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Rewiring the energy system – News for the energy sector

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“If we want to make the transition to the energy system of tomorrow, we cannot simply disconnect from the energy system of today”, warned the CEO of Adnoc, Dr Sultan Al Jaber, at the ADIPEC conference. in Abu Dhabi this month.

Record gas and electricity prices in Europe and East Asia, and global complaints about high oil prices seem to support this thesis.

The ADIPEC conference, although historically on the theme of petroleum, was notable this year with a focus on a much wider range of energy options, particularly hydrogen. The major announcements concerned the award of drilling and gas contracts, as usual, but also the production of “blue” ammonia in Abu Dhabi, hydrogen cooperation with Russia and a joint venture between Adnoc and the company. electricity Taqa on green hydrogen and renewable energies.

No wonder the energy transition is on everyone’s minds at ADIPEC. Following this month’s COP26 climate talks in Glasgow – to which oil companies were not welcome – the next two annual COP events will be held in Egypt and the United Arab Emirates.

Robin mills

Just before COP26, the United Arab Emirates pledged to achieve zero net greenhouse gas emissions by 2050.

“The oil and gas industry will need to invest more than US $ 600 billion each year … until 2030 … just to meet expected demand,” Al Jaber continued. Upstream investments last exceeded this level in 2014, before oil prices fell at the end of the year. It then hovered around $ 400 billion to $ 500 billion per year, barely breaking the $ 300 billion mark in 2020 and 2021.

Future plans

So even before the pandemic, there was underinvestment in future supplies. It was not mainly due to the energy transition or to climate policies.

Perhaps this was in part a reflection of the expected decline in future demand and concerns about “peak oil demand” due to the rise of electric vehicles and other low carbon technologies. . Several major oil companies have pledged to reduce their emissions and upstream production over the next decade. BP notably sees its oil and gas production fall by at least 40% by 2030.

Most importantly, however, was a long legacy of low shareholder returns and low prices since 2014, which had led the OPEC + alliance to impose strict production cuts since its formation in 2016. The strong rebound in demand after the 2020 lockdowns took the industry, like many others, by surprise.

The number of rigs in the United States is increasing, but much more slowly than in the last two times in the shale age because of low prices, as investors continue to demand financial discipline. Maybe in the new year upstream budgets will start to increase, but spending outside the shale zone will take a lot longer to show the fruits of the extra production.

Which path

Meanwhile, governments and financial institutions at COP26 were actively trying to limit funding to new fossil fuel projects. The May report by the International Energy Agency (IEA) on achieving net zero was titled the declaration that no development of new oil and gas fields would be necessary if the world was on a path. zero net.

The problem is, of course, that we are not on such a path. Greenhouse gas emissions in 2021 are likely to be higher than before the pandemic, despite earlier expectations of a slow economic recovery, with fossil fuel use never again reaching 2019 levels.

Vicki Hollub, CEO of independent US oil company Occidental Petroleum, told ADIPEC that demand for oil will exceed pre-pandemic levels by 2023. OPEC itself expects this to happen. mark will be exceeded in 2022.

Yet the oil and gas industry will take the brunt of the public’s anger if prices rise to an uncomfortable level. The challenge is how to proceed when supply and demand don’t match.

Supply change

On the supply side, the oil industry might assume that countries will take time to implement their net zero commitments at least over the next several years and continue to invest in oil production in a measured manner. Gas, although swept across parts of Europe and North America in a widespread aversion to fossil fuels, plays an important medium-term role in replacing coal in Asia and in the balancing of renewable energies in Europe.

We must redouble our efforts to reduce the resource’s greenhouse gas footprint. There are a number of ways to do this, including eliminating flaring and methane leaks, improving energy efficiency, and running facilities with low-carbon electricity, as in Adnoc’s agreement to the use of nuclear and solar energy.

Carbon capture and storage (CCS) projects should be rapidly scaled up to tackle emissions from sour gas processing, refineries and petrochemical plants.

In addition, the industry should work on additional low carbon fuels.

Hydrogen is the key, both in its “blue” form (from natural gas with CCS) and “green” (from renewable energies).

Realistically, however, hydrogen production will be driven by changes in firm demand, and large-scale low-carbon hydrogen is expected to start arriving in export markets around 2025-2026.

Sustainable aviation fuels are another critical area, used only in trace amounts today, but essential for airlines to meet their emission reduction targets.

Indeed, “we cannot just flip a switch,” as Al Jaber observed.

Energy supplies may change in nature but must remain secure, reliable and affordable. The current energy industry will not be disconnected. But it will be rewired – and that means transforming as quickly as possible, while keeping the system running smoothly.

Robin M. Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis and Capturing Carbon

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