This year’s Energy Intelligence Forum was pretty wild. One day a GreenPeace representative was demanding an immediate halt to oil exploration, the next OPEC Secretary General Mohammad Sanusi Barkindo was holding up a board stating that the oil industry needed $11.8T in investments to keep up with the world’s energy demand by 2045.
It was quite the Big Tent event with environmental activists, policy makers and experts from all categories of the energy sector invited to speak under the theme “An Industry Redefined: Energy in an Evolving World”. It also coincided with a week when natural gas prices reached record highs and Brent was comfortably over $80 a barrel even as OPEC Plus chose to stick with what some see as its too cautious plan to increase production by 400,000 B/D per month. And it came only a few weeks before COP26 in Glasgow; one contributor wondered were it to be hit with power cuts how that might affect the discussions!
The four-day forum was dominated by how the industry will navigate the energy transition and play its part in addressing climate change. The forum’s participants constantly returned to grappling with this massive uncertainty, be it the advocates of nuclear energy, CCS, Sustainable Aviation Fuel or Hydrogen which EI’s President Alex Schindelar called the champagne of the energy industry.
And in the context of the immediate European crunch there were many words of caution that the transition needed to be handled carefully or the world economy could literally run out of gas. That was part of what seemed to be a more robust defence by several executives of the sector. TotalEnergies CEO Patrick Pouyanne, who most of the time discussed the French major’s renewable projects, still warned that prices would "rocket to the roof" by 2030 if the industry heeded calls to stop investing in new upstream projects. ExxonMobil’s Senior VP Neil Chapman added that the pain of the Covid-19 crash had many companies hesitant to invest strongly.
OPEC’s Barkindo in particular was unapologetic, even questioning whether the energy transition would actually happen and saying less hysterical and more rational debate was needed. It felt like he was staking out the OPEC producers’ position ahead of Glasgow. He said the group including Russia were utterly united in stabilising the market noting how their most recent meeting had taken only 25 minutes to reach agreement. And it was not an idle boast: there was only one month since February when compliance was less than 110%, noted EI’s Amena Bakr. The OPEC Plus deal is working, she said. Everyone is sticking together as they see it in their mutual interests.
It begs the question, with US shale still subdued, whether we are in for a long period of higher prices (Energy Intelligence’s forecast is for Brent above $75 for Q1/Q2 2022). And longer term, will OPEC, being told over and over that its days of oil and gas production are numbered, do what any business would do, extract maximum revenue? In addition many IOCs need higher prices so they can plough revenue into currently less profitable renewables without upsetting shareholders.
Meanwhile Barkindo took aim at those calling for no new production for Sub Saharan Africa saying the threats of fiscal encumbrances were "absurd" when these countries were historically the least polluting nations. Pouyanne too said he had not heard anyone saying they would pay developing countries to keep their oil in ground, and that they had an equal right to higher living standards. The International Energy Agency’s Dr Fatih Bitol noted that cloudy UK produces three times more solar energy than all of sub Saharan Africa...
There was an interesting session on geopolitics with Alastair Crooke of Conflicts Forum describing Europe as "the pig in the middle", wanting a relationship with China and with a more aggressive US/UK. Ambassador Chas Freeman called the AUKUS alliance “an empty vessel” “which might or might not deliver submarines in 20 years…more bluff than reality" while noting it has managed to unhinge US/ French relations.
China Dialogue’s Isabel Hilton called the Evergrande collapse a serious domestic issue, its debts representing 2% of GDP. She said there was a great deal of nervousness in the government over its support..."It's a delicate moment" Meanwhile she said the shine was coming off the Bridge and Road Initiative with many countries unable or unwilling to take on the infrastructure debt.
And returning to one of the forum’s primary concerns, Freeman said you can't get cooperation on climate change if you are calling China “a genocidal regime”. He thought the private sector and scientists would go forward with solutions while world leaders continued their “schoolyard squabbling”. This was echoed by another contributor who suggested that instead of nations agreeing to measures (and largely ignoring them), an approach based on sectors such as aviation or shipping might be more effective.
Policy making at an international level needed to be "more coherent" at the upcoming COP26, Anudrand Capital Management's Mark Lewis told the forum and that the focus also needed to shift from fossil fuel supply to demand.
For the industry itself, McKinsey’s Giorgio Bresciani saw companies taking three approaches to the transition: 1) Traditional resource specialists upgrading their portfolios to advantaged oil (think US majors) 2) Mixed energy, keeping valuable assets and moving capital into renewables (many European IOCs); and 3) Low carbon pure players divesting from their core business. On the last two categories Kim Fustier from HSBC made the point that it was not acceptable for an IOC to simply sell assets to companies who were not as stringent about environmental restrictions. EI’s Phillippe Roos then asked if that also applied to big investors divesting to investors who also may not care as much?
The question then is which companies are on the right path in a world with tremendous levels of political and economic volatility and uncertainty coupled with a narrative of extreme weather events? And perhaps the biggest uncertainty of all is technological. How quickly and deeply reneweables will take over and whether there will be some new disruptive breakthrough. Next year’s EI Forum will likely continue to add more clarity, although the fact that we don’t know whether it will be virtual or in person is itself a marker of the times we live in.
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