Today, at the Driving the global energy transition panel, part of the two-day Citizens Energy Congress event, Lorenzo Simonelli, Baker Hughes Chairman & CEO, and Prof. Jeffrey Sachs, Director at the Center for Sustainable Development, shared their perspectives on crucial topics surrounding the energy transition.
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Addressing both an industry and academic standpoints, they talked about the climate flag in the oil and gas industry, whether we’re living at an inflection point, and the new social contract between big oil producers and stakeholders, among other topics.
The climate flag in the oil and gas industry
With several oil majors recently pledging to make significant emissions reductions in less than a week -including Shell, bp, Total, among others-, it is clear that the climate flag has become to be targeting oil. In this sense, many industry experts wonder whether we are witnessing a critical inflection point for big oil or whether this is a short-term investment trend.
Accordingly, Lorenzo Simonelli said that the industry is indeed seeing an inflection point, but in any case, it is only a part of an energy transition journey moving forward. Moreover, he noted that as a result of the pandemic, this process considerably accelerated.
Indeed, “what we’re seeing today is a combination of a number of factors coming by that have been proceeding in the last few years,” said the CEO.
Therefore, Simonelli pointed out that at Baker Hughes, they have identified three truths surrounding the energy transition; ones that are indeed coming to light, he said. First, the company acknowledges that the industry needs to accelerate the pace of change and address the energy transition.
Second, the CEO highlighted that the energy transition is not about hydrocarbons alone; it’s the emissions. Besides, he said that hydrocarbons will be here for a number of years to come and will be very important as we have access to more affordable, reliant, and sustainable energy sources. Lastly, Simonelli recognized that the energy industry will need to rely on an increased number of partnerships between companies, organizations, stakeholders, etc.
An inflection point
Similarly, Prof. Sachs, who is also President of the Sustainable Development Solutions Network, recognized that 2021 will be regarded in retrospect as an inflection point. Particularly with the new Biden administration, which is bringing the US back to the global diplomacy of the Paris agreement, “we’re really reaching the understanding that we need to do this transformation for global safety.”
Besides, “that we have the technology and the means to do it,” continued Mr. Sachs.
Regarding the recent shift from oil majors to further pledge more net-zero commitments, professor Sachs said; “Those laggards (including Chevron and Exxon) have found that they could have not even resisted their own shareholders.”
With the recent Dutch court ruling on Shell, pushing it to compromise more on its decarbonization plans, and the cancellation of the Keystone XL pipeline, investors have come to an understanding that the industry has to change.
Accordingly, continued Mr. Sachs, “all eyes are looking to COP 26 in Glasgow in November. Therefore, I expect that to be a diplomatic moment in which the whole world essentially will say, we get it.”
What can oil majors do to make the energy transition a reality?
Regarding what oil and gas companies can do to better integrate into the energy transition pathway, Simonelli mentioned three ways in which Baker Hughes and its companies – for instance, Gaffney Cline, and others – are addressing the issue.
First, the company is doing it by leveraging efficiency to reduce the carbon footprint from hydrocarbons today. Second, the CEO referred to the use of existing technologies which can already limit methane emissions. Consequently, many companies in the sector can actually look towards Carbon Capture, Utilization, and Storage (CCUS) technologies.
Lastly, Baker Hughes is looking to divert its operations into the increasingly varied energy mix. There, the potential of other energy sources like hydrogen and fuel cells is emerging. Thus, Simonelli highlighted that some hydrocarbons will still be crucial in this energy transition process.
“I think that gas, in particular, is very important to go through this transition. Besides, we cannot neglect the fact that a lot of energy is still required by the world population,” said Simonelli. Therefore, Baker Hughes will deal with this new social energy contract between oil and gas companies and communities, by being socially responsible.
“It all comes down to be socially responsible. In Baker Hughes, we came with a net-zero commitment in 2019; and we’ve implemented ways and strategies to lower our own carbon footprint within our manufacturing locations. We’re also developing digital remote operations to decrease the footprint of our operations.”
How far away is this energy transition future?
Finally, the experts discussed the extent and speed to which this transition will happen globally. Accordingly, Prof. Sachs recognized that Northern Europe (Sweden, Denmark, Norway, Finland) is 20 or 25 years ahead in the energy transition; however, some other regions have fantastic potential to advance in that pathway.
For instance, he mentioned Africa. Although many people still lack access to electricity there; the continent itself has the vast majority of solar energy sources in the world. Similarly, region after region of the developing world, we can find plenty of sunshine and hydro potential, Prof. Sachs said.
Similarly, Mr. Simonelly said the energy transition’s development will be different depending on geography and economics. For instance, he recalled, we have coal plants being created in China and hydrocarbons to be utilized.
In this regard, he acknowledged; “It’s not the fuel type, but the emissions that need to be reduced with technologies as we evolve into smarter energy solutions.”
CORRECTION & UPDATE – GE Oil & Gas is not part of Baker Hughes – it no longer exists and Baker Hughes is an individual portfolio.