Editor’s note: The opinions expressed here are those of the author and do not necessarily represent those of AAPG’s leaders, membership or staff.
I have the honor of leading the executive secretariat of ARPEL, the Association of Oil, Gas and (as of lately) Renewable Energy Companies of Latin America and the Caribbean. ARPEL is a key factor in the development and transformation of the oil and gas sector of our region. We foster cooperation and coordination on strategic and operational aspects among our member companies, and with sister trade and professional associations (such as AAPG), governments, regulators, academia and other stakeholders.
ARPEL held its 6th conference in Lima, Peru of three days in November, with about 460 registered participants, including 60 speakers and 15 regional company CEOs. Fittingly, the theme of the conference was “advancing the transformation of the region’s O&G sector in times of energy transitions and new risk dynamics.”
The legendary Daniel Yergin, vice chairman of S&P Global, opened the conference with an evening fireside chat about his thought-provoking global energy and geopolitical risk perspectives. The next day’s presentations were dedicated to oil and gas supply, zooming from global to regional. We began with exploration and production opportunities for oil and gas, both from the perspectives of operating companies and of the national hydrocarbon agencies. We paid special attention to gas as the “natural” transition fuel. We also visited the challenges and opportunities faced by the region’s refining sector, including reconfiguration and electric mobility. In both the upstream and downstream sessions, we focused on decarbonization of operations, energy security and regional integration.
The last day centered on all aspects of holistic sustainability: of the natural-social ecosystem, of our economies and, not least, of our industry. We discussed issues on climate change, energy transitions, compliance, transparency, digitalization, cybersecurity, stakeholder engagement,and our human talent. The crowning block was a series of three CEO panels on actions and initiatives to transform their companies.
These rich discussions led to some of the conclusions that follow:
Different Paths to a Common Future
Why energy transitions?
Because limiting global warming to the 1.5-2 degrees Celsius range (1.5 already seems unattainable) will require drastic changes in the planet’s energy matrix during the next three decades.
Why the plural?
Because one model doesn’t fit all. Transitional paths must be just and tailored to each country’s energy supply, development and social situations.
Because our region’s energy matrix is the cleanest. As an aggregate, 34 percent of primary energy is non-fossil, while the global average is 17 percent. Our matrix is only 5 percent coal, compared to 27 percent globally, and our emissions are marginal compared to the rest of the world’s (8.3 percent total, of which only 3.6 percent comes from energy). Meanwhile, one third of our regional population falls below the poverty lines and 15 percent is extremely poor, according to the Latin American Energy Organization, BP Statistical Review and World Bank.
Regions that have reached an enviable level of economic development while leaving in their wake a disproportional and disastrous externality for the entire planet to suffer should not preach to the poorer regions. Our governments have the right and the moral imperative to develop and use their hydrocarbon resources sustainably and equitably, to address both economic and energy poverty as well as climate change.
Notwithstanding the above, global warming affects us too, particularly our coastal and insular nations. Being “greener” is no excuse to slacken our efforts to combat a global problem.
As a regional energy industry, we are clear on the urgency to transition. We have decisively embarked in our transformation, actively decarbonizing our operations and diversifying our energy matrixes with renewable energy sources. Many of our regional and national oil and gas companies have adopted net zero targets and are venturing into solar, wind, geothermal, lithium mining, blue and green hydrogen and reforestation.
We Remain Essential
In a real-time survey we discovered that roughly one third of conference participants were skeptical about the feasibility of engaging in just energy transitions and reaching the Paris Agreement goals. Surely, the aggregate of national contributions by 2030 does not show a sufficiently drastic reduction in the use of fossil fuels and this is due, in part, to the lack of clear political and regulatory frameworks. Sadly, emissions are still growing and making more strenuous any carbon capture or sequestration targets necessary to offset them.
Renewable energy technologies such as wind and solar are evolving spectacularly and becoming cost-competitive, but they have launched from a very modest basis and only contribute about 7 percent to the global primary energy matrix today. Investment in cleaner energies should be at about $3 trillion annually, and we are dramatically far away from that.
To contribute to the paradox, our planet is estimated to have reached 8 billion tenants recently. This demographic growth, albeit decelerating, will continue. Economic and demographic growths get compounded in energy demand growth. We all need access to water, food, shelter, health, education, transportation, communication, jobs, safety, security and dignified standards of living. All of these require energy.
For better or for worse, there is no energy demand scenario – not even the most aspirational about decarbonization – that precludes the need for oil and gas. This creates for us an unavoidable tension between ameliorating climate change and providing a sufficient, physically- and economically-accessible, safe and reliable energy supply. Just focusing on oil, and according to Rystad Energy, 63 million barrels per day must be added globally from new wells by 2030. Are we investing enough? Are we exploring enough?
Our region is positioned to increase its share of hydrocarbon supply to help satisfy this growing global demand with our ample hydrocarbon resources, including some of the hottest plays on the planet, like the pre-Salt in Brazil, Vaca Muerta in Argentina, and the equatorial margin fairway in Guyana-Suriname. There is additional potential in offshore Argentina, Mexico, Colombia, Trinidad and Tobago, and (the elephant in the room) Venezuela.
In particular, the proven technology and existing infrastructure of natural gas can play a key role, as it provides a cleaner and reliable matrix basis that is synergistic with interruptible renewable energies. Natural gas use should be massified throughout the region and any surplus exported to energy-hungry markets. Refining will also continue to be necessary and must up its game with more efficient configurations that accept biological diets and offer higher value-added products.
But beyond exploration, production and refining, the intersections between energy security, energy transitions and our industry’s competencies generate new opportunities. There is room to leverage our competencies in the renewable energy space and to acquire new ones.
Our Wheel of Sustainability
How can we respond to our challenges and benefit from our opportunities to supply energy sources in a sustainable way?
Sustainability is a live process that should be understood holistically.
It starts by improving our operating efficiencies and decarbonizing our operations, assisted by our digital transformation. It demands respect for the physical and social environments, including local cultures and human rights. It requires transparency, compliance and capital discipline as keys to accessing debt financing and equity capital. It calls for recovering our reputation and strengthening our brands, not only with our customers and other stakeholders, but to attract and retain our human talent. We need to address ethnical, cultural, social, gender and generational diversities and correct any systemic inequities.
A sustainability strategy, like any other strategy, is not only about doing things right, but about doing the right things. But, corporate culture follows unwritten rules that often differ from those formally stated. Energy transitions, sustainability and diversity must be ingrained in the organization. To achieve this, they must be visibly championed by committed management teams and believing boards of directors (for example, can a non-diverse board understand diversity?), as well as buttressed by a robust governance structure and reward system.
Communication is Key to Social License
We might see “peak demand” but we will not see the end of the oil age in the conceivable future, because we are talking about a transition, not a replacement.
But how do we explain to the uninitiated the apparent paradox of the societal demand of increasing our production while addressing climate change? Pragmatism and realism require communication.
Communication is another live process – the cornerstone of stakeholder engagement. Our stakeholders are our owners, past, present and future employees, families, customers, governments and regulators, and our societies at large. Apparently, we haven’t been doing it well enough, because after more than a century of being the linchpin of dramatic material, economic and social development, we are now demanded to renew our social license to operate.
Acknowledging that we can communicate better is a first step, but we need a plan for doing it better. For example, we must stop saying “we have to educate the public” (patronizing). We need to engage, listen and register their concerns and apprehensions, which doesn’t imply our acquiescence. And we must rejoin in plain and succinct language, with arguments based on solid facts and data, supported by simple yet eloquent visual aids.
Some self-criticism seems timely: our conferences are like echo chambers, cathedrals of cognitive resonance, because we preach to our choir of the faithful. What about listening to dissonant voices and conversing with them?
How about listening to panels of the young women and men whom we are trying to attract or retain with jobs designed for prior generations of mostly males with different values and life priorities than theirs? We need young professionals, technicians and administrators to replenish our human talent. They grow in a world that communicates virally in 280 characters and demands a better life-work balance. They will not be attracted to an industry if it seems Mesozoic and insensible to climate, gender and generational issues.
Communication is a journey that must be traveled cooperatively. ARPEL, through its newly created Communication Committee, will seek to develop a common narrative with its member companies in Latin America and the Caribbean.
We feel compelled to tell our side of the story, and we have the skills necessary to transform ourselves into an industry that can continue to supply our societies’ energy needs in a sufficient, reliable, accessible and environmentally sustainable way, while leaving a cleaner footprint and providing cleaner energies – an industry of which we can continue to be proud.