TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
How oil, gas companies accelerate energy transition
Fiscal and non-fiscal incentives could provide a boost to launch green products while encouraging the market to grow and meet economies of scale.
Change Size
Eco-friendly energy: Two technicians of state-owned oil-and-gas giant PT Pertamina work on a geothermal-power plant in West Java. Pertamina continues to boost the use of geothermal energy to encourage a more eco-friendly energy transition in Indonesia. (Courtesy of Pertamina)
A secure and affordable energy supply has been a critical enabling factor for global economic growth. With the world economy growing each year, global primary energy consumption increased 15-fold from 1900 to 2019. Oil and gas industries account for more than 40 percent of total global greenhouse gas (GHG) emissions. Therefore, energy transition plays a crucial role in managing emissions.
This underpins the need to transition from fossil-based fuel to no or low-emission energy sources, the key pillar of the energy transition. We see a unique role of oil and gas (O&G) companies amid this push, including those of international oil companies (IOCs) and national oil companies (NOCs).
IOCs and NOCs can redefine their long-term value strategy for existing fossil-fuel (hydrocarbon) portfolios or expand into non-hydrocarbon portfolios depending on unique geographic opportunities. There are two main moves that IOCs and NOCs can make to respond to energy transition: Reduce one’s own emissions through decarbonization and more efficient operations and act where energy transitions create new, positive opportunities for oil and gas companies, such as investing in renewables,
Energy transition will likely impact O&G companies' hydrocarbon portfolio, especially on high-carbon fuel. From the global level, O&G companies face a risk of either underinvesting to supply future hydrocarbon demand or overinvesting, which results in stranded assets. On a localized level, O&G companies face differentiated exposure to localized energy transitions depending on the country's situation. For example, stress-testing indicates that forecast gas price is expected to fluctuate post-2022, due to the recent Ukraine-Russia war and supply constraints.
Given the broad uncertainty of both the speed and scope of future energy transitions, O&G companies can diversify into non-hydrocarbon: Power value chain (e.g. renewables, gas power plant), new fuels (e.g. biofuels), Carbon Capture and Storage (CCUS) and circular economy (e.g. waste-to-energy).
However, venturing into a non-hydrocarbon business requires new and different capabilities than typical companies do. Moreover, even with the right capabilities, O&G may encounter challenges in the near-term based on the materiality and scale of returns. As a result, O&G companies are suggested to identify opportunities based on geographical options and the company's capabilities.
