Price of oil threatens Climate Conference

Scotland has begun to fill with technical and diplomatic delegations, as well as scientists, activists, and business leaders, from practically every country in the world, who must comply with a prior quarantine, which in a matter of days, with the start November, it will become the 26th Conference of the Parties (COP 26) of the United Nations Framework Convention on climate change.

COP 26 is the most important environmental and economic conclave of the 21st century to date. The international expectation is that the vast majority of countries will commit to make significant cuts in the emission of greenhouse gases, which cause climate change and reach consensus on the transition to a low-carbon economy, as quickly as possible.

The scourge of high oil prices and its derivatives has impacted consumers around the world and may have consequences on the scope and ambition of what is agreed in Scotland.

Just this past week, the prices of a barrel of oil reached levels not known since 2018, The Organization of the Petroleum Exporting Countries (OPEC) and Russia have been highly disciplined in the cuts to crude oil production, in order to reduce the excesses of an international market that in 2020 collapsed due to the Covid-19 pandemic.

OPEC and Russia are not the only players that keep the oil tap closed, the big oil companies of the world maintain their production with very low inventories, partly to recover the income lost in recent times, but also as a preventive measure against the overproduction. As if that were not enough, in the United States, as in Western Europe, there is a shortage of tanker truck drivers who go through the last phase of the distribution of gasoline and diesel necessary for consumers. In some parts of the United States and the United Kingdom, this has caused a shortage at gas stations in more remote regions.

According to OPEC, in the year 2022, about 100 million barrels of oil per day will be produced in the world, an amount that leaves little room for error for the market. A big absentee is the shale oil industry, also known as fracking, which usually flooded the market with oil when prices rose, but was then drowned with excess inventory when prices fell, eventually placing this sector in a very critical financial situation.

Taking advantage of the high prices, the fracking companies have also remained very disciplined and have controlled their oil production with great precision. The series of effects of hurricanes and tropical storms that have affected the coast of the Gulf of Mexico in the United States has also helped this situation. Oil sector analysts estimate that a price of $90 per barrel would not be anything strange in this environment.

The high prices of natural gas in the European Union have caused an escalation in the prices of electricity generation in many countries of the old continent, which abandoned the production of electricity with coal and nuclear energy to replace it with natural gas, supposedly less polluting than coal and safer than nuclear power.

On the other side of the Atlantic, President Joe Biden, who came to the White House with the backing of the environmental vote and strong promises of commitments against climate change, is facing resistance from the conservative flank of the Democratic Party, which has lowered his speed and budget to some climate measures. In addition, Biden now has the new challenge of the high price of gasoline and other petroleum products, which threaten to derail the recovery of the US economy.

President Biden’s leadership is essential to the success of COP 26. If the United States does not deepen its climate ambition, the carbon neutrality goal by 2050 is going to be very difficult to meet.