The new normal with all the uncertainty and the look of the business market post-COVID will define the demand and supply in the future and as a result refining margins. The true impact of the pandemic associated with energy transition is still unknown due to market volatility, remaining uncertainty whilst environmental aspects of the downstream business are being challenged dramatically. The ability to adapt quickly, showing flexibility and utilise assets and feedstock in a more efficient way are vital to achieving a competitive advantage in the current environment.
The transition itself is yet to be defined – there are many factors and variables influencing the situation. A big challenge will be how best to stay competitive during the transition and within a reduced market. Pressures from both internal and external sources are requesting operators to reshape their organisations to produce & market energy in different ways. Great support is needed from all stakeholders in a uniquely holistic way to find a suitable route to finance sustainability and quickly, in order to stay competitive.
Within the industry there are calls for a unified approach - meaning to focus on collaboration to bring together the entire value chain from regulators, financial institutions, and technology providers to stakeholders and customers in a collective forum to address better carbon management.
Decarbonisation
how is it playing out in the region?
Europe is leading the way in the move away from hydrocarbons to other energy types that can provide lower carbon footprint - the world as a whole has become more environmentally cautious over the past year. One additional development to watch closely is the US re-joining the Paris agreement and the effect this will have on the future of downstream. But what of the Middle East?
Uncertainty is a very big challenge for the region with some countries struggling to see a clear path ahead and identifying their role within the energy transition. There is a realisation that the Middle East will need to incorporate into their long-term strategic plans strong measures towards sustainability and decarbonisation, going beyond a 'nice to have' to truly committing to a carbon-neutral agenda. We are at a turning point in the industry with the opportunity to structure an improved and sustainable economic recovery post-COVID.
Policy
to wait or not to wait?
The region needs to look at regulations – set common goals. Companies are currently setting their own targets and agendas meaning the sustainability goals are not unified. Regulation has the potential to give consistency, incentives, and guidance to all involved and deliver a common goal to achieve together to meet regulatory requirements. On the other side, policy is developing rather slowly and the industry needs to act now to support the development of technologies through collaborations to ensure the solution deployed in the future is as cost-effective as possible whilst setting targets and a roadmap to meet the 2050 goals. Any regulation and legalisation that will be implemented will reinforce the strategy set by the industry, rather than drive it.
How is the middle east positioned to address the energy transition?
A recent achievement was made in Saudi Arabia where the G20 Energy Ministers endorsed the Circular Carbon Economy Platform (CCE) as a tool to manage emissions and foster access to energy. The CCE approach includes a holistic, integrated, inclusive, and pragmatic approach to managing emissions that aims to provide new pathways towards economic growth. In addition, just this month, the Saudi and Middle East Green Initiatives was announced as a valuable contribution to tackling the worldwide energy transition. The initiatives include several ambitious projects designed to reduce carbon emissions in the region by 60%.
Across the region, EOR and carbon capture are constantly examined but with the high cost of development along with the low crude price, it is very challenging. The first step for an organization in their transition is to take advantage of the ‘low hanging fruit’ options such as improving energy efficiently, waste management, reducing scope 1 & 2 emissions, to name but a few.
The Downstream Sector is key to delivering the energy transition, with opportunities arising, for example, the move to EVs increases the demand for manufacturing plastics, which in turn increases demand for heavier grades such as carbon black and anode grade coke used for manufacturing materials required in batteries. The Middle East needs to examine the product slate and deliver more flexible products as the region is in an ideal position for global competitiveness due to fewer assets operating in Europe as we approach 2035 and 2050 timeframes – therefore refineries need to make the most of this and position themselves well.
Chemicals are leading by example
The journey ahead for petrochemicals does seem clearer with the adoption of circular economy initiatives. The circular journey for the global producers began in 2009 by setting long-term tangible sustainable goals in response to legal requirements, ISO certification, sustainability reporting, and today’s compliance to ESG as per the latest GRI standards. Continuous benchmarking and implementation of improvement plans, embracing a blockchain system developed alongside innovation centers, and working with partners to establish circular solutions with a holistic view by designing products for recycling and with the end-user in mind, are all vital solutions for competitive advantage.
How can licensors balance uncertain market outlook with a cash restrained business environment?
For licensors during 2020, instead of focusing on new sales and new business, a big focus has been on supporting existing clients with their existing assets – for the most part, this has had to be done remotely due to the pandemic – Licensors have been able to do this successfully and have and provided solutions to improve efficiency and ultimately, reduce operating costs and CO2 emissions. We are seeing more JV’s for example, in petrochemicals many partnerships between waste management companies, operators, and technology providers.
Licensors are no longer developing technology independently but rather together with the customer to fit their requirements. Selections are no longer solely focused on profit but on how sustainable the process will be. The development of a new eco-system of collaboration between the tech providers and customers is already happening.
Collaboration versus Competition
On a global platform, the Middle East is seen as the hub of downstream, but the region has been mostly working separately and collaboration is needed both in a political and an economic sense. A balance is needed between taking the opportunity to unify some of the efforts of sustainability, sharing lessons learned, sharing of resources, and developing strategy with increased competition being the driver towards sustainability. An example of a successful collaboration is the development of EV’s infrastructure.
COVID has certainly accelerated our willingness and drive towards transitioning to a more sustainable future but what are the elements that need to be considered?
Industry has worked hard to become cleaner due to regulations (such as IMO) and top management in the region have important decisions to make with emerging questions such as:
- Will there be integration between the oil sector and green energy such as hydrogen and will be there a competition?
- What will happen to the oil if we turn completely to green energy? Is it possible to make oil into a clean energy source?
Digitalisation of the industry – how can technology help address energy transition pressures?
There has been an acceptance of digital transformation in the region with innovation developing solutions in machine learning and artificial intelligence, but it is taking longer than anticipated due to the high volume of data and the need for true integration throughout organisations. Digitalization is an enabler for the energy transition with investment in 4IR key to producing energy responsibility and efficiently whilst working towards UN SDGS.
In summary, the industry is at a turning point with a huge opportunity to structure an improved and sustainable economic recovery post-COVID-19.
Interested in these topics and more? Join ESF MENA 2021 – Middle East Energy & Sustainability Forum taking place from 24-26 October in UAE. ESF is the only event dedicated to downstream decarbonisation and sustainability. For more information, please visit esfmena.europetro.com
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises leading conferences worldwide.
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