WECA Advisory Board #2: Key Takeaways

The second advisory board to inform our agenda for the World Energy Capital Assembly (WECA) turned the focus toward the strategies for engagement with the transition. Welcoming representatives from Petrobras, Morgan Stanley Energy Partners, BlackRock, Shell, Kongsberg Digital, Ecopetrol, The Carnrite Group, Hellenic Petroleum, Eco Atlantic Oil and Gas, Helios Investment Partners, Addleshaw Goddard, YPF, Reflex Marine and Axora.

The ‘Energy Transition’ has embedded climate action into the strategies of most industrial actors, with few under the spotlight like the oil and gas sector is. And rightly so, as the sector is responsible for a significant share of scope 1 and scope 2 emissions. However, there is a disconnect between public pressures and what can realistically be achieved without placing energy security in jeopardy.

Eurocentric vs The Rest

A common theme emerged across both advisory boards, noting the global ESG agenda has become aligned to a Eurocentric point of view that, some view, as unfairly restraining the development of poorer nations. The capacity and willingness from European states to engage more progressively with the energy transition, is twofold; firstly, they have enjoyed long-term development from fossil fuels for centuries, in a time where they could concentrate wealth through access to cheap resources. Secondly, that there is not a “native” oil and gas industry outside of a number of hubs – therefore an industry presence is not as prominent across the European labour force.

The South American sector has seen a consolidation of resources and many of the bigger operators are divesting from assets with high-emissions exposure, particularly in the downstream sector with a shift toward natural gas investments.

The West has led the way in proving that moves away from coal powered energy can make dramatic impacts to GHG emissions, particularly when plants are replaced by natural gas or renewables. Any structural shifts must consider that the fossil fuel sector is only half the problem, and we need alternatives for our petroleum-based products before they can be removed.

In Africa, a concern was raised about the capacity to find off takers for new renewables projects. Developers and financiers have capital ready to be deployed to fund industrial-scale renewables, yet the availability of off takers was in short-supply. This speaks to the need to ensure industrial demand for energy exists prior to the development of supply – a concern that has arisen for the emerging hydrogen market.

‘Can’t Lose Sight For The Demand For Energy’

The need for a growing share of renewable energy supply has become integrated across most nations energy roadmaps, yet the stark reality is that they cannot meet the demands of a growing global population. In the short term, the post-Covid boom will see an immediate demand hike for both oil and gas. In the medium to long term, both sectors will continue fulfill their role as an integral product in modern society unless significant advances in alternate fuel technologies occurs.

National strategies for energy will continue to consider the most practical and affordable options at their disposal, and by limiting those choices through restrictions on coal and fossil fuels – both practicality and affordability come into question.

Most energy outlooks expect a significant rise in the demand for natural gas, particularly from Asia. It has been widely deemed as the ‘fuel of the transition’, and as its popularity grows, there will be ample finance and investment available in the coming years for the exploration and production of gas. However, the lack of E&P activity over the past 8-10 years may yet create a bottleneck in supply if the existing projects cannot meet demand growth.

Making material advances in decarbonizing the oil and gas sectors may provide the best opportunity for reaching the Paris Accord’s goals. To this end, the opportunities in the CCUS industry are showing promise; electrification of platforms can effectively reduce scope 1 emissions; while the digitalization of grids and the energy sector has created an array of efficiencies.

Additionally, the introduction of carbon pricing has triggered a welcome surge of interest in carbon trading. Once a consistent and valuable price can be set for carbon (thought to be between $50-100/tonne), the viability of technologies such as CCUS and EOR becomes instantly more practical and cost effective.

Digitalisation – A New Era

Digitalisation within energy has a broad reach and intersects with businesses and customers alike. Business-facing concepts such as ‘digital twins’ for plants and platforms are able to run virtual scenarios thousands of times over in order to maximize efficiencies, minimize errors and ensure safety is maintained. From a customer-facing perspective; the growing EV markets or digital home technologies have created savings for the individual.

The energy sector has long embraced new technologies and capabilities for being more efficient businesses, and new opportunities have emerged through advances in digital technologies. By integrating digital technologies, not only can companies step closer to their carbon reduction targets but they can attract the new best talent.

Once upon a time the oil and gas players could attract the most promising youth entering the labour force, with international opportunities and impressive engineering projects. In the new digital era the tides have changed, and that talent has a selection of offers – so many connected to or directly involved in the technology sphere. But that solves one barrier to attracting talent, the other is the elephant in the room – that oil and gas producers need to earn the social capital that would make modern youths comfortable working within the sector.

Incorporating advanced technology into operations has a wide scope of benefits from cost reductions to talent acquisition, but so does building social capital. As ESG criteria becomes engendered in industrial actions, the carbon offset efforts come under a microscope by investors, financiers and activists. If an energy company can build a genuine and honest approach to decarbonisation, this speaks to the values of a generation whose concerns lie with their grandchildren’s futures. Companies will find finance more accessible, investors more amenable and talent more prevalent.

• For the takeaways from the first advisory board, looking at the changing role of finance and investment in the sector – read here.