Musabbeh Al Kaabi, CEO - Petroleum & Petrochemicals, Mubadala Investment Company

Thank you, Jason, and thanks for hosting me.

Well, obviously we're experiencing something unprecedented, something we haven't seen before, so predicting the market is a big challenge. We're doing what other investors are doing—we're trying to adjust our activities to cope with a new reality. COVID-19 has disrupted every business sector we're investing in, so our job currently is to primarily weather the storm, try to also steer our strategy in a way that we position the company for the next phase of its growth. Mubadala, as you mentioned earlier, is a sovereign wealth fund with assets under management of 229 billion dollars. We're active in many sectors—not only in the energy space but in technology, life sciences, pharmaceuticals, information technology, and almost 15 different sectors. Yes, I think COVID-19 proved to be very challenging to everyone globally, and we are no exception. But it is hopefully creating opportunities and a different perspective on the investment environment going forward.

Well, it is being impacted like everyone else in the world. But the good thing about what the UAE is about is we started a vision a long time ago, almost 2008, to diversify the economy away from oil and gas. We are still on that journey going forward. But COVID-19 and the previous drop in the oil prices back in 2014-15 put an acceleration mode into that vision. So the government has been extremely laser-focused on pushing that agenda going forward and trying to diversify the economy. Overall, when you think about the UAE and comparing it with the neighbors in the region, I think we're satisfied with the progress done, and we're on that journey. We're becoming less and less volatile and more resilient when it comes to commodity prices, especially oil prices. The government is fully behind that vision and very committed. Mubadala is also part of that vision, and wherever possible we try to push that agenda going forward. The UAE in general also dealt very professionally with the COVID-19 situation. We are one of the highest testing per capita globally—more than 50 percent of the population has been tested. We're putting the right protocols in place to minimize and flatten the curve. Overall, I'm glad to see the UAE ranked one of the top countries globally to deal with COVID-19, from the health point of view to the economic measures put in place to eradicate and minimize the negative impact. We are forward-looking, and hopefully next year we will see more and more initiatives. The government's vision has proved to be very efficient and practical.

Back in January/December 2019, oil demand globally was around 100 million barrels of oil per day. We've seen a significant drop in March/April—almost a 30 percent drop suddenly in global oil demand. That led OPEC Plus to put the right plan in place to stabilize the market. Currently, we're very happy to see the oil demand going back to levels of, let's say, the 90s—it's probably between 90 to 93 million barrels per day now. But there are segments of demand that will take longer than expected to recover. The airline sector and jet fuel—the jet fuel will probably take two to three years to go back to pre-COVID-19 levels. But the other sectors of demand have seen a significant recovery, almost back to pre-COVID-19 levels. So yes, the recovery has been at an acceptable level. We're expecting more recovery to come next year, but for jet fuel, I think it will take two to three years. Now the big question mark: what is the long-term impact of COVID-19 on oil demand? There is no doubt it created a disruption. The way we see the world post-COVID-19 will be totally different. I'm confident there will be less traveling, certain sectors in the economy will have less activity, which will translate into lower demand in those sectors. But projecting to 2030, 2040, we still think there will be an acceptable level of growth in oil demand potentially up to 2030, where we anticipate peak demand. Based on the latest projections, it's around 2030. Some analysts push it forward, some push it earlier. The consensus in the industry now is that we may see peak oil demand sometime in the next 10 years, plus or minus. To summarize: for COVID-19, we're expecting a major disruption in demand in the short term—we've already seen it in 2020—and we expect it to continue in 2021. But if you project 10 years down the road, I think we will go back to an acceptable level of growth and potentially peak demand around 2030.

Well, I think in 2014 and 2015 we had a similar argument, Jason. We thought underinvestment would translate into a supply shortfall in the future. This time I see it differently. For the reasons you mentioned—there is pressure on big IOCs, there is pressure from the investor community, there are government policies, climate change—so if you put these in perspective, I doubt there will be massive investment in the upstream sector, especially from IOCs going forward. Which will create space for national oil companies and privately owned companies to play in that space. So yes, this time is different because of climate change, ESG considerations, government policies that put pressure on conventional players to expand upstream. To summarize, I think there will be episodes in the near future where we see potential disruption in supply, and the emerging winners would be the likes of national oil companies and privately owned companies that can play in that space.

Well, based on what we see, let's take things in perspective. Let's project the energy demand by 2030 or 2040 or 2050. In these scenarios, Jason, we always see that oil and gas will remain a significant part of future energy demand. Which means we have a responsibility to supply the world with the required energy to meet future demand. I think there is pressure on IOCs—investors are also putting more and more pressure on them to address ESG and climate change more aggressively than what we've seen historically. It is the responsibility of the IOCs and producers, including national oil companies, to strike the right balance between these factors. One area they can play more aggressively on is the deployment of technology—the decarbonization of production operations, and ultimately deploying technologies that minimize or eradicate emissions. I keep telling the team here in Abu Dhabi: oil and gas is not bad, emissions are bad. So let's do something about emissions. There are emerging technologies that could help national oil companies and IOCs address that issue. I think what industry did in the last 20-plus years was put themselves in a defensive mode. If I could go back in time, they should have embraced these trends and played a more proactive role by deploying and promoting technologies that minimize the carbon footprint. I see a similar trend in the downstream with petrochemicals. It's very important for petrochemical players to be proactive and address the plastic waste issue, not be in a state of denial. We see a strong movement within the industry to tackle plastic waste, so I'm optimistic that technology will help the industry address these big headwinds and challenges. I remain optimistic that we will see emerging technologies to address these issues.

Well, I think you're right, Jason. We see many government policies around the world trying to push the decarbonization agenda stronger. Whether that vision is practical or not is another debate. But let's monitor two trends. One is government policies, as you mentioned—even Asian players who have historically been heavily dependent on oil and gas are now joining the club and trying to put the right vision and policies in place to decarbonize their economic activities. Government policy is one. The other is technology—let's not underestimate the impact of technology. Technology will play two key roles: one is empowering the green economy through EVs and electrification of the transportation sector, which is unstoppable and going in the right direction, though starting from a low base. The other technology I'm hopeful about is technologies that enable us to continue producing natural resources with the minimum possible carbon footprint. There are many available technologies—carbon capture, putting more efficiencies, eliminating flares in operations. All these initiatives should provide the right framework to deal with climate change. Let's zoom into Mubadala. We've been a responsible investor—we invested in renewable energy a long time ago, especially in the region with Masdar. And we're seeing Masdar becoming a global player in renewable energy. So yes, we invested in oil and gas, but equally we put big efforts and commitment into sustainability and the renewable agenda. We are very proud to build a very strong clean energy business within our portfolio. We will remain very active investors in that space, and we see more growth in the future. As we see this energy transition going forward, we're adjusting our strategy. Remember, Jason, we're an investor, and an investor will think of what the future will look like and how to make acceptable financial returns on these mega trends. So yes, we've been a responsible investor, we will continue to be, and we have invested significantly in all sources of energy. But particularly, we were very pioneering when it comes to renewable energy.

Well, Mubadala acknowledged these trends—we identified them a few years back. So hydrogen—we recently joined the Hydrogen Council and we're looking forward to having constructive discussions with them. Yes, hydrogen is attracting all the spotlights at the moment, and we think it addresses some of the inherent issues with conventional renewable energy, being solar or wind. What makes it very interesting is the ability to generate clean energy at very low cost. The drop in solar energy and wind energy costs recently is enabling hydrogen to expand more and more. You mentioned the recent announcement in Saudi Arabia—it's an interesting concept. I'm sure there is an investment and strategic reason behind it. It's a very interesting space. We're currently updating our view on the latest numbers we've seen and trying to align our strategy to put Mubadala on the right track when it comes to these emerging energy trends.

Yes, I would say both. Sometimes I tell my team here in Abu Dhabi—I say, you know what, hydrogen is very close to us. Historically we've been working on hydrocarbons, so let's just for a moment remove the carbon and keep the hydrogen, and let's explore that space. The region is blessed with significant reserves in oil and also natural gas. So yes, the concept of carbon capture and blue hydrogen would make sense, given the region is blessed with huge reserves in natural resources. It is interesting also to see that the technology is advancing. I remember we had similar discussions around solar—if you recall, 10 years back, solar electricity costs were prohibitively high in some places in the world. But with the current trend, you see it becoming competitive with other sources. I'm optimistic that technology in the hydrogen space will follow a similar trend, and technology will enable hydrogen to play a bigger role in future energy demand and production.

I think it might become a future where we see carbon capture becoming a necessity, not an option, because of social pressure on producers. And definitely, the technology will help in dropping the cost of carbon capture. So yes, with the trends we see in the industry, there is a possibility that we see carbon capture becoming a mandatory and not an optional option for producers.

I think definitely ESG is becoming a hot topic now. Financial institutions are debating the impact of ESG on their activities going forward. The IOCs—some of them are under pressure as well. So I think we will see more and more ESG consideration in any activity we do in the economy. Of course, the pressure on publicly traded companies like the IOCs would be much higher and bigger than the pressure we see on national oil companies. National oil companies will acknowledge ESG, put the efforts to minimize the carbon footprint, and push for new technology that minimizes emissions. The situation with IOCs would be slightly different because there will be more and more pressure from the investor community for them to take ESG, put the right framework around it, and try to do things in an ESG-compliant way going forward.

I remain very optimistic when it comes to petrochemicals. I think the demand looks robust going forward, and it will also enable parts of the decarbonization future, artificial intelligence, and the Industrial Revolution 4.0 to be realized. However, there is headwind—we know that plastic waste is a big issue, and I think it's very critical and important for petrochemical producers to acknowledge that, embrace all the policies and procedures to eradicate the plastic waste issue. When it comes to plastic waste, Jason, it's dramatically different from climate change because plastic waste is a human behavior issue. So if you improve or put the right policies or guidelines around using plastic, I think we have the potential to eradicate that risk. Mubadala and the companies we invest in are very committed to pushing the agenda on circular economy and plastic waste removal. We're very active on different fronts to tackle that issue. I remain optimistic because I believe the industry will push more and more into circular economy, plastic recycling, and putting the right efforts to clean up areas where we see significant plastic waste contamination.

When you look at typical petrochemical companies, especially polyethylene, single-use plastic contributes a small portion of their total production. But there is a strong drive and move within the players to focus more on the other applications for plastics and try to minimize or completely remove single-use plastic from their portfolio. I see that the agenda for circular economy is moving forward through our exposure in Europe and also in North America. It is becoming a hot debate, a hot topic—I'm sure at many petrochemical board meetings. I remain optimistic because I see genuine and strong commitment from petrochemical producers to tackle this issue and put the right plan in place.

I think natural gas, in particular, when you look at growth in energy sources going forward, renewable energy is enjoying the highest rate of growth. Next to it is natural gas, and the beauty of natural gas is its minimum carbon footprint among the fossil fuel sources. We remain optimistic about the future of natural gas. Currently, there is oversupply in the global market. If you look at Mubadala Petroleum, the upstream arm of Mubadala, we acknowledge the importance of gas. We have a big position in Southeast Asia and also in the Eastern Mediterranean, and that reflects the strong belief that gas will play a great role meeting future energy demand while being a source of energy with an acceptable level of carbon emission. For petrochemicals, if you look at U.S. industrial activities after the shale revolution, there is a theme called reindustrialization in the U.S., and I would say a significant part of all the industrial activity happening is in petrochemicals and shale activities. It enabled and positioned North America as a leading producer of polyethylene and petrochemical products globally. We see the trend happening elsewhere in the world. It's a remarkable story what happened in petrochemicals, especially in North America—the availability of natural gas enabled that to happen. To summarize, I think natural gas will play a role in meeting future energy demand and also meeting petrochemical industrial demand.

We've been monitoring the space. We evaluated many projects globally. You need to put things in perspective—with the current projections on energy demand going forward, we definitely put more weight on renewable energy. We also acknowledge that natural gas will play a role, but sometimes it's a challenge to find the right project that meets investment criteria and attracts the right type of returns. We've evaluated the space, put some investment in LNG, and we can continue monitoring what happens in the next few years. The world will need more and more LNG in the future, and also other sources of energy. LNG—there are big players in the market. I'm truly impressed with the U.S. becoming one of the leading exporters of LNG globally, thanks to the shale revolution. Russia as well is emerging as an LNG powerhouse, and historically in other regions like Australia and Africa, they might also become players in the LNG space. For a company like Mubadala, I look at these projects—as long as they meet certain investment criteria, we will take our decision accordingly. It's an interesting space to monitor.

No, I still maintain the same view. COVID-19 is like a high-frequency event, hopefully, in the trend going forward. Look at the U.S.—there is an abundant supply of natural gas, the largest gas producer globally. Shale enabled that position. The infrastructure is available, and there are many success stories with LNG in the U.S. There are many already operating projects making strong additional supply to the LNG market globally. If we get COVID-19 behind us, I think it's going to be interesting to see that space one more time and the future LNG prices as a result of demand. It's a combination of parameters, and I still think the U.S. is an interesting space to monitor, especially in natural gas and LNG.

Well, it reflects the conviction of the government that they are fully behind a vision and strategy that was presented a few years back—by 2050, to have 50 percent of the power demand in the UAE coming from green sources. Nuclear will play a major part of that, but also solar and renewable energy. And 50 percent remaining is from natural gas. So this is creating a new dynamic in the landscape. Natural gas will continue to play a big role in the industry and in power generation for many years to come. It's a reflection, Jason, of the government's vision to embrace the new energy trends and become less dependent on natural gas—because 10 years back, we were almost 100 percent relying on natural gas for power generation. Going forward, strategically, it's important and critical to diversify energy sources and have a mix of sources in your energy supply.

Well, it's a big space to talk about, definitely, and even the artificial intelligence term is widely used. But if I would rank two or three of these technologies, I would say artificial intelligence is becoming at the top. Why I'm saying this: even in our industry, the oil and gas industry is a labor-intensive industry, whether we like it or not. I see a space where we could automate many of the operations and facilities we operate and see automated production in the future with minimum human interaction. That would be a future I possibly see on the horizon. So yes, the likes of artificial intelligence will play a big role in enabling that vision. The other technology—related to energy going forward and the energy transition—we've been a heavy investor in renewable energy. But if there is something that could potentially accelerate that energy disruption, I would say hydrogen. In the next 10 years, if there is the right commitment, right technology deployment in that space, we might see hydrogen playing a bigger role in fulfilling future energy demand.

Thank you, Jason. That's truly an honor again to be part of ADIPEC, and looking forward to the interesting conversations around ADIPEC coming up. So thanks a lot, thank you.