By Sopuruchi Onwuka
Petroleum producing economies and industry players around the world are reworking new economic and business models respectively after the United Nations Climate Change Conference in Glasgow, Scotland, solidified antagonism towards fossil energy as part of the collective pledge to climate action.
The new economic models being evolved by countries aim to combine new demands of environmental responsibility with realistic choices in meeting domestic energy requirements for sustainable economic development. Industry captains and investors currently torn between conflicting requirements of meeting immediate demand for fossil energy and also divesting into new energy developments are also calling for cautious and calculated transition from available energy options in order to avert looming global economic chaos and market turbulence.The positions of oil producing countries and operating companies amplify the confusion that emerged from COP26 where a chorus of disapproval for continued fossil development clashed with rising prices of fossil energy as global economic recovery from pandemic downturns stokes stronger demands.
The industry’s call for caution follows visible incapacity of the renewable energy industry to fill the role of fossil in powering global social, commercial and industrial activities.
The Glasgow Climate Pact serves as renewed boost to the Paris Agreement of 2015 where the leading nations of the world put a target to reduce global warming below 2.0 degrees Celsius and towards 1.5 degrees Celsius in order to avert climate catastrophe.
Nigeria is an eminent member of the Organization of Petroleum Exporting Countries (OPEC) which is in alliance with 10 non member producers to demand energy justice and equity for developing countries caught in the prevailing climate crisis arising from the activities of rich industrialized economies.
Valuechain tracking of events at COP26 showed massive inclination of global leaders and climate activists towards emission reduction strategies that target fossil fuels, the most available energy option in developing economies of Africa, Asia and South America. In these areas of the world, fossil fuels, especially petroleum, form pillars of economic development and internal energy security. The resolution document from the conference, which pooled some 50,000 virtual and physical participants and caught the attention of the entire world, called for phase-down of unabated coal power and of inefficient subsidies for fossil fuels. The Glasgow Climate Pact also calls on 197 countries to report their progress towards more climate ambition next year, at COP27, set to take place in Egypt where countries are expected to pledge further emission reduction cuts.
In response to calls for energy justice which requires the world’s industrialized economies to take responsibility for pollutions that cause climate change, COP26 committed developed nations that have burnt fossil fuel hundreds of years to significantly increase money to help poor countries cope with the effects of climate change and make the switch to clean energy.
Revision of Paris agreement
Financial aid from rich industrialized nations under the Paris Agreement of 2015 was revised from $100 billion a year to potential $1.0 trillion from 2025 to make up for poor response to the previous call. COP26 also required world leaders to phase-out subsidies that artificially lower the price of coal, oil, or natural gas. These subsidies exist mainly in developing countries where governments battle extreme poverty.
Also at the conference, Nigeria and peer economies comprising over 100 countries that host over 85 percent of the earth’s forests were committed to ending deforestation by 2030 to help boost global carbon sink. The conference of parties also committed another 100 countries to a scheme to cut 30% of methane emissions by 2030 in a set of strategies to cut a third of human-generated warming. Unfortunately however, China, India and Russia which hold significant emission status in the global pollution chart opted out of the deal.
A major far reaching decision at the conference was the pledge by some 500 financial organizations including major banks, investors and insurers across 45 countries with cumulative asset worth of $130 trillion to haul trillions of dollars at green funding in a coordinated commitment to incorporate carbon emissions into their investment and lending decisions.The global lenders also pledged to freeze funding to fossil fuel-burning industries in an attempt to involve private companies in meeting net zero targets.
Former head of the central banks of England and Canada, Mark Carney, declared that the funding freeze to fossil producers and consumers was to transform the architecture of the global financial system to deliver net zero goals. In a major move to cut significant demand from fossil fuel energy, more than 100 national governments, cities, states and major car companies signed the Glasgow Declaration on Zero-Emission Cars and Vans to end the sale of internal combustion engines by 2035 in leading markets, and by 2040 worldwide. At least 13 nations also committed to end the sale of fossil fuel powered heavy duty vehicles by 2040 in alignment with the green transport movement. Also, many smaller but significant commitments were reached at COP26 including formation of the Beyond Oil and Gas Alliance (BOGA) in which 11 countries including Ireland, France, Denmark, and Costa Rica and some sub-national governments set a deadline for national oil and gas exploration and extraction.
In sum, the COP26 advanced the cause of climate change, exacting commitments from nations and governments for concrete actions plans that would provide levers to achieving the ambition of suppressing the rate of global warming. However, from funding freeze to switch to electric transportation and total ban on petroleum exploration and production in some OECD countries, COP26 also appeared to have coordinated an international attack on the petroleum industry in the agenda for energy transition and emission reduction.
Cows too, contribute to global warming
Secretary General of OPEC, Dr Mohammed Barkindo, has consistently demanded that climate action should involve all stakeholders in an inclusive debate to evolve solution to all “sources of greenhouse gas emission.”
Valuechain reports that the COP26 Glasgow Climate Pact singled out the fossil industry for funding freeze and demand withdrawal amongst many other industrial sources of greenhouse gas emission. Even the renewable industry, experts point out, relies heavily on fossil powered equipment for mining its metal requirements for equipment manufacturing. Building and construction, farming, as well as cement manufacturing all have huge climate footprints.
For instance, a video based on Food and Agricultural Organization (FAO) statistics claim that each of the world’s 1.6 billion cows and greater number of other ruminants pump about 100 kilogrammes of methane every year. That is the same pollution profile of burning 1000 liters of petrol every year.
In a different report produced by the FAIRR Initiative, an investor network worth about $45 trillion that is focused on the environmental, social and governance risks and opportunities of intensive livestock production, shows that a single cow can release around 250-500 liters of methane a day. The report holds that more methane is produced when the animals’ waste is collected in holding ponds, a typical practice for large scale industrial meat producers.
That means that nearly two billion cows used in the global meat and dairy industries, combined with other animals raised for livestock, are responsible for releasing the methane equivalent of some 3.1 gigatons of carbon dioxide into the atmosphere every year; accounting for some 44% of global anthropogenic methane.
“If the global livestock industry were its own country, it would be the world’s third-biggest greenhouse gas emitter, falling between U.S. and India when it comes to total greenhouse gas emissions,” the report stated.
And methane emission from cows, according to both reports, accounts for significant 18 percent of total greenhouse gas emissions worldwide; a volume that eclipses that of the global transportation sector. At COP26 however, there was no stringent penal regulatory commitment against breeding of cows. Neither was there any call for technologies that would harness, capture nor impede release of methane from the livestock farmers across the globe. Even when there are hints that a combination of seaweed feed could address the large methane emission from cows, the COP26 came with no reference addressing livestock methane.
Again, the International Aluminium Institute pointed out that achieving decarbonization throughout the supply chain is going to require a huge amount of investment in technology to reimagine production processes and redesign existing sites. The institute estimated that it could cost as much as $1.5 trillion to decarbonize the electricity-related portion of the aluminium industry’s emissions, which account for more than 60% of the sector’s 1.1 billion tonnes of emissions produced annually. And that’s just aluminium, which accounts for roughly 2% of global annual carbon emissions.
It also estimates that it would cost $21 trillion to decarbonize the cement, steel, ammonia and ethylene industries, which together account for 45% of global emissions. The institute also added that it would require energy-efficiency improvements, the electric production of heat, the use of hydrogen and biomass as feedstock or fuel, and carbon capture utilization and storage (CCUS), McKinsey forecasts.
Accelerating the build-out of renewable-energy capacity, to cover other sections of the renewable energy industry would come with both cost and huge carbon footprints.
Citing data from the likes of National Renewable Energy Laboratory, Vestas, Siemens Gamesa Renewable Energy, and Bernstein estimates, Venkateswaran; climate scientists claim that whereas an example of renewable energy like wind would not generate carbon emission, manufacturing of its components comes with high emission count.
“Building and erecting wind turbines requires hundreds of tons of materials — steel, concrete, fiberglass, copper, and more exotic stuff like neodymium and dysprosium used in permanent magnets.
“All of it has a carbon footprint. Making steel requires the combustion of metallurgical coal in blast furnaces. Mining metals and rare earths is energy intensive. And the manufacture of concrete emits lots of carbon dioxide.
“In the case of wind and solar power, those emissions are nearly all front-loaded. That contrasts with fossil-fueled electric power plants, where emissions occur continuously as coal and natural gas are combusted,” the report quoted sources.
The data quoted in the reports have it that the biggest contributors to the carbon footprint of wind turbines are steel, aluminum and the epoxy resins that hold pieces together — with the steel tower making up 30% of the carbon impact, the concrete foundation 17% and the carbon fiber and fiberglass blades 12%.
All forms of renewable energy surveyed in the carbon footprint showed varying levels of emissions during different stages of production; from metal mining through processing and manufacturing. And most of the processes still rely on gas fired production.
OPEC demand energy justice
Dr Barkindo maintains that the prevailing drive for climate action must come with equitable consideration of all forms of emission and evolution of efficient and effective solution in a way that provides comprehensive coverage of all sources.
He contended that climate action should be made compatible with the alternate requirement of the United Nations Sustainable Development Goals (UNSDG) which guarantees wellbeing for every section of the global community.
In dwelling on hostility towards the petroleum industry, Dr Barkindo said that proponents of climate action must recognize the rights of poor nations to leverage on the best forms of energy available to them to build capacity to afford low carbon energy options that are currently beyond their reach.
It would be recalled that leading members of the OPEC+ coalition including Russia and Saudi Arabia also emphasize the need for a smooth transition from the currently available fossil fuel energy to cleaner renewable options in a manner that must not impede economic development of nations and aggravate poverty in their populations.
Dr Barkindo states, at every opportunity, the desire of OPEC for the world to efficiently address climate change by making it less impacting on developing countries currently receiving the double whammy of disastrous climate change impact and energy poverty.
However, behind the veil of global warming, energy transition, and climate change; discerning analysts clearly see the struggle of the members of the Organization of Economic Cooperation of Development (OECD) to gain independence from the OPEC controlled oil market and probably save their home economies from billions of dollars in oil spend.
Energy independence, motive for net-zero campaign?
Nigeria’s petroleum industry professional leader, eminent geologist and investor, Mr Austin Avuru says that rave for energy transition came after oil prices escalated to over $100 per barrel and resource owners begin to review their contracts with multinational oil firms that shipped equity oil to home economies. Before now, he pointed out, all the economic benefits of oil industry operations had also been trapped by the OECD countries using multinational oil service firms that executed local industry jobs in home economies.
With rising levels of local content and industry reforms sweeping across the developing petroleum economies, the foreign companies are now committed to net zero emission compliance and portfolio diversification to channel new investments into renewable energy.
Valuechain reports that encouraging renewable energy industry would apart from speeding up energy independence for the industrialized countries also repatriate the investments of the big multinational energy firms for enhanced local production and new energy options for possible exports.
Meanwhile, while leaders of western economies and global lenders declared commitments to literally kill the fossil industry, gas prices in the market soared, oil prices jumped and even coal usage and demand rebounded; powerfully asserting the indispensability of fossil in the prevailing world energy equation. Oil had breached the $85 per barrel mark as global economies revive from COVID-19 downturn, pushing analysts to predict further surge to $100/bbl as demand indices grew stronger.
Key industrialized nations of the world who champion energy transition had also in the period of the COP26 meeting pleaded with the Organization of Petroleum Exporting Countries and its 10 key oil producing allies (OPEC+) to boost oil supplies in order to weaken market forces and pull prices. Gas prices were also so high that energy induced inflation raised economic concerns in developed countries.
To secure supplies, key industrial economies like China, India and Japan sparked bullish bids at exchanges as uncertainty loomed and analysts predicted that $100 per barrel oil was imminent. China ramped production of coal and thermal power producers in the United States reactivated coal plants. With the new market developments coinciding with the climate summit, oil industry investors and players came out of COP26 with altered perception on the role of petroleum in the overall energy transition and climate change. They emphasize the role of the petroleum industry as the reliable cash cow for new energy development.
The oil companies most of which have changed to energy companies to reflect portfolio diversification in response to pressure from investors, regulators and emission reduction commitments now amplify the role of fossil fuel in meeting the immediate energy demand and generating the needed revenues required to finance investments in cost intensive and low return renewable energy industry.
Chairman of RoyalDutch Shell, Mr Ben van Beurden, declared that the company relies on its traditional oil and gas business to fund transition to net zero by 2050, adding that the company would continue production of petroleum fuels to meet immediate and midterm demands. Mr Van Beurden stated that whereas the company was still committed to its net-zero pledge Shell would rely on cash from its oil and gas business to pay for investments in green portfolios required to transition to carbon free energy business.
He also dismissed calls on the company to split its legacy oil and gas business from its renewables investment. He confirmed the position of Dr Barkindo that the industry is adapting new technology to transform its legacy petroleum facilities to produce cleaner biofuels and hydrogen energy.
Blackrock, one of the largest asset managers in the world with over $13 trillion in pension and savings portfolio has faulted the growing clamour on the part of many pension fund trustees and their scheme members to dump or divest shares in fossil fuel businesses to starve them of capital.
Analysts point at the recent energy crisis and price jumps as strong indication that the world is still hugely reliant on fossil fuel; and Mr van Beurden argues that global reliance of fossil fuel must be managed down over time to avert future price shocks.
Ultimate influence of market forces
There is also the ultimate influence of market forces which is determined by the right of consumers to make energy choices. Key industrialized nations including India, China and Russia maintain strong demand for oil and gas despite hostile sentiments from Western nations and multilateral lenders. Another European energy factor, BP, also holds the position that underinvestment in petroleum development and “significant constraints in energy supplies” threatens global economic recovery from pandemic downturns of 2020.
Chief Financial Officer, Murray Auchincloss, stated in a conference call with shareholders that “OPEC+ is doing a good job managing the balance, so we remain constructive on oil prices,” adding that demand would exceed pre-covid levels “somewhere next year.”
According to BP Plc, global oil demand has surpassed 100 million barrels a day last seen before the Covid-19 pandemic; and even stronger demand is projected by analysts as the key global economies ramp up from pandemic downturn. The surge back to 100 million barrels a day has happened despite the fact that air travel has yet to fully recover from the pandemic. It underscores how demand for diesel and petrochemicals has driven oil consumption over the past two years.
Industry consultancy firm, Goldman Sachs Group Incorporated, supports with a prediction of 2.5 million barrels per day in oil supply deficit. It added that seasonal demand and global recovery from the coronavirus pandemic would further hike demand for petroleum energy in 2022.
Oil analyst at Goldman Sachs, Damien Courvalin, stated in a note that “Winter seasonality and the recovery in international jet demand” mean consumption will reach record highs early next year. American oil giant currently caught in the web of ESG compliance, ExxonMobil, said in a securities filing that some of its oil and gas properties may face impairment due to climate change.
The company “views climate change risks as a global issue that requires collaboration among governments, private companies, consumers and other stakeholders to create meaningful solutions,” the filing said. Exxon and other U.S. oil majors’ climate strategy relies developing from scratch new decarbonization technologies that are currently years away from becoming commercial, like carbon capture and hydrogen.
Aggresive switch from fossil oil will plunge the world into energy crisis
Chairman of TotalEnergies, Mr Patrick Pouyanne, declared that too much expectation from renewable energy is responsible for current price woes that have unsettled global economies.
Mr Pouyanne has been consistent with warnings that total reliance on renewable energy to meet global demand would be risky without a guarantee of sustainable supply capacity. The warnings are based on the argument that the most popular sources of renewable energy-mainly solar and wind- are significantly influenced by weather conditions.
“So that is I think a lesson. Another is that the more we put renewables in our electric system, we put in intermittent sources which depend on the weather,” he is quoted by an agency reporter covering a conference in Russia. The Chief Executive Officer of BP, Mr Bernard Looney, agrees with Pouyanne that “the sun doesn’t shine at night and the wind doesn’t always blow. So, we have that question of renewables’ intermittency to deal with.”
Also at the just concluded World Petroleum Congress (WPC) in the United States, industry captains made it abundantly clear that fossil energy does not stand in the way of energy transition, warning that aggressive switch from oil and gas would plunge to global economy into crisis.
At the conference that just ended in Texas, government and industry delegates reviewed the Glasgow Climate Pact and warned that transition from petroleum to renewables would be messy for many years and lead to sharp energy price volatility as demand and supply clash.
Chief Executive Officer of Hess Corporation, John Hess, declared at the world’s biggest petroleum industry conference that the global quest to develop new energy forms must not be run into conflict with the existing fossil fuel industry.
He stated that oil and gas should be seen as part of the solution and not perceived as problem to orderly energy transition.
Chief Executive Officer of Spain’s Repsol, Josu Jon Imaz, stated at the WPC that a reliable supply of oil and natural gas must be guaranteed by energy companies as demand will continue in the coming years. He stated that the prevailing distortions and volatility in the market have begun to hurt families with energy bills as high prices affect households during a strong global push to move away from fossil fuels.
Chief Executive of America oil multinational, ConocoPhillips, Ryan Lance warned in a panel discussion that hasty switch from use of oil and gas could create huge energy supply gaps, spur price jumps and induce global inflation. Government proposals to halt investments in new oil, gas and coal production “didn’t do anything about the demand side or inflation,” he stated.
Managing Director of Oil and Natural Gas Corporation (ONGC) of India, Subhash Kumar, warned against pushing the unprepared world into energy transition, noting that consumers and markets are not prepared to make the transition to clean fuels as quickly as some want.
Panel discussants criticized global political leaders for making demands on both sides of the industry: calling for speedy transition from fossil fuels while calling on OPEC+ producers to boost market supply to meet immediate fossil fuel demand. The CEO of Suncor Energy Incorporated of Canada, Mark Little, lamented the tendency of political leaders to focus on supply as solution to prevailing energy crisis, adding that energy transition advocates demand cheaper and adequate petroleum supply while demonizing the producers.
Global energy mix and total switch from fossil energy
Dr Barkindo who bestrides the global oil advocacy like a colossus stated that the world does not end with America, Europe and other OECD countries, pointing out that decisions to save the world must be inclusive, considerate and empathetic to every section of the global community.
He pointed at huge proportions of the global populations that still rely on petroleum as primary energy source, adding that any other energy form would be complementary petroleum for a long time to come. He also made it clear that no one form of energy would be adequate to meet the inevitable surge in global energy demand as global population continues to rise.
Dr Barkindo pointed at energy forecast by OPEC which sees oil holding over 40 percent of the global energy mix by 2050 when the COP of the United Nations Framework Convention on Climate change (UNFCCC) expects total switch from fossil energy.
He noted projected global population growth of about 1.8 billion people would drive rapid urbanization and energy demand which, according to him, would only be met by a combination of all forms of energy. He noted that both fossil and new energy options would continue to play complementary roles in meeting future energy demand. He made it clear that energy transition does not necessarily entail a total switch from one form to another, but rather mainly from dirtier to cleaner options. He added that technologies are being advanced to make the petroleum industry and its output and products cleaner.
Secretary General of African Petroleum Producers Organization (APPO), Dr Omar Farouk Ibrahim, declared at a conference in Abuja that producers in the continent would continue to drive economic development with energy resources available and affordable within the continent. He pointed at huge energy deficit in the continent as primary cause of slow development, saying that the countries of the continent would continue to use petroleum energy as replacement for firewood and as tool against deforestation.
In Nigeria, Group Managing Director of Nigerian National Petroleum Company (NNPC) Limited, Mallam Mele Kyari, said the new national oil company is doing everything possible “to see that we create an environment comfortable for development projects” despite the closing international funding window for fossil projects.
Mallam Kyari said the country would deliver significant production increase to meet projected rise in demand, adding that fears of drop in oil demand on projected peak oil by 2040 is allayed by increasing role of petroleum in the global energy mix. He projected that crude oil demand would be very high even beyond 2040, adding that NNPC was determined to grow Nigeria’s production to 3.0 mbd in the short term and take advantage of the gap that exists in the demand-supply balance.
On gas, he said Nigeria would continue to maintain leading role in satisfying global energy demand through robust export of crude oil and liquefied natural gas (LNG). He also emphasized the country’s determination to deepen domestic gas market through enhanced distribution infrastructure development and policy incentives.
On his own, the Executive Secretary of Nigerian Content Development and Monitoring Board (NCDMB), Engr Simbi Wabote, deplored deliberate drain of project funds from the petroleum industry by international lenders. He also called on leaders of the continent to evolve credit solutions to project funding. Wabote whose agency implements local content policy in Nigeria, called on African governments to create a pool of funds for petroleum project financing in order to guarantee energy security for the continent.
He said the African petroleum industry required urgent development of technical and financial capacity for crew change, explaining that the industry requires technology adaptation and sustainable revenue in order to play a central role in the emerging intra-continental free trade area.
Population explosion and increased pressure on earth’s finite resources
Valuechain reports that petroleum export remains the key foreign exchange earner for key economies; and the renewable energy industry in the continent is still in infancy and low in capacity. Wabote stated that the AfCFTA provided a platform for member countries to collaborate and provide funding and the technology to operate and develop hydrocarbon projects. He also canvassed for rapid development of the African midstream petroleum industry for production of refined petroleum fuels and petrochemical products needed to fuel manufacturing.
Taking an aerial view of the emerging energy market dynamics in the period of energy transition and climate change, the Chairman of AA Holdings, Mr Austin Avuru, emphasized the relevance of hydrocarbon energy as long as it remains available.
He situated global warming and consequent climate change in the overall pressure from ballooning global population on finite resources of the earth, adding that rising demand for energy and environmental impacts from industry activities form part of the cumulative human impact on the planet.
Mr Avuru said the global mission to reduce greenhouse gas emission into the air in order to cut the rate of atmospheric temperature might achieve minimal impact if pressure on limited resources of the earth is not first reduced. He also doused fears that the global automobile industry might leave Africa behind as manufacturers begin diversification from internal combustion vehicles. He dismissed fears of peak oil and total transition of demand from fossil fuel as baseless, noting that global economic planners failed to envisage the need to meet future energy requirements for a fast growing and urbanizing world population. He pointed out that failure to address population explosion around the world has led to increased pressure on earth’s finite resources; a situation he said has impacted on the environment from all fronts and led to depletion of natural shields like carbon sinks and the ozone layer.
“You see, the world population has grown from less than 500 million from the time immemorial to about eight billion; and the size of the earth and everything that supports life has remained unchanged. Every day, more land is claimed from nature for farming, housing, roads and all that. Virgin forests are fast depleting because nearly every section of the earth has seen some form of cultivation.
Dr Barkindo had earlier shared the same view, saying that global population would rise by 1.8 billion people by 2045 and mount additional pressure on energy demand.
Dr Barkindo said that greater proportion of the emerging world population would come from sub-Saharan Africa where, according to him, energy poverty is acute and environmental impact very severe. His pointed out that global leaders who push for energy transition from fossil fuels must recognize the right of poor nations to affordable energy.
Mr Avuru said that the race for energy transition is late and almost futile in the face of the prevailing strong demand for fossil fuel. He expressed strong doubts about the capacity of the renewable energy industry to meet immediate and future global demand.
Instead of grieving over the global rave over energy transition, Mr Avuru stated, producing nations and petroleum investors should seize the opportunity to solidify their market positions. He projected that the rising capacity from renewable energy industry would continue to fill gaps in the global energy mix as fossil fuels reach peak production and embark on natural decline.
“Whether you like it or not, fossil fuel is finite resource. So, at some point in time which is not very far; there will be a peak, and after that decline will set in. So the race to replace fossil energy is logical but it should have started long time ago.”
On the mass diversification into electric vehicles by the global automobile industry and its impact on oil demand and transportation in developing countries, Mr Avuru allayed fears grounding the fuel based transportation in Africa and elsewhere; pointing out that the manufacturing firms which are committed net zero targets and environmental and social governance (ESG) are not accountable for emission by product consumers.
While calling for rapid establishment of local capacity for vehicle manufacturing, he predicted that the market demand would continue to mount commercial pressure on foreign automobile producers to maintain production lines for internal combustion engines.