Iman Hill, chief executive of the International Association of Oil and Gas Producers (IOGP), suggests 2022 may be the year that highlights the realities of achieving both an energy transition and energy security.
Amid war in mainland Europe and volatile energy prices, it has not been a quiet year for the trade body, which represents a global roster of 82 major upstream operators, service companies, and industry associations around the globe, including 25 national oil companies from Aramco to Argentina’s YPF.
Speaking in mid-November on the eve of the organisation’s first in-person Members Congress event for around three years, Ms Hill offered a whistle-stop tour of the group’s activity over the past year.
Among its achievements, she lists the acknowledgement of gas and nuclear power into the EU’s taxonomy on environmentally sustainable economic activities, as well as the establishment a new carbon capture and storage forum underneath the European Commission.
“These sound like they might be small-ish things but they’ve really taken years of work and have a big impact for legislation in Europe,” she said.
While the organisation’s 2021 strategic review saw an expansion of its remit, it has shunned the rebranding efforts of many of its contemporaries and members who have become ‘energy’ companies. Instead, Ms Hill suggests IOGP will become a broader church, and act as a platform from which to share learnings from the upstream world with other relevant sectors.
“As part of the strategic review we always said that we would move into the adjacent sectors,” she explained. “That includes the midstream, for example, and actually we recently had our first LNG player join us in the form of Atlantic LNG.”
“Any area where our work can make impact and can help shorten or lessen the learning curve – we’re happy to collaborate,” she continued.
“It’s that conversation – even with, for example, my opposite numbers in the purely renewable space. In offshore wind in particular we’re having constructive conversations about what they can learn from the work that we do so that they don’t have to reinvent the wheel.”
Meanwhile, she said the group’s dedicated Energy Transition Directorate formed last year is already producing work that will help IOGP members accelerate their decarbonization work – particularly around low-carbon operations, hydrogen and the ramp up of carbon capture, transportation and storage.
‘And’, not ‘or’
Those achievements are perhaps more notable against the backdrop of soaring energy prices and Russia’s invasion of Ukraine, both of which have prompted a fundamental shift in European and indeed, worldwide energy policies.
“It’s such a pity that it took an invasion of a country to really remind everyone that it’s climate change ‘and’ energy security – not ‘or’,” she says.
“I think that it’s undoubtedly clear to all of us that the invasion of Ukraine has had an impact on global energy market, but I would say here that before this year Europe was at best naive about energy security, and was clearly over reliant on Russian energy supplies.”
In her view, the wider realisation of the energy system’s dependence on hydrocarbons, and gas in particular, is likely to be a learning moment for both politicians and the sector.
“I think for too long the energy transition has been packaged as shifting away from fossil fuels,” she explains. “But we don’t want to be stuck in this constant cycle of an energy transition that keeps being disrupted by the issue of energy security.
“So whenever we’re having a conversation and taking action, the focus really has to be on reducing emissions and decarbonising if this energy transition is to be sustainable and continue at pace.”
“I think this if this has taught us anything, it’s taught us that we need new alternative supply sources, combined with a well-integrated market and interconnected infrastructure to be able to handle new flow patterns,” she continues.
Studies by Rystad and IOGP have suggested that the European energy system is in fact capable of handling “a full displacement” of Russian gas.
She also advocates for continued action from policymakers and regulators in both supporting domestic production and securing alternative energy partners while addressing infrastructure bottlenecks.
Forecasts made by the pair suggest European gas supply will eventually rebalance, with market conditions returning to pre-Covid levels by around 2026. However that pathway also relies on a 150% increase in LNG demand by 2040, depending on demand assumptions, and policy that supports the contracts needed to fund capex in LNG export and import capacity.
Until that happens Ms Hill suggests the transition period “will be challenging and call for difficult choices.”
Alongside security and sustainability comes the third component of the so-called ‘energy trilemma’ – affordability.
Record energy prices have also translated into record profits amongst many of the association’s members and growing calls for government to recoup some those profits to soften the impact on consumers.
Those calls include the US and the UK; the latter having recently increased the windfall tax on North Sea oil and gas producers by 10% in the Autumn Budget.
Asked how the energy industry should respond to calls for additional taxes on those profits, Ms Hill declined to comment.
Looking towards its decarbonisation agenda, Ms Hill also called for a “technology-neutral” approach to the wider scale up hydrogen – also mooted by the EU as a key source of energy to fill future energy gaps.
Those choices should be based on “a life cycle analysis approach, rather than feeding the debate of blue versus green hydrogen,” she suggested.
“But I mean, let’s be clear that green hydrogen at scale is still a long way off. Resource shortages, high costs for production, storage and transportation and not having the right technology in place mean that progress is slower.”
Blue hydrogen, she argues, can be delivered “quickly and at scale”.
More widely, she says IOGP suggests that $90 billion of public investment must be channelled into clean energy innovation worldwide as quickly as possible, half of it dedicated to hydrogen technologies to enable a swift transition.
At the same time, she said the association would be working on further support for key enabling policies like cross-border transportation and amendments to network blending regulations, all of which she says legislators have already begun to grapple with.
This push will also involve an “industry alliance” aimed at raising the profile of carbon capture and storage amongst European political level and aligning it with other transition technologies, the first towards which she said the group had already made.
A fair COP?
Alongside IOGP’s congress, our conversation takes place against the backdrop of the COP27 summit in Sharm-el-Sheikh, where the presence of oil and gas producers has proven to be an awkward subject.
Some executives have suggested “too much” of the industry was missing from the event -particularly the world’s national oil companies that produce the “vast majority” of the world’s hydrocarbons – while NGOs have said the presence of more than 600 registered delegates from the sector represented “a twisted joke at the expense of both people and planet.”
Ms Hill was again emphatic as to the need for a “balanced conversation”, which most importantly involved a voice for the Global South and for developed nations to provide their long-promised but much lacking $100bn in climate finance.
“More broadly, the people who have the knowledge, expertise and skills – and that’s us, the oil and gas industry – need to be given a seat at the table when creating long-lasting policies or agreeing commitments and action plans,” she continued.
“That way the imperative to tackle climate change and ensure energy security won’t be forgotten and one won’t be sacrificed for the other.”