Why green energy needs major action

Humanity has set itself a goal. As global temperatures post record highs year after year,^[1] we have chosen to reduce the carbon emissions that scientists overwhelmingly agree are behind this trend. At the centre of this movement are the world’s energy companies ‒ rather than fading into the background, these companies are critical to energy transition. 

When it comes to meeting the ambitions of the Paris Climate Accord, the biggest challenge is mankind’s rising prosperity. The International Energy Agency expects energy demand to increase by around 27% between 2017 and 2040 ‒ the equivalent of about 3.7 billion tons of oil.^[2] Falling demand from rich countries will be more than offset by rising demand from poorer ones, as the latter become more affluent. This will be particularly marked in Asia-Pacific, a region expected to consume nearly half the world’s energy by 2040. Demand in India, for example, will double or even triple.^[3] 

Demand for clean, renewable forms of energy will rise exponentially, but it is important to note that the consumption of natural gas, oil and even coal is also projected to grow. Coal dominates the landscape for power generation in southeast Asia – home to some of the fastest-growing economies in the world ‒ and coal consumption there is not expected to peak until 2027. ^[4]  Even by 2040, coal is likely to fuel more than one-third of the region’s electricity output.^[5]

While all this makes the prospects for decarbonization seem a little bleak, the picture is changing rapidly. In 2019, the International Energy Agency predicted that renewables would expand by 50% to 2024, an upward revision of 14% from the previous year’s forecast, reflecting rapid gains in competitiveness and policy support.^[6] Nevertheless, it appears likely that oil, gas and coal are with us for the rest of the 21st century. 

With this backdrop, a vital question remains ‒ what can conventional hydrocarbon-based companies do to bridge the transition to clean energy? This question is particularly germane in Asia Pacific, where the regulatory, economic and cultural forces propelling the move to clean energy are less prevalent than they are in the US and Europe, placing greater onus on multinational businesses to set higher sustainability standards, particularly in the energy sector. 

Step one is to decarbonize their day-to-day operations. This plays to the companies’ chief strength, namely their knowledge of their own processes. Reducing methane leakage from drilling sites and pipelines is of key importance, because methane is one of the most potent greenhouse gases, as well as being the main component of natural gas and thus an important fuel source in its own right. One recent study found that the US alone leaks 13 million metric tons of methane each year, erasing many of the gains from lower-carbon technologies.^[7]  In September, BP announced that henceforth it would continuously monitor methane emissions at all new major projects worldwide.^[8]

Another way that oil and gas producers can limit their carbon footprint is to build clean energy into their own operations. Aera Energy, co-owned by Shell and Exxon Mobil, has turned to solar arrays to produce the electricity needed to power its Belridge oil field in California.^[9]  Aera expects this investment, in part prompted by California’s increasingly tough environmental controls, to eliminate emissions equivalent to 80,000 cars a year when it comes online in 2020. ^[10]

Solar’s flexibility makes it well suited to this kind of emissions take-out. The technology is overtaking wind power as the main renewable growth play, with commercial and industrial uptake driving its performance. China has made huge inroads into optimizing the production of photovoltaic (PV) panels, reducing costs and expediting lead times. Solar costs are expected to fall further by 2024, perhaps by as much as 35%, with distributed solar making huge gains in China and the US.^[11] In southeast Asia, costs are falling so fast that solar is undercutting the price of gas-fired power, shifting the energy strategy of regional governments. ^[12]

Renewables have now attained the critical mass to be commercially viable in their own right. To avail themselves of this growth opportunity, and to mitigate the rising regulatory costs associated with hydrocarbons in the post-Paris era, the oil and gas majors are beginning to consolidate and diversify downstream, including into green power generation. In 2018, for instance, Norway’s Statoil changed its name to Equinor, to signal that oil was no longer central to its purpose. Shortly afterwards it bought a stake in Scatec Solar, which generates 357MW from its solar plants worldwide.^[13]   

Rebalancing towards gas is another way that energy majors can navigate the transition. Natural gas is by no means carbon neutral, but it is cleaner than other hydrocarbons. Given the intermittency of sunlight and wind as fodder for electricity generation ‒ and the current lack of commercially viable battery storage options ‒ gas-fired power stations can offer reliable baseload power that complements renewables at a fraction of the cost and lead times of nuclear.

We are committed to helping our clients as they move into this new era. This is exhibited in our position statements for doing business in the energy sector, which reflect our commitment to support the achievement of the Paris Climate Accord. Our support for renewable energy and gas projects in our footprint markets is steadfast – and we are proud to see that such efforts helped us in being named Best Bank for Sustainable Finance in the Global Finance World’s Best Bank Awards 2019. 

However, new energy sources are not sufficient to decarbonize the global economy by themselves. Technology needs to reduce the impact of the hydrocarbons we will keep on using, and that means carbon capture and storage (CCS). As the Asian Development Bank argues, CCS is currently the only near-commercial technology capable of making deep cuts into hydrocarbon-related power plants and industries.^[14]  The Intergovernmental Panel for Climate Change predicts that the cost of the process could fall by 20% to 30% over the next decade.^[15] It estimates that while the world likely has enough geological storage capacity for the captured carbon, this may not be the case at a regional level. 

Finding uses for the waste carbon is thus a task for the industry as a whole, rather than for energy companies alone. CCS systems are already in service. Between 2015 and 2019, the Shell-operated Quest facility in Canada captured and stored 4 million tons of CO2 underground. ^[16] China is storing carbon in saline aquifers in Inner Mongolia.^[17] Other CCS facilities now exist in the  US, Norway, Brazil, Saudi Arabia and the United Arab Emirates.^[18]  However, the technology faces resistance from climate activists, who see it as slowing the shift away from hydrocarbons. 

This opposition may be misguided. The Paris Accord commits the world’s governments to limiting anthropomorphic increases in global temperatures to no more than 2 degrees centigrade. For this to be achieved, the world must pursue what US presidents Bush and Obama called an “all of the above” energy strategy. Renewables will grow rapidly, but hydrocarbons cannot be wished away ‒ they are fuelling rising living standards across Asia and much of the Global South.

But more needs to be done, and quickly. The oil and gas majors are at only the beginning of a journey. To bridge the transition, they must transform into composite energy companies that are as expert with new energy sources as they are with legacy fuels, combining the two in order to maximize efficiencies, harmonize with the regulatory environment and minimize their ‒ and our ‒ carbon emissions.  

About the author
Alok Sinha is a Managing Director & Global Head of Oil & Gas and Chemicals Global Industries Group. Prior to this he held the position of Head Energy & Natural Resources, Greater Asia where he was responsible for coverage of the Energy and Resources companies operating in Asia Pacific region. Additionally he has held position as Head of Oil & Gas for Asia and MENA regions. Prior to joining Standard Chartered, Alok was an Executive Director, Head of Energy & Resources for South and S.E Asia at ABN AMRO.

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^{[1] Alejandra Borunda, "The last five years were the hottest ever recorded", National Geographic, 6 Feb 2019 https://www.nationalgeographic.com/environment/2019/02/2018-fourth-warmest-year-ever-noaa-nasa-reports/
[2]  Stephen Eule, "A look at IEA’s new global energy forecast", Global Energy Institute, U.S. Chamber of Commerce, November 2018 https://www.globalenergyinstitute.org/look-ieas-new-global-energy-forecast
[3]  IANS, "India's energy consumption to nearly triple by 2040: Pradhan", Business Standard, 13 November 2018, https://www.business-standard.com/article/news-ians/india-s-energy-consumption-to-nearly-triple-by-2040-pradhan-118111301196_1.html
[4]  Huileng Tan, "‘Coal is still king’ in southeast Asia even as countries work toward cleaner energy", CNBC, 30 September 2019, https://www.cnbc.com/2019/10/01/coal-is-still-king-in-southeast-asia-despite-clean-energy-efforts.html
[5] Ibid.
[6] IEA Renewables 2019
[7] Anthony J. Marchese and Dan Zimmerle, "The US natural gas industry is leaking way more methane than previously thought", PBS, 4 July 2018 https://www.pbs.org/newshour/science/the-u-s-natural-gas-industry-is-leaking-way-more-methane-than-previously-thought
[8] BP (press release), “BP deploys continuous methane measurement for new major oil and gas projects”  https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-deploys-continuous-methane-measurement-for-new-major-oil-and-gas-projects.html
[9] Chris Mooney, "One of the country’s biggest oil fields just turned to an unexpected power source: Solar", Washington Post, 29 November 2017 https://www.washingtonpost.com/news/energy-environment/wp/2017/11/29/one-of-the-countrys-biggest-oilfields-turns-to-an-unexpected-power-source-solar/
[10] Peter Ashton, interim vice president – environment, health and safety and regulatory affairs, "Californians gain with Aera’s environmental performance", Aera, 17 October 2019 https://www.aeraenergy.com/californians-gain-with-aeras-environmental-performance/
[11] Matt Egan, "Renewable energy is booming. But it's not growing fast enough to fight climate change", CNN, 21 October 2019 https://edition.cnn.com/2019/10/21/business/renewable-energy-solar-iea/index.html
[12] Koustav Samanta, Roslan Khasawneh, "RPT-Cheaper solar power gains ground in southeast Asia", Reuters, 1 November 2019 https://uk.reuters.com/article/singapore-energy-solar/rpt-cheaper-solar-power-gains-ground-in-southeast-asia-idUKL3N27H09O
[13] Anmar Frangoul, "Energy powerhouse Equinor buys minority stake in Scatec Solar", CNBC, 16 November 2018 https://www.cnbc.com/2018/11/16/energy-powerhouse-equinor-buys-minority-stake-in-scatec-solar.html
[14] ADB, 2015, “Roadmap for carbon capture and storage demonstration and deployment in the People’s Republic of China” https://www.adb.org/publications/roadmap-carbon-capture-and-storage-demonstration-and-deployment-prc
[15] IPCC, “Carbon dioxide capture and storage: summary for policymakers”, pp11-12, https://www.ipcc.ch/site/assets/uploads/2018/03/srccs_summaryforpolicymakers-1.pdf
[16] The Canadian Press, "Shell Quest carbon capture and storage project reaches milestone of 4M tonnes", CBC, 23 May 2019 https://www.cbc.ca/news/canada/calgary/carbon-storage-cnrl-shell-quest-1.5146857 
 [17] Sun Haoran, "China achieves breakthrough to capture CO2", Global Times, 10 May 2019 http://en.people.cn/n3/2019/0510/c90000-9576846.html
[18] Joanna Sampson, “China ’setting the pace‘ as it establishes world’s 18th large-scale CCS facility”, Gas World, 13 August 2018, https://www.gasworld.com/china-establishes-worlds-18th-ccs-facility/2015265.article}

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