EY global oil and gas leader on the industry's role in the energy transition

EY global oil and gas leader on the industry's role in the energy transition
Published: 25 September 2019 - 9:45 a.m.
By: Carla Sertin


What should oil and gas companies being doing as part of the energy transition?

I think the role of oil and gas continues to be an essential part of the energy mix. At the moment, there just isn't a technological alternative to a lot of the things that oil and gas is used in. One thing that oil and gas should be doing, though, is thinking about how it gives customers a choice so that it can take more control about the decisions they make on whether they want to consume higher-emission or lower-emission fuels.

At the moment, that is not something that the industry has really been doing outside of a few very limited areas. So it is absolutely essential that the industry stays involved in supplying affordable energy to everybody who needs it. But I think it could offer more choice.

What strategy should oil and gas companies employ as they aim to decarbonise?

If companies want to decarbonise, there are a number of actions they can take. Firstly, they can decarbonise their own operations. They can also reduce greenhouse gas emissions from their own operations. That should be an easy thing to do, and they should be doing that now. Secondly, they should be working actively with their customers on how the use of the end-product can be reduced in terms of its carbon impact. That may mean working actively with renewable providers to work out how gas fits into a grid system. It may mean working with consumers around promoting efficiency, giving people options. The last thing that the industry could be doing is actively looking at technologies that take carbon out of the atmosphere. There have been a number of pilot projects, but there hasn't been a concerted industry-wide push on it. And I think given where we are now, perhaps it is time that the industry, as a whole, thought about doing that.

What is the outlook for oil and gas?

The long-term outlook for the energy mix is uncertain. Nobody can say exactly what's going to happen. When it comes to natural gas in particular, the balance of probabilities at the moment is that natural gas is going to actually have a very bright future, at least over the next 25 years. There is no technologically viable alternative to natural gas to substitute coal, at scale, quickly. And more to the point, quite a few of the big consuming countries seem to have recently made a policy decision to have natural gas in their energy mix. That tends to underpin the growth expectations for natural gas and we've met very few people at WEC who are not very optimistic about the future of natural gas.

Tell me more about the role of natural gas as a bridge fuel in the energy transition.

The biggest carbon reduction activity or action that you can take at the moment is to replace coal-fired generation. There are two options; one is renewables, one is natural gas. At the moment, renewables can't really function without a baseload complement. You have the choice of to go nuclear, or to try and go with battery storage, other storage, or to go with natural gas. There's a natural place for natural gas in that mix. We think that will drive its development going forward. If we look forward, then our expectation is that renewables and natural gas will be the two big winners over the next 20-25 years from changes in the energy mix, and the higher carbon fuels will be the bonds that are less successful. On nuclear, it's very difficult to say where that is going to go. There are major public acceptance issues in many parts of the world these days that is not so much of an issue in certain other countries.

What investment strategies would you recommend for oil and gas companies?

From the work that we have done, everything indicates to us that, at least for the time being, oil and gas companies can make the kind of returns they expect by investing in oil and gas assets. So we do think a core component of oil and gas investment should be to maintain your investment in high quality oil and gas assets. In particular, we think if you can find opportunities to invest in Tier 1 assets, then it is still going to be an economically sound decision to do so. We think the lifespan of gas assets is actually longer, so that is probably more of an economically viable thing to do. I think outside of investing in the core oil and gas assets, if you are going to choose to invest in other areas, then we think the key thing to do is for organisations to be honest about themselves, and where their competitive advantages lie, and let that guide them on which technology they are going to invest in, rather than letting technology lead, because we think success is more likely to come from companies doing what they are good at than trying to move into adjacencies.

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