As oil and gas companies consider how best to weather the current market challenges and prepare for any lasting impacts from COVID-19, a pivot from a pure oil and gas focus to an energy services focus—especially energy from renewable or sustainable sources—is an effective overarching solution to the challenges they face.
Even as oil and gas demand begins to rise again after COVID-19 brought the world to a grinding halt, fundamental changes to the structure of how and where we live, work, travel, and use technology will likely remain, with implications for the traditional oil and gas business model forcing them to transition towards the universal energy business model.
Global energy demand stands to grow as much as 50% by 2050. And it is expected to increase in developing economies, such as Bahrain, until 2035, and perhaps even beyond. However, it is unclear how much of that energy will be supplied by the oil and gas industry in its current form. Meanwhile, excess production capacity, a collapse in commodity prices, and equity market volatility have led to the loss of billions of dollars in energy company stock value and bond depreciation.
All these developments have cascading ramifications for an industry that only recently trimmed back costs to adjust to the 2014 price collapse.
However, every coin has a flip side! these challenges mean that Oil and gas companies have an opportunity to adopt new, clean-energy business models that can support their recovery and generate growth in a net-zero future.
Corporate leaders are increasingly focused on addressing risks to their organizations from climate change. Oil and gas executives are no exception. According to a survey by KPMG and Eversheds Sutherland, “Climate change and corporate value: What companies really think” of more than 500 global business executives; 93% of business leaders said that that decarbonization is a key to succeeding in a net-zero global economy, the highest response of any sector. Also, 97% agree that their ability to manage climate-related risk is important for keeping their jobs over the next five years.
There are numerous opportunities for oil and gas companies to leverage their strengths, capabilities, adjacencies, and investments to date. While there are competitors from other sectors entering each of these markets, we strongly believe that the oil and gas industry has natural advantages that will allow companies to take a leading role.
Opportunities to allow the traditional oil and gas industry to play a more pivotal role in a net-zero world
Solar- and wind-based power generation are gaining worldwide momentum. Production volumes for renewable energy, particularly wind and solar, have grown rapidly; U.S.-installed wind assets now exceed 100,000 MW and solar assets exceed 66,600 MW. These facilities are expected to bring more new generating capacity online than natural gas over the next three years. In Bahrain we are also seeing an increasing number of articles and announcements through the support of the Sustainable Energy Authority wherein corporates across the Kingdom are in fact investing quite actively in the potential of renewable energy.
Oil and gas companies and the constellation of companies that support them are keenly aware of how to build and operate in an offshore environment. Renewable sources including ‘Wind energy’ provides an excellent opportunity to develop new energy service markets and even activate idled onshore and offshore infrastructures, equipment, and personnel more effectively.
The most ubiquitous energy source is finally having its moment! Hydrogen is an increasingly attractive option for decarbonizing electricity, heating, transport, and industrial processes, among other scenarios. While utilizing electrolysis to produce hydrogen from water requires considerable electricity, the price of solar and wind to power electrolysis continues to rapidly decline. However, experts in the field of renewable energy are significantly hedging their bets behind Hydrogen as the future of renewables.
Next-generation biofuels are receiving a significant boost by government agencies and research universities that are exploring a wide array of next-generation biofuel pathways: biodiesel; hydro-isomerized fats and oils; biomass pyrolysis-derived diesel; cellulose-derived oxygenates; ethanol, butanol, and similar long-chain alcohols; biomass pyrolysis-derived gasoline; and cellulose-derived oxygenates.
Oil and gas companies could open or transition existing facilities for low-carbon fuel manufacturing in or adjacent to jurisdictions with applicable markets and potentially operate more efficiently and effectively than these less-experienced producers. This is also an opportunity for the Kingdom as we look towards diversifying the marketplace opportunities with the aim to reinforce the economy.
Transportation represents the single most significant opportunity to kick-start large-scale acceptance of low-carbon energy.
Battery manufacturing costs have declined an average of 18 percent annually over the last decade. As prices continue to fall, the business case for battery-powered trucking becomes more favorable.
Electric commercial trucking is one-way companies can improve efficiencies and meet carbon emissions targets. While the utility industry has made greater inroads in establishing charging stations than oil and gas, companies with a downstream footprint to leverage on the highways can consider building charging stations at warehouses and manufacturing facilities.
As a Kingdom we are already experiencing a significant investment in this space with the recently revamped public transportation system of Bahrain Bus, and the recently announce project updates around the Bahrain Metro. Are we applying a sustainability impact lens around the investment is a critical question we need to ask ourselves?
Carbon capture, utilization and storage:
Removing carbon from industrial sources and the atmosphere is a critical component of the transition to a “net-zero energy system. Typically, oil and gas companies and organizations within the manufacturing/ industrial sector who traditionally have been quite energy intensive have a great deal of experience developing large, highly complex industrial facilities. This puts the industry in a strong position to build and operate carbon-capture and sequestration facilities not only for themselves, but also for other companies across all sectors who lack the ability or desire to directly operate their own i.e. airlines and commercial real estate companies.
The journey to a sustainable, low-impact business model that is responsive, adaptive, and resilient to these changes can be challenging. Therefore, leaders across public and private sector in Bahrain and worldwide must respond to a range of economic, environmental, and social considerations including energy and fuel use, climate impact, operational decarbonization, water use, and resource scarcity as they plan and execute the future strategy for their organizations to ensure they are also working in coordination with national development.
About the article author:
Jeyapriya Partiban is Partner and Head of Advisory at KPMG in Bahrain. She has over 26 years of experience providing corporate governance advisory, compliance, internal audit, and enterprise risk management services to various clients in the financial and non-financial services sector in over 25 countries. Her specific work experience includes:
- Worked closely with Board members and senior management teams in developing corporate governance frameworks for financial and non-financial services clients in Bahrain, Qatar, Saudi Arabia, Kuwait, and Malaysia.
- Delivered numerous Board briefing/ training sessions on the subject of corporate governance and family governance, ESG, CSR and overall philanthropy.
- Conducted risk-based internal audits for banks, investment management, investment holding, international offshore banking unit, securities broking, insurance, and reinsurance companies and other advisory engagements in Bahrain, Qatar, UK, Malaysia, Hong Kong, and Sri Lanka.
- Led business process reviews which included developing manuals for core and non-core banking activities.
- Represented KPMG on the Steering Committee for the Development of Code of Corporate Governance for the Kingdom of Bahrain. Served as a member of the Board of The Institute of Internal Auditors.
- Led numerous ERM engagements in Bahrain, Qatar, Malaysia and Sri Lanka in the real-estate, insurance, retail, and energy sectors.
- Led forensic investigations for public and private sector clients in Bahrain, Malaysia, Qatar, and Cambodia.
- Led engagements in line with Sustainability reporting in line with reporting standards including UNGC, GRI, and the UN SDGs.