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.
Russia Among Global Top Ten Improvers for Progress Made in Health and Education
Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).
The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.
Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.
“Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.
The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.
Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.
In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.
Accelerating Mongolia’s Development Requires a Shift “from Mines to Minds”
A new report by the World Bank estimates that out of every dollar in mineral revenues Mongolia has generated over the past 20 years, only one cent has been saved for future generations. The report argues that to break this cycle, Mongolia should use its mineral wealth to invest in people and institutions, while gradually reducing its dependence on the sector.
This is particularly true as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock, according to Mongolia’s Mines and Minds, the World Bank’s September 2020 Country Economic Memorandum for Mongolia.
Since the advent of large-scale mining in 2004, Mongolia’s economy has grown at an average rate of 7.2 percent per year, making it one of the fastest-growing economies in the world. Growth has translated to rapid decline – although at times partly reversed – in the incidence of poverty and improved quality of life. The report also notes that Mongolia enjoys relatively strong human capital, and its infrastructure capital has improved for the last few decades, though remains scarce given the size of the country and low population density. This performance has been made partly possible through a generous but inefficient social assistance system and a large public investment program supported by mineral revenues and external borrowing.
However, a number of enduring challenges have grown in the shadow of this success. Mongolia’s rapid growth has been obscured by its extreme macroeconomic volatility and frequent boom and bust cycles. Growth has almost entirely come through capital accumulation and the intensive use of natural capital rather than through sustained productivity growth. Meanwhile, the country has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation.
“Instead of maximizing the benefits of its mineral wealth for diversified and inclusive growth, Mongolia has increasingly become more addicted to it. At the same time, human capital has been underutilized and institutional capital has eroded.” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “Such inability to capitalize on the country’s endowments has resulted in limited diversification of outputs and exports and has further amplified its vulnerability to the swings of the global commodity markets. Breaking this gridlock calls for a fundamental shift in approach that puts investing in minds on an equal footing with mines.”
The report recommends key policy actions to build the foundation of a diversified and sustainably growing economy. These include:
- Implement countercyclical fiscal and monetary policies – supported through transparent fiscal rules, an independent fiscal council, a market-driven exchange rate, and a well-functioning stabilization fund – to smooth consumption over the business cycle rather than maximize current consumption.
- Undertake bold investment climate reforms to enhance competition, secure investor rights, and create a more level playing field that enables productive firms to invest and grow.
- Move away from the mindset of diversifying products to expanding endowments, especially in terms of better utilization of Mongolia’s young and educated, especially female, labor force.
- Accelerate the implementation of fundamental governance reforms (especially on the government effectiveness and control of corruption) to reduce political interference, increase transparency, and improve regulatory quality throughout the economy.
“Fortunately, there are many encouraging signs of improved macroeconomic management in 2017-19, providing the new government an opportunity to advance its reform efforts,” said Jean-Pascal Nganou, World Bank Senior Country Economist and lead author of the report. “Some impressive fiscal outcomes were achieved not by introducing new reforms but by effectively implementing existing ones. They demonstrate that with the right political will and leadership, similar improvements are possible in other areas including monetary and exchange rate policy, the financial sector, the business environment, and the labor market. The new administration has, therefore, an opportunity to institutionalize these reforms and avoid policy regression in the future.”
Nearly 9 in 10 People Globally Want a More Sustainable and Equitable World Post COVID-19
In a new World Economic Forum-Ipsos survey of more than 21,000 adults from 28 countries nearly nine in ten say they are ready for their life and the world to change.
72% would like their own lives to change significantly and 86% want the world to become more sustainable and equitable, rather than going back to how it was before the COVID-19 crisis started. In all countries, those who share this view outnumber those who don’t by a very significant margin (more than 50 percentage points in every country except South Korea). Preference for the world to change in a more sustainable and equitable manner is most prevalent across the Latin America and Middle East-Africa regions as well as in Russia and Malaysia.
Next week’s World Economic Forum Sustainable Development Impact Summit will address the achievement of the sustainable development goals and the appetite for transformation which will drive the “decade of delivery”.
Clear majority ready for a more sustainable and equitable world
Globally, 86% of all adults surveyed agree that, “I want the world to change significantly and become more sustainable and equitable rather than returning to how it was before the COVID-19”. Of those, 46% strongly agree and 41% somewhat agree, while 14% disagree (10% somewhat and 4% strongly).
Russia and Colombia top the list of countries that strongly or somewhat agree with that statement at 94%. They are followed by Peru (93%) Mexico (93%) Chile (93%) Malaysia (92%), South Africa (91%) Argentina (90%) and Saudi Arabia (89%). The countries that are most change averse – disagreeing somewhat or strongly disagreeing with the statement – are South Korea (27%), Germany (22%), Netherlands (21%), US (21%) and Japan (18%).
Dominic Waughray, Managing Director, at the World Economic Forum said, “The Great Reset is the task of overhauling our global systems to become more equitable and sustainable, and it is more urgent than ever as COVID-19 has exposed the world’s critical vulnerabilities. But the technology to transform things tends to outpace the human will to change. In six months, the pandemic has systematically broken down this cultural barrier and we are now at a pivot point where we can use the social momentum of this crisis to avert the next one.”
Ready for significant personal change
Across all 28 countries, 72% want their lives to change significantly rather than returning to what it was like before the COVID-19 crisis (30% strongly and 41% somewhat) while the other 29% disagree (21% strongly and 8% somewhat).
Latin America stands out for its optimism, with Mexico, Colombia and Peru in the top five countries strongly or somewhat agreeing. Agreement is also high South Africa (86%), Saudi Arabia (86%, Malaysia (86%) and India (85%). By contrast, at least two out of five adults in the Netherlands, Germany, South Korea, Japan, Sweden, the US, UK and Canada long for their life to just return to how it was before the pandemic.
MethodologyThese are the results of a 28-country survey conducted by Ipsos on its Global Advisor online platform. Ipsos interviewed a total of 21,104 adults aged 18-74 in United States, Canada, Malaysia, South Africa, and Turkey, and 16-74 in 23 other countries between August 21 and September 4, 2020. Where results do not sum to 100 or the ‘difference’ appears to be +/-1 more/less than the actual, this may be due to rounding, multiple responses or the exclusion of don’t knows or not stated responses.
Controversial Israeli soccer club may be litmus test for UAE soft power ploy
An Emirati offer to invest in Israel’s most controversial soccer club could serve as a figurative litmus test of hopes...
The Politics of (In)security in Mexico: Between Narcissism and Political Failure
Security cannot be that easily separated from the political realm. The need for security is the prime reason why people...
China “seems” to be moving closer to the Holy See
The two-year provisional agreement which was signed on September 22, 2018 between the holy see and China for the appointment...
Why the “Coronavirus Ceasefire” Never Happened
Six months ago, when COVID-19 had just moved beyond the borders of China and embarked upon its triumphant march across...
Pandemic Recovery: Whitehouse – Check-In or Check-Out Times
Some 200 nations of the world are in serious economic pains of varying degrees; the images and narratives on social...
Proxy War and the Line of Control in Kashmir
Who has not heard of the Vale of Cashmere, with its roses the brightest that earth ever gave.–Thomas Moore The...
How India can get its growth back on track after the coronavirus pandemic
The Covid-19 pandemic has led to exceptionally challenging times. World Bank projections suggest that the global economy will contract by 5.2% in...
International Law3 days ago
Transition of Balance of Power from Unipolar to Multipolar World Order
South Asia2 days ago
Emerging Muslim Blocs and Pakistan’s Foreign Policy Dilemma
Economy3 days ago
COVID-19, major shifts and the relevance of Kondratief 6th Wave
South Asia3 days ago
Justice for Justice!
Defense2 days ago
India’s strategies short of war against a hostile China
Americas2 days ago
Mistrust between Russia and the United States Has Reached an All-Time High
New Social Compact3 days ago
Euthanasia, Living Will and The Analysis In India
Middle East3 days ago
Israel and its Image After the 1967 War