OPEC Primes the Pumps While the World Tries to Curb Emissions at COP26

OPEC members and other oil-producing nations will hold talks on Thursday about potential increases in supply.

The virtual meeting of the countries known collectively as OPEC+ comes as the COP26 conference on climate change continues in Glasgow and as other governments pressure the group to produce more oil.

It's not yet clear what decisions OPEC+ will make, but it appears likely the coalition will stick to a plan to increase oil production by a modest 400,000 barrels a day each month, which has been in place since August.

President Joe Biden is among the world leaders who have called on OPEC+ to increase production further to tackle an energy crisis in Europe and higher gas prices in the U.S. and elsewhere.

"The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right," Biden said at G20 talks in Rome on Sunday.

The meeting of OPEC+, which is led by Saudi Arabia and Russia, also comes as some of its 23 members have set out ambitious targets for cutting carbon emissions.

Oil, a fossil fuel, is a major contributor to emissions. Saudi Arabia, Bahrain and Russia have said they are aiming for carbon neutrality by 2060, while the United Arab Emirates (UAE) has set a 2050 target.

These goals may conflict, however, with OPEC likely to increase production for economic reasons.

Meanwhile, leaders at COP26 appear to be making some progress in the move away from fossil fuels, with more than 40 countries agreeing to quit mining and burning coal, the most polluting fossil fuel. More than 100 countries have pledged to end deforestation by 2030, while the U.S. and the European Union have pledged to cut global emissions of methane, a greenhouse gas, by 30 percent by 2030.

Experts who spoke to Newsweek said adopting policies to combat climate change presented both risks and opportunities for the OPEC nations.

The Green Paradox

Robert Kaufmann is a professor in the Earth and Environment Department at Boston University whose research focuses on global climate change, world oil markets and land-use changes.

He told Newsweek that the "greatest threat" oil-producing countries faced from climate policies was unburnable carbon, or "fossil fuels that have to be left in the ground to keep atmospheric concentrations of CO2 within a limit."

"For example, to keep the rise in global temperature to 1.5C to 2C, up to 82 percent of proved reserves of fossil fuel resources have to be kept in the ground. Fossil fuels left in the ground are called 'stranded assets'," Kaufmann said.

"Regardless of exact quantities of unburnable carbon, OPEC nations—and oil companies—do not want to be stuck with oil left in the ground."

He went on: "This creates what is known as the green paradox. To avoid being stuck with oil left in the ground that is caused by climate policy, OPEC nations accelerate production, which lowers prices, increases the consumption of fossil fuels and delays the transition to renewable fuels."

Kaufmann said this would tend to favor OPEC nations boosting production.

"Indeed, OPEC does not want oil prices to get too high," he said. "High prices induce more consumers to buy electric cars, which will reduce demand for gasoline, an important market for OPEC oil.

Fear of Stranded Assets

This "green paradox" will also affect production outside OPEC nations, including in the U.S.

"As prices drop, due to higher production by OPEC nations, this will reduce the profitability of production from high-cost resources, such as crude oil produced from tight formations—fracking oil," Kaufmann said.

"Furthermore, fear of stranded assets will reduce the value of oil companies, which will also reduce their ability to raise money," he added. "As such, OPEC nations will be able to capture market share from high-cost producers. This is an important opportunity for OPEC, which has struggled to maintain what they perceive to be a fair share of the market."

Significant Emitters

Philip Walsh, professor of entrepreneurship and strategy at Ryerson University in Toronto and principal investigator at the university's Center for Urban Energy, told Newsweek that OPEC nations could not agree on climate change measures because of the differing status of members.

"The developing countries who are members of OPEC rely heavily on the economic sustainability provided by their current oil production," Walsh said.

"This is likely complicated by their view that their contribution to greenhouse gas emissions remains minimal when compared to richer nations such as the U.S., China and Russia, who are significant emitters in comparison."

Walsh pointed out that OPEC's oil production levels in 2020 were their lowest in almost two decades.

"Other oil-producing countries, including the U.S. and Russia, have not seen their levels drop at the same levels," he said. "With the price of oil recovering from the lows experienced last year due to the COVID pandemic, the pressure will be on within OPEC to increase output, despite the call for climate change action."

Climate Diplomacy

Cinzia Bianco is a visiting fellow at the European Council on Foreign Relations and author of the report Power Play: Europe's Climate Diplomacy in the Gulf, published in October. She told Newsweek that green initiatives did offer opportunities to OPEC nations.

"Oil producers in the Gulf Cooperation Council maintain an ambiguous position on the issue of curbing emissions, torn between riding the climate momentum and preserving the most significant industry for their economy," Bianco said.

"Yet, GCC countries now recognize the political opportunities offered by climate diplomacy: the Saudi leadership aspires to use the Middle East Green Initiative to emerge as the key regional interlocutor for global players, while the UAE intends to host COP28.

"Indeed, all GCC countries signed the Paris Agreement and two of the largest Gulf oil producers—Saudi Arabia and the UAE—pledged to be net-neutral by 2060 and 2050, respectively," she said.

However, Bianco added that those announcements referred only to domestic emissions and not to "the substantially larger volume generated by exported hydrocarbons," which account for more than half those nations' GDP.

"In general, oil and gas rents' contribution to the government budget ranges from 60 percent in the UAE to up to 90 percent in Kuwait and Qatar," Bianco also.

Economic Alternatives

Bianco also told Newsweek that the Gulf Cooperation Council's approach to climate change isn't focused on scaling back the production and export of oil and gas.

Instead, it aims to reduce the industry's environmental impact via carbon-capture technologies, or "nature-based solutions to offset emissions, such as the Saudi initiative to plant 40 billion trees across the [Middle East and North Africa] region."

"Phasing out hydrocarbons would only become a concrete option for them if clean energy—chiefly, green hydrogen—were to become a credible economic alternative to support economic diversification, creating jobs and revenues," Bianco said.

"In the meantime, the GCC oil producers and especially Saudi Arabia are bent on keeping the global oil market as stable as possible, balancing supply on demand to avoid prices plunging, such as in 2020."

Bianco pointed out that the Biden administration was pressuring allies in OPEC to boost oil production, especially Saudi Arabia and the UAE.

"However, some OPEC producers, led by Saudi Arabia, want to avoid raising production too substantially too quickly to avoid another downward spiral of oil prices, given their lack of confidence in the strength and sustainability of a post-COVID economic recovery globally," she said.

Whether or not OPEC+ bows to pressure and boosts oil production this week, in the long term an increase in supply appears likely.

People Gather at a 2016 OPEC Meeting
Participants gather in the lobby ahead of an informal meeting of OPEC members in Algiers on September 28, 2016. OPEC nations and other oil-producing countries will meet virtually on Thursday. RYAD KRAMDI/AFP/Getty Images

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