November-December , 2020 | @ green
NEW ENERGY
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sector where new business models emerge as the industry adopts real-time analytical tools , automation and remote monitoring of assets .
The benefits of adopting digitalisation in the oil and gas sector include cost reduction in operations and improvements in health , safety , security and environment ( HSSE ), as less human interventions are required .
Additionally , advances in technologies such as energy storage solutions are essential as these innovations help to stabilise the grid with the increasing contribution of variable energy from solar and wind in the electricity system .
The fifth factor is a shift in the value system of investors , where emerging technology and green energy stocks are gaining momentum .
“ The shift in value system is noticeable in the rise of high value emerging Green Renewable energy and Technology stocks . While the returns on investment from renewables are much lower than the upstream oil and gas sector , the market capitalisation of these companies has outperformed those in the oil and gas sector .
“ So , it seems that the rules of economics , as we learned them , have been discarded for a new set of rules ,” he added .
Energy Mix Evolution Cycle
With the increase in pressure to meet the climate change agenda of the Paris Agreement , the oil and gas industry is facing grave challenges to address the impact of fossil fuels on the environment and an uphill battle to decarbonise .
“ The green environment lobbyists were never with us from day one , and their views of us have not changed . We have lost the hearts and minds of the younger generation , we are losing the media , and we are fast losing the capital markets .
“ Even though it is the oil companies that are paying good dividends to both governments and shareholders , it is far trendier today to invest in green solar or wind projects than in an oil and gas field . Public sentiment is shifting for a greener , cleaner source of energy ,” Zainul said .
To this effect , Zainul introduced the Energy Mix Evolution Cycle in which he explained that as the population increased , the energy demand also increased .
However , mounting pressures from environment lobbyists , geopolitical and social forces , regulators , technologies and the capital or business markets , will eventually cause a breakpoint which will witness an aggressive rebalancing of our energy mix .
In today ’ s language , we call this process , the energy transition .
With pressure mounting on the fossil fuel industry to accelerate the energy transition agenda , how can the oil and gas sector navigate and leverage the current dynamics to ensure that they remain relevant ?
Diversify and adapt to keep relevant
Zainul said the oil and gas companies must start diversifying and adapting to the changing world of a low-carbon footprint . They should decarbonise their existing operations and at the same time , embrace opportunities and innovate to extend their existing skillsets and assets to be re-used in the green energy business .
“ Traditional fossil fuel companies ( be it oil and gas or power utilities ) are divesting interests in fossil fuels to renewables in their portfolio of assets , as well as setting climate change goals .
“ They must start to make an investment that would lower their carbon footprint as nett-zero ( emissions ) is paramount . They must be part of the solution and not just contributing to the problem .”
“ For instance , they could look at reinventing or pivoting their business focus towards a hydrogen-based economy ,” he said .
However , such pressure did not imply that there was no future for oil and gas . Demand for fossil fuel , Zainul said , would always be there , but less .
“ For instance , the aviation industry would depend on oil for much longer than most other sectors , maintaining 61 per cent of its current consumption by 2050 . Additionally , the demand for plastic is forecasted to increase . In 2018 , Petrochemicals used about 45 per cent of feedstock to produce plastics , and by 2050 this may increase to 60 per cent .
“ It is foreseeable , with several oil and gas players dropping out of business owing to depressed demand , the value chain of hydrocarbon extraction would lose the economies of scale , and hence oil could potentially be a premium commodity .”
Natural gas has a different outlook compared to oil . Natural gas is predicted to surpass oil as the largest source of primary energy in 2026 . By 2050 , 41 per cent of all gas use will be for power generation as bridging fuel to manage the intermittency of variable energy from solar and wind . Until we have established energy balancing technologies ( such as energy storage ), gas will play a pivotal role to provide this balancing mechanism .
An important point to highlight is while decarbonising oil is virtually impossible , gas can be decarbonised through carbon capture . It is either when producing ‘ blue ’ hydrogen or post-combustion in power plants or industry .
As for the hydrogen outlook , blue and green hydrogen production will grow slowly up to 2035 and post 2035 will witness a more rapid hydrogen uptake .
This is due to the expected increase in natural gas price arising from higher carbon tax over time , while renewable electricity price drops and the efficiency of electrolysers increases .
Race to nett-zero
Zainul said in a race to keep the global average temperature increase to well below the 2 ° C , nations and corporates have been called upon to embrace the nett-zero emissions target by 2050 .
“ At the start of November 2020 , 126 countries have set full decarbonisation goals , and these countries collectively contribute 51 per cent of global emissions .
“ The EU ( European Union ) has taken the global lead in this nett-zero declaration by taking a step further in targeting a reduction of their emissions from 40 per cent to 55 per cent from 1990 levels by 2030 .
“ This effort is supported by a Covid-19 recovery fund of € 750 billion under the European Green Deal , to be