Energy Transition: The Challenges to Transform the Supply ChainBy Luis Vielma Lobo | Tue, 03/22/2022 - 09:00
(Since 2015, supply growth to sustainable levels has been based on unconventional field developments, mature fields enhancing oil production, advances in natural gas exploration and demand, and renewables, along with improved efficiency on the customer side. These developments will change the outlook and projections for the next decade for the oil and gas business. In addition, significant reductions in companies' CAPEX on new projects and the deferral of ongoing projects over the past two years have affected the market and created a different path for demand.)
Climate change has become a reality. It is not only a regional issue but a global problem, with dramatic environmental consequences, such as aggressive storms, forest fires, floods, and hurricanes, among other extreme situations. The 2015 UN Climate Change Conference, held in Paris, established a global framework to limit global warming. More recently, the 2021 COP26 in Glasgow laid the groundwork to build a bridge between the intentions of the largest major countries and measurable actions to decrease carbon emissions, providing the necessary financial support to achieve rapid reductions.
For the past two decades, the world has been talking about the need for an energy transition strategy and calling for greater involvement of governments and hydrocarbon companies to lead the shift to cleaner energy sources. Despite this constant plea, global energy projections from the International Energy Agency (IEA) and the major oil and gas companies — ExxonMobil, Shell, BP and Chevron — predict that fossil energy will continue to dominate the market share of global supply for the next two decades. However, the extraordinary technological advances of wind and solar power toward reducing their production costs and becoming a competitive player in electricity generation and storage must be recognized.
This evolution of cleaner energy sources will continue, and the demand for hydrocarbon-based energy will remain for the foreseeable future, but technology will play a critical role in driving a radical transformation in the production and generation of renewable energy. Keep in mind that the Oil Age will not end because of a lack of oil, just as the Stone Age did not end because the world ran out of stones, as Sheikh Ahmed Zaki Yamani said in the 1970s.
The oil and gas industry faces a major challenge in managing the transition from hydrocarbon production to cleaner options, hence the importance of establishing a vision and sharing it with the global community; however, implementing a change in the value chain is another matter. It seems that an immediate step will be the use of natural gas as a source to generate hydrogen, because it will represent a simpler approach to review the supply chain and understand the life cycle to determine, in a scientific way, the differences between the processes and technologies to manage the different types of energies.
This technical issue is unique because supply chain analysis must include modern digital systems to optimize the speed and consistency of processes and, more importantly, to protect them from cyberattacks, now considered the most important threat to the industry. In addition, automation processes must be reviewed and modernized to improve security of site operations, data transmission, facilities, and pipelines.
Today, we are more aware of the importance of the role of hydrocarbon companies in leading the energy transition processes to reduce carbon emissions from fossil energy production, and initiating the migration to renewable energies, transforming their core business processes, by using digital technology and changing the priority of gas development in their portfolios to become hydrogen producers and thus be protagonists of this remarkable change to have a more sustainable world, as a legacy for future generations.
We would like to believe that Mexico and PEMEX are taking the right steps to move in this direction. Recent changes in the company's organizational structure seem to be moving in that way. The inclusion of an ESG (Environmental, Social and Governance) organization to have a particular responsibility in this matter is a small step in the right trend. But more serious steps still need to be taken in terms of supply chain transformation, first to reduce carbon emissions and then to lay the groundwork for the energy transition. A good message could be for PEMEX to finally decide to give gas production and processing the priority it deserves. The country needs more production to reduce the volumes of gas being imported from the US, and to continue helping the Federal Electricity Company (CFE) to migrate toward the use of gas as the main fuel for electricity generation, replacing the use of fuel oil and diesel. There is also the importance of having subsurface natural gas storage facilities that will allow the country to improve its energy security. Finally, by reviewing the supply chain with a different vision as an energy company, gas will also establish the initial steps to evaluate the feasibility of producing nitrogen and initiate an outstanding change in its purpose.