There’s an old adage, attributable to either Don Huberts, head of Shell Hydrogen, or Ahmed Zaki Yamani, who was the minister of petroleum in Saudi Arabia for decades, that “the Stone Age didn’t end because we ran out of stones.”
What does this have to do with oil and gas?
According to Carlos Garibaldi, executive secretary of the Regional Association of Oil, Gas and Biofuels Sector Companies in Latin America and the Caribbean (ARPEL), plenty. He said it’s a sentiment that should be both reassuring and motivating to those in the oil and gas industry, especially as the future energy landscape is so in flux. Garibaldi, who has more than 40 years’ experience in the energy sector, mostly in the Caribbean and Latin America, said, “Stones continue to be quite useful to this day, just not as hand tools.”
We will still have oil and gas. We will still need oil and gas.
Aside from keeping and training professionals in new technologies, decreasing retention rates, a drop in students majoring in the geosciences, and the “Great Crew Change,” the oil and gas industry is, however, facing fundamental questions going forward — not the least of which is what will become of it. Garibaldi believes companies will have to rethink everything from their core identity to what the new logo will look like at corporate headquarters.
“The change is one of substance,” he said of what’s coming, “but it is indeed also driven by the negative connotation of hydrocarbons in the popular psyche,” which he said can be seen, for instance, in how natural gas is viewed by those who “throw it into the same dirty bin as coal.”
He is quick to point out, as many in the industry have, the improvements in quality of life brought about by oil and gas-based products through the decades, including those from fertilizers and pesticides that make it possible to feed a growing world population, to providing essential goods and services that sustain lives, to advances in electricity, heating, transport, pharmaceuticals, paints, engine parts, computers, appliances, tires, paper, packaging, clothing and furnishings. The oil and gas industry should be proud of that, but he doesn’t think it has been successful in selling or articulating its history.
“This is partly our fault, because we have been quite ineffective communicating to the broader public and pushing through our side of the story. We must stop saying ‘we have to educate the public’ because it’s patronizing. After over a century of motorizing an outstanding economic and social transformation for humankind, we find ourselves now in a position of having to renew our social license. To achieve this, we have to be transparent and communicate better,” he said.
As an example of a company that began the process of re-identification, he brings up BP, which he calls a “pioneer of the trend” in changing both its name — British Petroleum to Beyond Petroleum — and its mission.
Of that change, he said, many in the industry were at first skeptical.
“They thought it as aspirational or perhaps even as paying lip service (but not backing it up with relatively substantial capital commitment). But it has now clearly evolved well beyond P.R.,” said Garibaldi.
He thinks many professionals are committed to the new energy horizon, “albeit their investments in decarbonization and in renewable energies could pick-up their pace.”
Garibaldi’s organization, ARPEL, prides itself on the integration, operational excellence and sustainable development of the oil, gas and renewable energy industries through cooperation among members and collaboration with its main stakeholders, as well as the public.
“Industry professionals need to engage, listen, and register their concerns and apprehensions. This doesn’t imply our acquiescence. And we must rejoin in plain and succinct language with arguments based on solid facts and measurable data, supported by simple yet eloquent visual aids,” he said.
Not only will it be a more effective way to change some of the negativity, doing so will help attract and retain younger generations of scientists, professionals, technicians and administrators.
The messaging is already happening, albeit at different speeds and intensities. He said American majors are seen to be committed to protecting and even growing their core oil and gas businesses, diversifying their energy portfolios.
“It seems to be working best in the European flagship companies – TotalEnergies, Equinor, BP, Shell, Repsol, Eni – and In our Latin American and Caribbean region, in (state-owned enterprises) of net energy-importing countries with vast middle classes (Ancap, Enap, Recope, etc.), and even in SOEs of self-sufficient or net hydrocarbon exporters (NGC’s National Energy, Ecopetrol, YPF).”
He said, in the long term, all players in oil and gas see the writing on the wall and know the transition to “energy” companies will be a delicate balancing act between providing energy security and responding to climate change mitigation pressures.
There will, of course, be fundamental shifts and unintended consequences along the way.
“Selling electrons instead of molecules is a radically different business, often with price regulation and lower profit margins,” said Garibaldi.
Bankers, investors and shareholders will need to adapt, as well.
And that ultimately means divesting from “dirty” assets to improve decarbonization scorecards.
“They often go from companies with strict operational, EHS (environment, health and safety) and ESG (environment, social license to operate, governance) standards and under tight scrutiny of security regulators, shareholders and often end-product customers, to more opaque operators. The end result is thus dubious, to say the least,” he explained.
Substance of the Transformation
Garibaldi presented at the recent Energy Opportunities conference in Mexico, taking part in a session entitled “What’s in a Name? Transforming from Oil and Gas to Energy Companies.”
The transformation, he projects, will:
Start with the low-hanging fruit: improving energy efficiency, minimizing venting, flaring, detecting and eliminating methane leaks, recovering vapors, electrifying and transforming digitally.
Next, it will leverage legacy competencies into more natural gas in the portfolios, including liquefied natural gas, along with carbon capture utilization and storage, biofuels, geothermal, blue hydrogen and offshore wind.
Companies will Integrate refining and petrochemical segments and adapt to blending with renewable feeds. The transformation will also entail diversifying energy product portfolios further by incorporating competencies for wind, solar, lithium mining, second generation biofuels, green hydrogen, reforestation.
“Overarching all of the above: monitoring, measuring, reporting with transparency, communicating, which,” he reiterates, “requires listening first.”
Garibaldi said there is no turning back and doesn’t see a future for those who stay put.
“From a Darwinian perspective, those who adapt faster should have better chances of survival.”
As for the elephant in all the rooms, both within the industry and outside, he said the matter of global change is settled.
“We are well beyond the point of buying-into global warming and the need to transit to renewable energies,” he stated.
He says the journey will be “fraught with dilemmas, tough choices and risky bets of hits and failures” and believes it will be “surrounded by growing and militant societal awareness, economic and geopolitical dynamics, and subject to tighter boundary conditions.” In short, industry leaders will require pragmatism and agility.
But that’s what CEOs get paid for, he added.
“It is the essence of survival/growth strategies: what to continue doing (but better), what to stop doing, and what to start doing,” said Garibaldi.