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Oil and gas industry needs to step up climate efforts now

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Oil and gas companies are facing a critical challenge as the world increasingly shifts towards clean energy transitions. Fossil fuels drive the companies’ near-term returns, but failure to address growing calls to reduce greenhouse gas emissions could threaten their long-term social acceptability and profitability.

The oil and gas industry now needs to make clear what clean energy transitions mean for it – and what it can do to accelerate clean energy transitions.

Whatever path the world follows in its efforts to limit the rise in global temperatures, intensifying climate impacts will increase the pressure on all industries to find solutions. While some oil and gas companies have taken steps to support efforts to combat climate change, the industry as a whole could play a much more significant role through its engineering capabilities, financial resources and project-management expertise, according to the IEA’s Oil and Gas Industry in Energy Transitions report, which was released today.

“No energy company will be unaffected by clean energy transitions,” said Dr Fatih Birol. “Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”

The landscape of the oil and gas industry is diverse, meaning there is no single strategic response but a variety of approaches depending on each company’s circumstances.

“The first immediate task for all parts of the industry is reducing the environmental footprint of their own operations,” Dr Birol said. “As of today, around 15% of global energy-related greenhouse gas emissions come from the process of getting oil and gas out of the ground and to consumers. A large part of these emissions can be brought down relatively quickly and easily.”

Reducing methane leaks to the atmosphere is the single most important and cost-effective way for the industry to bring down these emissions. But there are ample other opportunities to lower the emissions intensity of delivered oil and gas by eliminating routine flaring and integrating renewables and low-carbon electricity into new upstream and LNG developments.

“Also, with their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies – such as carbon capture, utilisation and storage and hydrogen – to reach maturity,” Dr Birol added. “Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions.”

Some oil and gas companies are diversifying their energy operations to include renewables and other low-carbon technologies. However, average investment by oil and gas companies in non-core areas has so far been limited to around 1% of total capital spending, with the largest outlays going to solar PV and wind. Some oil and gas companies have also diversified by acquiring existing non-core businesses – for example in electricity distribution, electric-vehicle charging, and batteries – while stepping up research and development activity. But overall, there are few signs of the large-scale change in capital allocation needed to put the world on a more sustainable path.

An essential task is to step up investment in the fuels – such as hydrogen, biomethane and advanced biofuels – that can deliver the energy system benefits of oil and gas without net carbon emissions. Within 10 years, these low-carbon fuels would need to account for around 15% of overall investment in fuel supply if the world is to get on course to tackle climate change. In the absence of low-carbon fuels, transitions become much harder and more expensive.

“The scale of the climate challenge requires a broad coalition encompassing governments, investors, companies and everyone else who is genuinely committed to reducing emissions,” said Dr Birol. “That effort requires the oil and gas industry to be firmly and fully on board.”

Low-carbon electricity will undoubtedly move to centre stage in the future energy mix. But investment in oil and gas projects will still be needed, even in rapid clean energy transitions. If investment in existing oil and gas fields were to stop completely, the decline in output would be around 8% per year. This is larger than any plausible fall in global demand, so investment in existing fields and some new ones remains part of the picture.

In some cases, company owners may favour sticking with a specialisation in oil and gas – possibly shifting more towards natural gas over time – for as long as these fuels are in demand and investment returns are sufficient. But these companies will also need to think through their strategic response to new and pervasive challenges. The stakes are particularly high for national oil companies charged with the stewardship of countries’ hydrocarbon resources – and for their government owners and host societies that typically rely heavily on the associated oil income.

National oil companies account for well over half of global production and an even larger share of reserves. Some are high performing, but many are poorly positioned to adapt to changing global energy dynamics. Global energy trends have prompted a number of countries to renew their commitment to reform and to diversify their economies, and fundamental changes to development models in many major resource holders look unavoidable. National oil companies can provide important elements of stability for economies during this process, if they are operating effectively and alert to the risks and opportunities.

This report was produced in cooperation with the World Economic Forum (WEF). It will be presented to government and industry leaders during the WEF’s Annual Meeting in Davos on January 21.

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African fisheries need reforms to boost resilience after Covid-19

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The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.

These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.

The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.

Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.

Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.

The report strongly advocates for:

– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.

– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.

– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.

– Investing in human capital to ensure high-level skills in the different areas of fisheries management.

– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.

The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.

Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.

Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.

Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.

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Top Trends Impacting Global Economy, Society and Technology

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The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.

Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.

“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.

“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”

The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.

  • Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
  • Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
  • Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
  • Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.

In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.

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South Asian Economies Bounce Back but Face Fragile Recovery

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Prospects of an economic rebound in South Asia are firming up as growth is set to increase by 7.2 percent in 2021 and 4.4 percent in 2022, climbing from historic lows in 2020 and putting the region on a path to recovery. But growth is uneven and economic activity well below pre-COVID-19 estimates, as many businesses need to make up for lost revenue and millions of workers, most of them in the informal sector, still reel from job losses, falling incomes, worsening inequalities, and human capital deficits, says the World Bank in its twice-a-year regional update. 

Released today, the latest South Asia Economic Focus: South Asia Vaccinates shows that the region is set to regain its historical growth rate by 2022. Electricity consumption and mobility data is a clear indication of recovering economic activity. India, which comprises the bulk of the region’s economy, is expected to grow more than 10 percent in the fiscal year 2021-22—a substantial upward revision of 4.7 percentage points from January 2021 forecasts. 

The outlook for Bangladesh, Nepal, and Pakistan has also been revised upward, supported by better than expected remittance inflows: Bangladesh’s gross domestic product (GDP) is expected to increase by 3.6 percent in 2021; Nepal’s GDP is projected to grow by 2.7 percent in the fiscal year 2021-22 and recover to 5.1 percent by 2023; Pakistan’s growth is expected to reach 1.3 percent in 2021, slightly above previous projections. 

The improved economic outlook reflects South Asian countries’ efforts to keep their COVID-19 caseload under control and swiftly roll out vaccine campaigns. Governments’ decisions to transition from widespread lockdowns to more targeted interventions, accommodating monetary policies and fiscal stimuli—through targeted cash transfers and employment compensation programs—have also propped up recovery, the report notes. 

“We are encouraged to see clear signs of an economic rebound in South Asia, but the pandemic is not yet under control and the recovery remains fragile, calling for vigilance,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Going forward, South Asian countries need to ramp up their vaccination programs and invest their scarce resources wisely to set a foundation for a more inclusive and resilient future.” 

While laying bare South Asia’s deep-seated inequalities and vulnerabilities, the pandemic provides an opportunity to chart a path toward a more equitable and robust recovery. To that end, the report recommends that governments develop universal social insurance to protect informal workers, increase regional cooperation, and lift customs restrictions on key staples to prevent sudden spikes in food prices. 

South Asia, which grapples with high stunting rates among children and accounts for more than half of the world’s student dropouts due to COVID-19, needs to ramp up investments in human capital to help new generations grow up healthy and become productive workers. Noting that South Asia’s public spending on healthcare is the lowest in the world, the report also suggests that countries further invest in preventive care, finance health research, and scale up their health infrastructure, including for mass and quick production of vaccines. 

“The health and economic benefits from vaccinations greatly exceed the costs involved in purchasing and distributing vaccines for all South Asian countries,” said Hans Timmer, World Bank Chief Economist for the South Asia Region. “South Asia has stepped up to vaccinate its people, but its healthcare capacity is limited as the region only spends 2 percent of its GDP on healthcare, lagging any other region. The main challenge ahead is to reprioritize limited resources and mobilize more revenue to reach the entire population and achieve full recovery.”

The World Bank, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries respond to the health, social and economic impacts of COVID-19. This includes $12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests, and treatments, and strengthen vaccination systems. The financing builds on the broader World Bank Group COVID-19 response, which is helping more than 100 countries strengthen health systems, support the poorest households, and create supportive conditions to maintain livelihoods and jobs for those hit hardest.

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