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The endless world of opportunities for oil and gas companies in a free-carbon economy – Part 2


As offered in the previous post, I continue to highlight the reasons why major oil and gas corporations are going to thrive in a carbon-free power generation world:

Corporations have assets that can be transformed to satisfy the new demands.

Having today oil and gas assets is not necessarily a synonym of stranded assets in a free carbon economy. Here you can see the example set of Total, who is reconverting a traditional refinery to produce hydrotrated vegetable oil - . This fuel is a result of processing fried oil, residue from palm oil refining, animal fats and residue from pulp and paper manufacturing, as well as vegetable oil (rapeseed, palm, soybean and sunflower).

Evidently, the change of products to be processed in this facility implies the use of new technological solutions. This biorefinery will have the capacity to produce 500,000 tonnes of biodiesel.

I find this as a particularly compelling solution, since it takes both assets that could become a liability for the company, and waste from other industries, in order to produce fuel for cars or other engines, without the GHG contribution expected from normal oil refined products. For example, national oil companies could adopt plans such as this, in order to avoid retaining useless assets in a few decades. We will talk about this in a future post.

Companies have outstanding human capacity

Something that can be said without fear of mistake is that major oil and gas companies have invested substantial amounts of money in training their human resources. Thanks to the success in their business in the last decades, they have been able to hire and retain some of the best talent around the world, in all the knowledge areas. This allows them to be competitive in the future, designing and understanding objectively the possible scenarios are for their industry, being able to create accurate business models and reshifting what needs to be changed, in consequence.

I have been involved (from the government relationship and legal perspective) in oil & gas, mining and electricity projects. From those perspectives, I can say that the challenges, even if they appear different in the surface, remain substantially the same. From what I know, the expertise in economic areas that these companies have will also be useful while facing the new challenges. Undeniably, technical considerations are different, but these are being already conquered, including in the teams competent professionals in the relevant areas.

They are facing the challenge with the right attitude

While I do not share the general premise of this article, I believe that there has been a shift in the attitude of oil and gas corporations towards climate change. Some more openly than others, my general perception after extensively reviewing their own material (as described above), is that they know that the future of energy is changing, and they do not want to miss the next big business in an area that they have dominated so clearly.

Companies are now supporting carbon pricing. It is evident that they are not supporting any kind of carbon tax or price, but one that is mainly uniform and gives them the option to pass that cost to consumers (I am ok with the idea of consumers paying the carbon tax, since we are the ones that have the decision on what products or services we use). The creation and support of the Carbon Pricing Leadership Coalition shows an important step in the matter. Under the leadership of the World Bank, there is a significant group of national and local governments, as well as corporations promoting strengthening carbon pricing policies and the implementation of carbon pricing policies.

Energy would become more and more a globalized business (when transportation and storage energy challenges are better tackled, with the right technological approach), and in that game, major oil and gas companies are experts. They were born international and they navigate such environment in a very resourceful way.

Their original products are still needed

Beyond everything previously said, this is probably the last resort for relief for oil and gas companies: Oil and gas will still be relevant for the future of energy in the world. Here we can see some comparison of different projections, which differ in their conclusions, but all of them still consider oil and gas as relevant fuels in the next 70-80 years.

That doesn’t mean the companies are just extracting oil and starting projects without any additional consideration. For example:

  • Total is assuming that some form of carbon price is going to be imposed, and the analysis of its long-term development projects takes that factor into consideration (p. 14). That inevitably will take some projects out of the profitability zone and diminish the investment in fossil fuels.

  • Staatoil and BP, among other companies, are strongly working on developing a more efficient carbon capture, use and storage (CCUS) technology. By enhancing this solution, the allowance they world could “tolerate” of oil and gas use might increase. However, this is an uncertain technology development, and its results might take years to be significant in the reduction of GHG emissions.

  • There are other ways to offset carbon, and corporations are also working on those, sponsoring forest development around the world, in some cases with the contribution of their own consumers.

For all the stated reasons, and several others, I can only assume the future of oil and gas major corporations is bright, acting as the new global energy providers. What remains as a big question is the role of NOCs in this scenario. Taking away Staatoil, which has for long time acted with private sector mentality, the other NOCs are lagging behind in the development of strategies equivalent to the ones analyzed. This will be the topic to discuss in the final post of this topic.

OIL & GAS, MINING AND ELECTRICITY

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