi Arabia kept its promise to raise exports to 10mn bpd in April, from 7mn bpd before March, and further to 10.6mn bpd in May, effectively flooding the world market with discounted oil. Aramco said on April 1 it was loading 15 oil tankers with 18.8mn barrels of oil for export. It is doing this in the face of US pressure to rein production and avoid pushing oil prices even lower.
Aramco has now raised production above 12mn bpd, Bloomberg reported, compared with 9.7mn bpd before March.
Looking ahead, the Saudi government has told Aramco to ramp up supply to 13mn bpd as exports are now set for 10.6mn bpd in May.
Price-wise, traders expected Aramco to slash its official pricing for May sales of Arab Light crude to Asia by between $3.50 and $3.75 per barrel, Bloomberg reported.
To the limit
The key long-term factors determining Saudi strategy, and how long it can sustain low oil prices, is the country’s fiscal break-even figure,
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w w w . N E W S B A S E . c o m Week 13 02•April•2020