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Reality needed on pace of low-carbon transition - Wood Mackenzie

Monday 30th September 2019

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Governments and industry need to be more upfront with consumers about how long the transition to a lower-carbon world is going to take, a visiting energy expert says.

People want action on climate change but many have unrealistic expectations about the pace and scale of the change needed to reduce carbon in the world’s energy systems, said Chris Graham, vice president for energy consulting at Wood Mackenzie.

Change is underway, but governments and producers need to be giving the public confidence that there is a plan and that progress is being made, he said.

In the absence of that, “people are seeing headlines that renewables are super-cheap and that we can just immediately transition over to a low-carbon economy,” he told BusinessDesk.

In that environment, he said it is important that “independent, un-polluted” viewpoints are heard and that existing oil and gas players have the support to continue making the investments that will be required in the meantime.

“Everybody believes that the world needs to transition,” he said. “Everybody is on the bus, but it’s just going to take a long time to make that transition.”

Wood Mackenzie is a global resources and energy consultancy. Graham was speaking at the New Zealand Petroleum Conference in Queenstown where more than 20 environmentalists have maintained a noisy protest throughout the day. An alarm was set off at the venue in the middle of the night and police and security are maintaining a strong presence.

Graham told the conference that, on current trends, the world is still likely to be using 110 million barrels of oil a day in 2035, and that 85 percent of the world’s primary energy in 2040 could still be fossil-based. That could result in a 3 degree Celsius increase in temperatures - roughly twice the threshold limit the 2015 Paris climate agreement aims to achieve. 

Graham said that over-shoot could be constrained with technological break-throughs, or with a combination of higher carbon prices and tougher regulation by governments.

Successful development of renewable-based ‘green’ hydrogen, carbon capture and storage or low-cost electric vehicles, could rapidly change the current trends and firms need to be ready for that, he said.

Gas is “very much a fuel for the future” and will be an important low-carbon option for the transition.

But he said that even if demand for conventional production remains for the next 20-30 years, firms will still be expected to demonstrate what efforts they are making to lower emissions. Those that don’t are likely to come under pressure from shareholders, or find it harder to access bank capital.

Graham said that, ultimately, pressure will also eventually come to decarbonise gas – possibly through blending within bio-methane or green hydrogen, so those options will also become increasingly important.

Earlier in the conference, New Zealand Oil & Gas chief executive Andrew Jefferies told delegates this country remains well-placed to assist that global transition. 

The adoption of renewables – which typically deliver less energy per dollar of investment than hydrocarbons – means that the world will be spending a bigger share of its income on energy to meet the demands of a still rapidly expanding population.

In that environment, it will be important to ensure that New Zealand’s gas resources, and its relatively lower-emissions light oil deposits, can be developed for export.

If light oils could displace the higher-emitting heavy crude oils that account for about half the world’s global reserves, it would reduce global CO2 emissions per litre of petrol by about 20 percent, Jefferies said.

“It is better for the world to use light oil from New Zealand than to produce oil from open cast mines of tar sand in forested Canadian wetlands,” he said.

Wood Mackenzie’s Graham said the geopolitical stability of Australia and New Zealand makes the region attractive as a potential supplier of liquefied natural gas for export. The local product is also relatively low-carbon compared with US LNG – which relies on fracking and extensive gas gathering for its exports.

A relatively ‘green’ LNG, from a region with strong regulation and good corporate governance could actually be a selling point, he said. 


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