In conversation with Asia Pacific’s CEOs
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We hosted the CEOs of PETRONAS, Santos and Medco, the chairman of Indian Oil Corporation, and many other senior executives from a range of leading oil and gas companies, utilities and banks over two days at our Asia Pacific Energy & Commodities Summit last month. There was a lot to talk about.
Asia’s recovery is supporting gas demand
Let’s begin with the fundamentals. Yes, of course 2020 has been tumultuous, with huge demand loss. Full recovery will take time, and across our speakers, consensus was that the pandemic will serve to accelerate investment in new energy. But as the PETRONAS CEO reminded us, don’t write off gas demand growth in Asia, with gas remaining essential for decades to come. There just isn’t an alternative yet.
It's fair to say there’s something of a contrast in strategic thinking between oil and gas company CEOs in Asia Pacific and Europe towards the pace of diversification into new technologies. But while most in our region aren’t feeling quite the same pressure to transform from governments, shareholders and customers, all recognise the importance of addressing Scope 1 and 2 emissions within their own operations, and investment in new energy is starting to happen: PETRONAS announced its 2050 net zero emissions aspiration just last week.
But future gas supply must be cleaner
OK, so try finding a CEO in Asia Pacific who doesn’t love gas. Addressing carbon emissions and urban air pollution are key policy goals across the region and displacing coal with gas is central to this. But ESG is very much on the agenda for governments, companies and customers across Asia Pacific, putting gas’ emissions intensity in the spotlight. Liquefaction is a focus.
And companies across Asia Pacific are responding. Embracing ESG and setting out plans to tackle carbon using renewables to power their projects and CCS to reduce emissions are important parts of the industry’s efforts to advocate for wider gas usage across the region.
Regional upstream investment – down but not out
Across Asia Pacific there is still upstream resource to be developed - primarily gas - and the demand story and rising import dependency support this. While a lack of scale means that many opportunities will not suit Big Oil, capital markets are still supportive of the right investment that works at the right price.
The region’s NOCs are being backed by governments (and also state banks) to continue investing; meeting demand is still a priority. Where CEOs in Asia Pacific increasingly align with their European counterparts is in recognising the need to reshape portfolios around least cost assets with lower carbon intensity. And where the footprint of pre-development gas assets is more challenging, carbon sequestration solutions are becoming more important.
Asia’s technology pathway
It was interesting to hear Santos’ CEO talk about how the Australian government is incentivising investment but keeping this “technology neutral”. We know that solar and wind can work at low cost and that CCS technology is proven but many more technologies remain nascent and uncommercial.
This inevitably led us to numerous conversations on hydrogen. Most agree that costs will reduce, and that the rapid growth in renewables and the wider use of CCS supported through carbon pricing will incentivise investment in an industry that offers so much potential. There is also likely a key role here for oil and gas companies, given their technical and transportation experience and access to customers. But most also agree this is a long transition and that gas will play a critical role in this journey.
Another fascinating option that appears particularly suited to India is biodiesel. Talking to the chairman of Indian Oil, he clearly sees biodiesel as a significant part of both India’s future energy mix and as a means of reducing oil imports.
Asia’s decarbonisation will be led by China
Unsurprisingly, several discussions centred on China and what the recently announced 2060 target for carbon neutrality means for energy supply, price and future investment. Much will depend on the pace of technology adoption, policy support and the timeline for implementation but the upcoming 14th five-year plan will be a crucial document – perhaps the most important in energy market history.
Following China, net-zero targets are now being set by other countries and companies (Japan and South Korea both announced theirs after our summit). The challenge for the region and the companies that operate here is how this will be achieved. It will take time – likely a decade or more – for investment in the zero-carbon value chain to really start to alter Asia’s energy balance. But as the business leaders at our Energy & Commodities Summit 2020 were keen to emphasise, the journey is underway.
Here is the link to the plenary sessions of the Wood Mackenzie APAC Energy & Commodities Summit 2020.
APAC Energy Buzz is a blog by Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson. In his blog, Gavin shares the sights and sounds of what’s trending in the region and what’s weighing on business leaders’ minds.