Feeling the heat
Global energy demand continues to rise as public pressure mounts on governments and companies to adopt stronger environmental and social policies
Climate concerns reached a fever pitch last year as teen activist Greta Thunberg warned a “change is coming, whether you like it or not.”
Change has certainly happened around the public’s desire for sustainability – the awareness of the impact of carbon emissions on health and the environment, the willingness to adopt new technologies that use energy more efficiently, and the ambition to find radical new solutions to fuel the modern economy.
Change has also happened in boardrooms, as socially conscious investors increasingly demand to know that company profits are not coming at the expense of the environment, workers’ well-being or the overall health of society.
But these growing ambitions have not changed the trajectory of global energy demand or the desire of developing countries to improve living standards.
If the world is, in fact, set to make the massive shift that Thunberg warns of, it will not be the oil sector’s burden to bear alone. The reverberations will be felt in every sector of the global economy, as overall demand for energy shows no signs of slowing in the coming decades, and petrochemical products become further embedded into everyday life.
“Oil is unique because it’s both a source of energy — it embodies a huge amount of energy — and increasingly it’s a building block,” said Madhav Acharya, technology- to-market adviser for the US Department of Energy’s independent Advanced Research
Projects Agency – Energy. “All of the molecules in oil end up in products all around us.”
“The challenge for the industry going forward is to find a way to recognize what might happen if you no longer need oil as a fuel, but you increasingly need it as a building block,” said Acharya, a chemical engineer who spent 17 years at ExxonMobil. “How oil is perceived has to change. The industry has to come to terms with that shift as well.”
Turning the supertanker
Oil companies have started responding to calls for more sustainability with measures such as tying executive pay to emissions reductions, writing off long-cycle assets, and setting targets for reaching carbon neutrality.
Spain’s Repsol became the first large oil company to promise to reach that goal by 2050, while Shell aims to cut its net carbon emissions in half by the same year. US independent driller Occidental Petroleum is striving for carbon neutrality through its extensive work on carbon capture and sequestration technology, although it has not set a deadline.
While global coal use has peaked, oil and natural gas will remain central to the energy sector for the foreseeable future, said Roman Kramarchuk, S&P Global Platts Analytics’ head of energy scenarios, policy and technology. Despite a relatively rapid shift in rhetoric and ambition surrounding environment and sustainability, peak oil demand is not expected anytime soon.
“To get there, they have to start turning the supertanker,” Kramarchuk said. “It’s going to take a while for the momentum to shift.”
The future of oil refining
Huge uncertainties loom if an energy transition is to be carried out. Refiners will have one of the hardest puzzles to solve: how to produce more jet fuel and
petrochemical feedstocks to meet rising demand for those products while curtailing gasoline and diesel output, as demand for those mainstay fuels is on track to slow with the rise of electric vehicles, biofuels and other alternative transportation fuels.
“When you’re converting oil, you’re producing all these other products,” Acharya said. “The main challenge the industry needs to confront is: how do I continue to make some of these other products that I would argue are equally important – maybe even more valuable than gasoline and diesel – but do it in such a way that I’m not left behind with all of this product that I can no longer sell?”
Tighter fuel specifications around the world have already forced the refining sector to evolve, with many smaller, simple refineries being forced to close while more complex plants tailor their output to the new standards. Further consolidation is inevitable as governments tighten regulations and demand patterns shift.
“If there’s not as much fuel needed to come from refineries, then it becomes more of a low-cost provider, survival-of-the-fittest analysis,” said Jacques Rousseau, managing director of ClearView Energy Partners in Washington. “You’re going to see a number of refineries end up closing down because they won’t be profitable.”
ARPA-E’s Acharya said transforming the energy economy would also disrupt how markets price commodities.
“Right now, everything relies on crude pricing and the pricing of fuels,” he said. “All of those prices get set in the marketplace. If you have a very different ecosystem where you have a smaller number of products, but they have very different end-uses, how the market prices those to enable them to be made will also be part of this shift.”
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