- Aug 22, 2021 11:17 pm GMT
Gas and LNG companies that meet the energy transition head-on will reap both economic and environmental benefits. Companies need to communicate a clear five- to ten-year strategy detailing decisive, bold actions that can be taken today rather than announcing long-term targets that overlook the short term. Besides S1 and S2 emissions, the fossil fuel industry also face increasing pressure to address Scope 3 emissions (from products)
What Is Changing In Energy Sector?
The energy mix is shifting:
- The energy sector has drastically increased its focus on sustainable, resilient assets and renewable energy sources
- The world is increasingly electrifying; renewable energy expected to meet up to 80 percent of global demand by 2050.
- Capital markets are also rewarding expected growth in renewables,
- Investors concerned about transition risks and stranded assets are beginning to divest from fossil fuels.
- ESG investing (~ 30 percent of assets), is tightening its criteria.
- Governments are decarbonizing by influencing demand rather than relying on direct regulation. Carbon taxes in Norway are just one example.
How Oil & Gas Companies Portfolio's Can Be more Resilient?
The renewable will eventually replace fossil fuels. The natural gas however adds resilience and longevity to the portfolios. Therefore oil & gas industry needs to increase the share of natural gas in its portfolios.
- Mckinsey's reference case shows that gas, unlike other fossil fuels, will experience growing demand until the mid-2030s.
- Natural gas is among the cleanest fossil fuels, so it will be the last to be replaced as part of the energy transition
- It has lower carbon intensity and lower particulate emissions.
- Natural gas has low gas prices in key markets
- Need for energy security and rapid overall energy demand growth in Asian markets
- Substantial share of gas demand from ‘hard to electrify’ feedstock or high-heat-intensity applications.
Why The Natural Gas As "Transition Fuel" Narrative is Failing – What Can Be Done?
Industry needs to decarbonize its footprint; natural gas has half the emission of coal, but its 28 times more harmful for the environment. If industry does not manage its emissions (methane leakages, flaring etc) it will give a bad wrap to the industry (Ex: Permian basin gas production). Following actions can help:
- Assess, report, and mitigate carbon emissions
- Integrate emissions costs into business decision
- Build a resilient portfolio; locking in future demand and adopting new technologies to reduce their exposure to carbon-intensive sectors.
Making the right decisions will allow companies to evaluate initiatives at the country and sector level rather than at the project level. This will further enable them to support the transformation of energy ecosystems, including the supply of gas and the development of complementary energy solutions, with the ultimate goal of building an integrated energy system. In turn, these systems will provide longevity for these companies in a decarbonizing and rapidly changing energy sector.