Fire Juggling In The Energy Sector: Part 2

By Dr. Lorraine Sobers

News Americas, NEW YORK, NY, Mon. June 27, 2022: Last week we looked at the “fire juggling act” between renewable energy development and natural gas development with a regional outlook. I suggested that Guyana and other CARICOM countries can reduce their low carbon development costs and risks while seizing the opportunity to support regional development. To this end, Guyana can leverage on current CARICOM initiatives established for collaboration and cooperation in the low carbon future.

It is useful to reiterate here, “Should Guyana decide to begin gas exports within the next decade, early discussions with CARICOM neighbors can be advantageous… The alternative course leads toward a vicious cycle, blindly funneling billions of dollars to back to developed countries instead of creating opportunities for local and regional development and self-sufficiency.”

This week I will take a closer look at two more “fire clubs” that the energy sector must handle expertly to navigate current and increasing demands of investors and consumers. It is not enough for a company to operate safely and profitably. Investors are making deeper demands for environmentally and socially responsible operations that align with their ethos. This third fire club, collectively known as Environment, Social and Governance (ESG) criteria, is followed by a fourth fire club, decarbonizing heavy industry and petrochemical sector.

The Environmental, Social and Governance (ESG) Criteria

ESG criteria are a set of standards used by socially conscious investors to screen potential projects for investment. These standards influence the allocation of funds and management of operations. At present there are institutions that have decided to exclude the fossil fuel sector from their investment portfolio and divest their fossil fuel holdings, regardless of their profitability. In short, fossil fuel production and development in Guyana may be a stumbling block to environmentally conscious investors — this  cannot be completely ignored.

The topic of ESG was raised at the T&T Energy Chamber Conference earlier this month with the question, “Is the ESG criteria simply an outlet for corporate greenwashing?”  A panel of senior energy managers representing upstream operators, service companies and downstream petrochemical producers all agreed that this is not so, net zero ambitions are affecting their decision-making. For Guyana this means that not only its socio-economic development must be factored into plans. The country’s attractiveness to environmentally and socially conscious international investors can also determine its ability to compete for foreign direct investment.

The basic premise of the ESG criteria, first introduced in 2004, is that if capital markets treat ESG in the same way as monetary performance indicators – revenue, profits, dividends — then the marketplace will favor sustainable development. So far this is proving to be true. In the last decade there has been consistent growth in ESG-mandated funds from 11% of professionally managed assets in 2012 to 26% in 2028. By 2025, the professionally managed ESG funds are predicted to reach US$34.5 trillion, that is 50% of US managed monies. By the time Guyana exceeds production of 1 million barrels of oil per day in 2027, less than half the global professionally managed funds will be investing in fossil fuel production.

Meeting ESG standards adds complexity to the energy transition while companies and countries are challenged to meet financial objectives. These challenges call for innovation and new approaches to doing business. Oil and gas producing countries have taken several approaches which include setting net zero emission targets, reducing carbon intensity of operations, investing in carbon capture and storage (CCS) projects, investing in renewable energy and hydrogen.

How does Guyana stack up? Guyana points to its maintenance of a high percentage of forest cover and the lowest deforestation rate which stores roughly 20 gigatons of carbon, that is, approximately 2/3 of global annual emissions. Secondly, the planned switch from fuel oil to natural gas and renewable energy for power generation reduces its carbon intensity of operations and thirdly CCS, if feasible, may eventually come to Guyana through upstream operators in their attempt to achieve net zero targets.

Decarbonizing heavy industry and petrochemical sectors

The fourth and final fire club to be handled is the decarbonization of heavy industry and petrochemical sector. These industries are inherently carbon intensive. For example, the petrochemical sector accounts for more than half of Trinidad and Tobago’s carbon emissions. With a relatively small population of 1.4 million, Trinidad and Tobago has consistently ranked in the top ten global CO2 emitters on per capita basis for over 15 years. Carbon dioxide is a by-product using natural gas feedstock in high-volume manufacturing processes. Apart from power generation, most forms of natural gas processing and utilization will typically increase carbon emissions.

Guyana has not yet entrenched itself in heavy downstream industry and the development of a petrochemical sector is at the very early stages of consideration. However, newcomers like Guyana will have to consider CCUS and leveraging on existing strengths of the industry from the onset to competitively deliver low carbon fuels and green petrochemicals, such as ammonia and methanol. New plants can be competitive if cost savings can be realized at the design stage.

The BloombergNEF research group predicts that with declining cost of CCS and electrification it will be possible to experience growth in petrochemical production without jeopardizing net zero targets. However, the global petrochemical sector will need approximately $760 billion for new plants and retrofits. This represents almost 1% of $172 trillion bill for decarbonizing the global energy sector by 2050.

Guyana’s Low Carbon Development Strategy (2030) (LCDS) very briefly mentions decarbonizing as “lower carbon innovation” for renewable energy in oil production, CCUS and green hydrogen. With the political will and attention it deserves,Guyana can rise to the challenge of a net zero future, as UN Resident Coordinator, Yesmin Oruc, at World Environment Day outlined:

“If those [LCDS] targets are achieved, it would see the country meet a tenfold increase in demand for electricity by 2040 whilst retaining greenhouse gas emissions at 2018 levels. This…would be an extraordinary example of how economic growth, admittedly made possible by oil and gas, can be decoupled from CO2 emissions and possibly even become an instrument for a net zero future.”

The world is experiencing significant changes in the unwieldy global energy sector. It is unreasonable to expect Guyana to perfectly juggle every burning issue in energy sector by the turn of the century just after beginning production of 11 billion barrels of oil reserves. Its best strategy is to keep watch on emerging trends and prepare to respond quickly.

EDITOR’S NOTE: Dr Lorraine Sobers is a Fulbright Scholar currently lecturing at the University of the West Indies, St. Augustine. Dr Sobers has a BS in Chemical Engineering and postgraduate degrees, MS and Ph.D., in Petroleum Engineering from Texas Tech and Imperial College, London respectively. She has 19 years’ experience in the energy sector specializing in Carbon Capture and Storage (CCS). Dr Sobers is the Project Coordinator for CO2 Emission Reduction Mobilization (CERM) Project and a Fellow of the Caribbean Policy Consortium.