Trump’s lifeline to oil producers?

Dr. Mohamed A. Ramady
Dr. Mohamed A. Ramady

Dr. Mohamed A. Ramady

By : Dr. Mohamed A. Ramady

While President Trump seems to be making the headlines for the wrong reasons concerning rather blunt speaking telephone calls with foreign heads of state and the shambolic introduction of his US entry executive orders on some Muslim countries, in contrast oil producers seem to have found a new found friend who has thrown them a lifeline.

Oil producers had been coming under increased pressure over the past decade from global environmentalists and climate change advocates who have vigorously campaigned for a reduction in fossil fuel consumption and renewed emphasis for renewable and clean energy sources.

Trump’s victory, with his belief that climate change proponents have been exaggerating the degree of harm to the environment, and has even called climate change a hoax, coupled with his election promises to push harder for domestic US oil and coal production has seemingly changed the energy equation, at least for the next four years of his administration.

Mixed energy portfolio

Now no less than Saudi Arabia’s Energy Minister Khaled al-Falih has announced that US president Donald Trump’s policies would be good for the oil industry, as according to the minister, Trump has steered away from excessively anti-fossil fuel’s unrealistic policies and that he wants a mixed energy portfolio that includes oil, gas and renewables.

The American president has followed up on his rhetoric by appointing unapologetic climate change skeptics in key administration positions such as Scott Pruitt as head of the Environment Protection Agency, as well as other climate change skeptics like David Schnare, Chris Horner and William Happer.

Despite Trump’s seeming lifeline to Gulf oil producers, the major fossil producers know that this lifeline is short term as the environmental bandwagon and scientific evidence points toward an eventual reduction in fossil fuel consumption

Dr. Mohamed Ramady

According to reports, in 2015, the environmental group Greenpeace UK announced that it had caught Happer in a sting operation. Greenpeace officials, posing as representatives of an unnamed Middle Eastern oil company, offered Happer money to write a report on the benefits of increasing atmospheric levels of CO2 while keeping the funding source a secret.

Happer agreed, but maintains that he did nothing wrong. He says that he told the ‘oil company’ officials that any payments should be sent to the CO2 Coalition, a US non-profit organization that promotes “the important contribution made by carbon dioxide to our lives and the economy”.

The Paris Agreement

The seemingly unabashed new Trump embrace for fossil fuel will put into question the USA’s commitment to the December 2016 Paris Climate Change Conference which ended in much fanfare to try and enforce stricter national compliance in reducing global emissions, with fossil and coal being the primary targets.

This was much to the annoyance, but grudging acceptance of major oil producers who have pointed out that they either need to be compensated for future loss of oil revenues, which was discounted by consumer nations, or try to diversify their oil-based economies. The result has been a plethora of Visions and Missions all over the Gulf countries to do exactly that, and hope that the private sector will take up the challenge of being the future engine of non-oil growth.

By contrast, the European Union as a whole has set a target of an 80-95 percent reduction in greenhouse gas emissions by 2050. Among EU nations, Sweden, Britain, Denmark and Finland have also passed climate laws meant to make long-term policies less easily overturned and to give more certainty to investors, especially those embarking on long term and costly renewable energy programs.

These countries and others want to set an example at a time when climate sceptics are seemingly gaining power in the world again. Despite US skepticism, at least from Trump appointees, they feel encouraged by pledges by China and India, the world’s other large emission countries to fulfil their commitments to the Paris Agreement.

So will the Paris Agreement get anywhere? On the one hand, it doesn’t oblige any government to cut their greenhouse gases. But on the other, each country’s efforts will be scrutinized every five years. And although the agreement has no teeth, it does represent something unique: the first time that every nation on the planet has signed up to try to head off the worst effects of global warming.

Potential game changer?

China in particular, is investing billions in solar that could be a potential game changer, and put at risk those that still want to invest in fossil fuels and ultimately be the losers.

Despite Trump’s seeming lifeline to Gulf oil producers, the major fossil producers know that this lifeline is short term as the environmental bandwagon and scientific evidence points toward an eventual reduction in fossil fuel consumption.

They too have been embracing a future that encompasses renewal, especially solar energy, and are planning significant investment in the sector. In this respect, Minister Falih is also right by hedging his long-term bets on a mixture of energy portfolio too, given that in the short term the new Trump energy policies might increase US oil production and reduce dependency on oil imports from the Gulf countries.

Oil producers like Saudi Arabia have seemingly welcomed additional US oil production if this helps to meet increased global demand. This is a big “if” in face of global uncertainties on renegotiated trade agreements and protectionist economic policies.

Dr. Mohamed Ramady is an energy economist and geo-political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.

Disclaimer: Views expressed by writers in the Column section are their own and do not reflect RiyadhVision’s point-of-view.


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