For the first time in the history of the World Economic Forum Global Risks Perception Survey, this year’s top five global risks in terms of likelihood of occurrence are all environmental. Climate change awareness is re-shaping social behaviors and industry business models by applying pressure at different levels. On the financial level, for example, institutions are on the edge of a fundamental reallocation of capital since climate risk is perceived as investment risk. On the political level, environmental awareness is rising in the priorities of institutional agendas. In this context, the European Green New Deal appears to be the most ambitious initiative globally, but others surely will follow.
In such a scenario, the energy industry, more than others, is facing unprecedented pressure to prove its business model capable of leading the way toward a successful energy transition in line with Paris Agreement. This is happening within a challenging scenario where protracted weakness and volatility in commodity prices have taken their toll on oil and gas companies. Driving the energy transition in this context therefore requires flexibility and new approaches.
The energy transition can be best defined as a gradual shift from a system mostly based on fossil resources to a more sustainable and renewable energy mix. Such a process necessarily involves many stakeholders and is already taking place, in part spontaneously, led by economic convenience and technological progress and in part driven by political and regulatory decisions. A process of this size can only be gradual to match growing energy demand while reducing the use of conventional sources that still satisfy more than 80% of the world’s primary energy consumption. Furthermore, gradualness is needed to gain the necessary time to build the infrastructures for renewable energy’s production and distribution.
The energy transition is a process and, like every process, it encompasses phases. At present, natural gas plays a fundamental role in bridging fuel toward a low carbon economy. Most energy scenarios, even the greener, forecast a gas market in expansion for at least 15-20 years, replacing coal in power generation.
Two main elements explain this trend. The first is the competitiveness of gas resources, both from conventional reserves and from unconventional (i.e. shale gas). The second is gas’ environmental compatibility, especially considering its advantages over other fossil sources in terms of emissions and programmability. Moreover, natural gas remains the resource that best combines with intermittent renewable sources to ensure continuity of electricity production. It also represents a viable alternative to fossil fuels in several sectors such as marine transportation due to its cost effectiveness and compliance with international emission regulations.
In this scenario, liquefied natural gas (LNG) represents a global commodity driven by steady growth in demand also due to strong imports by Europe, China and other Asian countries. In 2019 signs of acceleration in investment decisions were visible, with many initiatives being approved. This trend is expected to continue over the following years, although with a lower intensity than in 2019. Such important LNG investment flow will also reshape energy routes, with new countries playing significant roles in energy geographies.
In terms of change in the energy mix and diversification, Africa is setting the path with its significant gas reserves. Projects like Total LNG in Mozambique, Zhor in Egypt and Nigeria LNG will significantly contribute to unleashing the potential of African economies while boosting the energy transition in markets like Europe. This trend is confirmed by other LNG developments now in the execution phase such as in Tangguh LNG in Indonesia, Arctic LNG in Russia and other investments still to be approved. Saipem is proud to play an important role as an energy transition enabler in many of these transformative projects.
The growing importance of gas is also visible in international relations where multilateral platforms such as the East Mediterranean Gas Forum began fostering public-private cooperation among key players. In this context, Italian companies are key partners for LNG countries and their proven track record in developing technologies may contribute to further growth of LNG allowing cost reductions and increasing efficiency. For instance, the Italian LNG value chain is in the process of developing solutions to enhance sustainable mobility such as Small-scale LNG and Floating LNG.
However, relying only on a transition fuel like gas is not enough. Innovation and integration are the keywords guiding every player in the sector who wishes to actively contribute to energy transition and transformation. To target decarbonization and CO2 reduction it is important to build technology portfolios able to improve the entire CO2 value chain: from Carbon Capture & Storage to innovative hybrid solutions integrating energy storage concepts for renewables with conventional oil and gas use. Energy players will need to devote their best and brightest minds to developing and improving solutions with disruptive potential such as offshore solar and windfarms, marine technologies, the next generation of biorefineries and the green hydrogen value chain.
Accompanying 8 billion people toward the energy transition requires a fundamental step: building technological bridges between energy systems to maximize the efficiency of existing infrastructures while lowering their carbon footprint.
Amory Lovins once wrote that fire made us human and fossil fuel made us modern. Now we need a fire that will make us enduring. It’s hard to say which energy source will be predominant in this new fire. What we can is predict is the spark that will ignite the flames: LNG.