ENERGY MATTERS © VOL. 32
an opinion editorial written exclusively for ANZMEX 


23 August 2021
By Chris Sladen

Energy matters – Under pressure?

It was such a memorable song written by the rock legends David Bowie and the band Queen, and performed live at almost every Queen concert. Such meaningful lyrics and haunting music. The song’s title ‘Under Pressure’ no better sums up what the energy industry is going through, the need to change, the need to do better than the past, to evolve quickly, and that pressure is now starting to build.

The principal theme of the song Under Pressure is that as young people are growing up, the pressures from society on them are increasing all the time, in ways not seen before. And so we reach today, with increasing pressure and increasing uncertainty about what the future holds. Not only has the pandemic changed our world forever, we still have little clarity on what the new normal is. Add to this, billions of children will grow up facing the multiple threats of climate changes.

Released in 1981, the 40th anniversary of the song Under Pressure coincides with COP26, the UN climate conference. ‘COP’ stands for ‘conference of parties’ and is a summit of all the 197 countries which are part of the UN’s climate change treaty, the UN Framework Convention on Climate Change. Pressure to act on climate change will definitely increase during COP26. It will be a test of unity. The pressure is on for everyone, everywhere, to sign up for more and more challenging emissions reduction targets.

In early November, governments and negotiators from across the world will descend on Glasgow, Scotland for COP26 to discuss how to keep temperature rises below dangerous levels and prevent the climate crisis from escalating toward even worse catastrophes for the world’s poorest and most vulnerable people. The Glasgow COP will be the 26th of these conferences, and the first since the pandemic began. The talks need to agree how to rebuild from the pandemic whilst progressing a global energy transition, and setting new targets.

There is no longer any realistic chance of an orderly transition to a low carbon world of energy. Those chances were lost decades ago when, following the meeting at Montreal (1987), it took years to bring a halt to making gases that deplete the ozone layer. Then at Rio (1992), the behavioural changes in energy use and conservation of biological diversity that were hailed were rarely followed through, and later, the promises of emissions reductions at Kyoto (1997) were often not honoured and many countries were exempted. It is clear now that the Paris (2015) agreement was insufficient to create a climate neutral world. Failure to act quickly has simply built pressures for more severe changes in energy use today.

Meanwhile, pressure is growing on governments to reassess and restrict oil & gas exploitation. Ireland, Spain, Belize, Denmark, Greenland, France and New Zealand have already introduced legislation to restrict new hydrocarbon exploration and effectively phase out production over time. We are yet to see a major oil & gas province be shut down in this way but the direction is now set. Other countries will soon follow with bans, restrictions, embargoes and moratoriums. Some oil companies have already started buying their way out of E&P contracts that have unfilled exploration commitments as they shift their corporate strategy toward lower emissions energy. Soon we should expect to see a major hydrocarbon producing country bring a stop to exploration in new areas. It will mark a real shift in direction. The stance of the major oil producing countries during COP26 will be fascinating to be observe.

What is clear is that the low-carbon transition is happening whether you like it or not. Governments, investors and corporates have just a few years to determine how smooth that passage is. The politics of clean, green energy is set to surge. Expect to see environmental-oriented political parties make major gains, with deals struck between political parties on this theme. Businesses are under pressure to account transparently for carbon reduction just as they do for profits. Greater focus on a preferential investment environment for renewable power and both industrial and domestic hydrogen, and ammonia, should be expected. To think the energy transition will be a globally agreed smooth and planned transition is naive – there is nothing in history to suggest such a thing is likely. Companies and investors across all asset classes must prepare for at best a disorderly transition and at worst a whiplash from a succession of rapid shifts in policy across a host of vulnerable sectors by panicked governments manoeuvring to stay in power.

Greenwashing of corporate identities, so popular in recent years whether it be an energy company or a consumer products company, will continue with vain attempts to steer attention elsewhere onto other ‘less green’ companies. There is now a real, intense, pressure to report every detail of emissions enabling full scrutiny. Emissions accounting is becoming part of corporate governance and reporting. There will still be those who seek to evade with creative accounting; if you don’t include all carbon emissions then the statistics are going to look much nicer. Aviation and shipping emissions are two areas gradually being brought to the fold.

But the supply-side of the energy sector continues to have many industrial scale accidents, creating unnecessary and unwelcome additions to toxic releases and more emissions by destroying resources that were not used properly. In this way, the energy sector simply piles even more pressure upon itself. For example, in 2021, we have already seen a lengthy series of tragic incidents – fire crews taking more than 3 days to control a blaze at Tesla’s Big Battery, the largest lithium-ion battery in Victoria, Australia; exploding gas pipelines in Ukraine and Iran; a giant fireball at an offshore gas leak in Mexico; a sizeable leak into the Black Sea from a Russian oil loading terminal; leakage from an oil tanker creating tar that destroyed beaches in Israel & Lebanon; a large container ship fire off Sri Lanka which led to its sinking with toxic chemicals and hazardous plastics released; multiple onshore oil spills in Russia; well blowout incidents in both China and USA, and a major fire at Mexico’s largest producing offshore oilfield.

As pressure builds, advocacy and lobbying by oil companies will intensify. The most sought after skills are no longer technical ones related to finding and developing oil & gas, but advocacy, government influence, public image management, social media, marketing and diplomatic skills. Skills such as an ability to talk to regulators become essential. Some governments are withdrawing international support for their oil companies. Legal cases will increasingly get played out at higher levels; having a good lawyer will not be sufficient – armies of lawyers and expert witnesses led by Queen’s Counsel (nothing to do with the rock band) will become the norm. Supreme Courts and Courts of Arbitration around the world will become more and more busy as pressure builds for energy companies to bear responsibility for their emissions and the emissions created by consumers of their products.

Pressure is finally growing to stop gas flaring and methane venting. Gas flaring wastes ~15 billion cubic feet per day of technically recoverable gas for which there are commercially proven solutions and markets. Russia, Iraq, USA, Iran lead the list for major flaring. Recent satellite data studies have highlighted alarming rates of leakage, fugitive emissions and venting, especially with leakage from pipelines and midstream processing infrastructure. The data show that Mexico in particular struggles with this issue. Regulators worldwide could clearly do more to intervene and force a change in industry practices.

We have reached a point where any adverse weather event is now immediately ascribed to global warming and climate change. If it is floods, storms, drought, high winds & hurricanes, cold snaps, heatwaves, wildfires & forest fires, the disappearance of glaciers – all are now considered due to climate change. (Even so, we seem to quickly forget that forest fires are often started deliberately by arsonists, and by cattle ranchers and farmers to increase their yields, while in some countries large areas of forest is burnt off each year to control wild fires should they occur; flooding is often due to man-made changes in the landscape and poor floodwater infrastructure; and destruction of electricity infrastructure during cold snaps can be a consequence of poor operational practices and weak infrastructure management). But in many ways, the more silent and almost impossible-to-observe impacts of global warming are more haunting – the tiny rises in sea-level, the melting of permafrost releasing methane, the ever so slight warming and acidification of the ocean waters.

Thinking that reaching Net Zero emissions will simply undo the changes in climate and bring an end to adverse weather events is naive. The damage is already done to the atmosphere and the weather consequences have been unleashed – it is not something you can just flip and put into reverse. Now it is just about trying to stop it getting even worse. Major economies such as China, the USA, EU & UK, and Japan will need to pull hard on the handbrake for emissions to get anywhere near meeting climate goals. With the return to growth in energy demand as we edge towards a post-pandemic phase, the demand-side needs to show big changes too. End-user behaviours are slowly changing but not fast enough whether it is cars, food or electricity consumption. The power sector and transport continue to be the two largest sources of CO2 emissions with China, USA, EU and India top the list. New topics also need to be addressed, for example, the emissions related to making and using fertilisers, then transporting fruit & veg thousands of miles to markets is still to be revealed; this data will pressure consumers to change their ways, and producers & supply chains to find new agriculture solutions.

Outside the energy business many people assume that oil, natural gas and coal will be a thing of the past by 2050 or even well before then. With a growing global population, that challenge just becomes harder. Many don’t understand that we will also be digging up large swathes of planet Earth as part of moving toward Net Zero. All renewable energy opportunities will have to be pursued more aggressively to force a clean energy transition through. Today, the investment to make that happen is simply insufficient. Can COP26 deliver a global financing solution? It needs full focus on not only wind and solar but also geothermal, hydro, waves and nuclear too. To enable this to happen, complex regulations have to be swept aside and a positive investment environment created. For example, in many countries, current regulations prevent an oil & gas well from being repurposed for geothermal uses; surely these kinds of antiquated rules that lead to needless expense abandoning wells that are easily reusable could be rectified very quickly to access heat & power from millions of existing wells?

Let’s hope COP26 can get past the obstacles and bureaucracy, and deliver an achievable way forward full of action. To summarise from the song – we are on the edge of night, with pressure bearing down on us all.

If time permits, this link takes you to the Queen video of the song Under Pressure: https://youtu.be/a01QQZyl-_I


About the author:

Chris Sladen runs an advisory service offering insights to inform, shape a decision, policy & regulation, and guide the next steps for energy ventures, acquisitions & divestments, energy transition and climate strategies. Chris has a unique global experience having worked in over 40 countries. This is underpinned by extensive knowledge of petroleum systems and where best to find oil and gas, notably in the Gulf of Mexico & nearby areas, Europe and NE & SE Asia, as well as the development of midstream, downstream & renewables investments in many emerging economies. Chris has extensive experience acquired on the Boards of companies, subsidiaries, business chambers & organisations. Chris has a career of over 40 years in the energy sector, living in Mexico (2001-2018), Russia, Vietnam, Mongolia, China & UK. His contributions to the energy and education sectors have been recognised by the UK Government with both an MBE and CBE, and also the Aztec Eagle from the Mexican Government – the first foreigner in the energy sector to achieve this award. Chris has published extensively over five decades. Chris’ articles for Energy Matters reflect his experience and enthusiasm and are not paid for in any way.

Send your feedback to:
chris.sladen@reconnoitre.ltd


Disclaimer:
ANZMEX ORG A.C. is a politically neutral business council with no political affiliation. The views expressed in this column are not necessarily representative of the official views of ANZMEX or any of its officers or staff.