COP26: the oil and gas predicament

If COP26 could not do much against oil and gas, the recent high prices have done the deserved or undeserved damage to the future of oil and gas. Renewable lobby has always considered low oil and gas prices to be a bad news, as it makes renewable uncompetitive and the drive to phase out fossil fuels goes into the back burner.

Renewables like solar and wind power cost have come down independent of oil and gas prices and more improvement is expected in the future. It cannot be undone. Coal will be replaced by solar and wind power, oil by electricity and the advent of EVs (electric vehicles). Natural gas will be replaced by hydrogen and biogas. Hydrogen technology development and reduction in the cost of production is taking place in the same fashion as has happened in the case of solar and wind power. Hydrogen is expected to become competitive with oil and gas by 2030 or even earlier, although infrastructure issues may delay its wider adoption beyond 2030.

If there was a consensus in the COP26 Glasgow Conference, it was against coal. Coal has been saved partly by the last minute intervention of India and China, as they could manage to push the last date for coal to 2060. Former Dutch minister for climate, energy and utilities Dan Jorgensen declared: “There is no future for oil and gas in a 1.5-degree world.” Coal resources today stand at 300 years of consumption requirement, oil for 50 years and gas for 150 years.

Recent research suggests 89% of coal and 59% of gas reserves need not be developed at all if there is even 50% chance of global temperature rise staying under the crucial limit of 1.5-degree Celsius this century. Beyond Oil and Gas Alliance has been formed to put an end date to the oil and gas production, although major oil and gas producers have stayed away from it. Prominent among members and associates are France, Sweden, Denmark, New Zealand, Italy and California. Although there is no firm commitment to phasing out oil and gas other than wish lists of environmental think tanks, it has been projected that oil demand will go down by 25% due to two factors – increased fuel efficiency of automobiles, and EVs.

Oil demand from the automotive sector is not more than 20-25%. However, EVs may cause an increase in power demand, which may be partly supplied by gas in addition to solar and wind energy. For developing countries, the pace of actual or demanded changes in the context of climate and decarbornisation targets is creating difficulties for the poor countries. The brighter side of technological changes is in favour of advanced countries that have the resources and knowhow, as the technological changes create new market, investment and employment opportunities. Developing countries have none of these.

They are facing the dilemma of “damned if you do and damned if you don’t.” One has to go with the flow. One cannot defy the international power regime, besides there is common interest and destiny in climate change. The most important is the prospects for stranded assets. It takes a lot of investment to build infrastructure and it is not easy to retire these without full utilisation and benefits, otherwise the contribution of infrastructure becomes negative, ie the rich can change cars frequently and with ease, while the poor prefers running his car for much longer.

Fortunately, there is talk about using gas pipeline infrastructure for carrying hydrogen as well, albeit in a mixing mode up to 10-15%. Already, experimentation has become successful in Europe in this respect. In the case of adopting EVs, there are options of converting the existing cars, motorcycles, buses and trucks into EVs. Thus, hybrid solutions may be possible and should be the cornerstone of developmental and infrastructural policies of the developing countries.

Dependence on oil, gas in Pakistan

Pakistan’s gas sector demand stands at 6 billion cubic feet per day (bcfd) and is growing. It meets the residential, commercial, industrial and fertiliser needs.

Oil is mostly supplied for the transport sector. There is a progressive policy for the adoption of renewables and EVs. The dependence on oil and gas would remain for a long time in future. Our problems are manifold, though they are of our own making. When we start developing our resources, the sound bells of NO start ringing. When we started developing Thar coal, the world has started moving away from it and is asking us to do the same. We switched to gas and LNG from furnace oil, but gas has become expensive and has supply problems.

We don’t know what we would be doing with our gasfired combined-cycle power plants. IGCEP predicts that it would not be able to utilise these plants beyond 2025. This has created problems in the way of privatisation of these plants – a case of stranded investment. A big question in our energy sector is that our gas resources are decreasing. Foreign exploration and production (E&P) companies are not showing much interest despite road shows. Our own companies like PPL are going abroad instead of investing locally – a pessimistic indicator for all.

Self-reliance appears to be the only key. It is difficult to expect foreign investment in oil and gas in the wake of domestic political uncertainty and general talk about longterm oil and gas going out of market. They would rather utilise the known high-potential areas than investment in low-potential areas. There is a reasonable oil and gas policy, which grants reasonable incentives. However, it may have to be improved further by reducing upfront costs.

Investments should be made in geological investigations and data acquisitions, which would reduce the upfront time for actual field activities. A review of the wellhead gas pricing formula for new gas finds may be in order as well, after all we are paying much higher prices for LNG imports. Self-reliance is the key in these circumstances, which ironically would also require external inputs. Alternative energy can be a good route to self-reliance, which should be maximised.

While there may be limitations to how much variability can be taken by the grid and when affordable electrical storage would be available, non-grid based solutions should also be developed. Biogas can meet CNG and rural gas demand amply. Hydrogen is coming up fast. There have been recent developments promising a costcompetitive hydrogen. R&D should be initiated in this respect. Thar coal use should be maximised and other nonelectricity uses should be pursued; the latter is perhaps the easiest solution to date requiring mining and transport infrastructure only. Thar coal gasification should be pursued as long as the little window for it remains available.


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