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Countries more dependent on oil will suffer from the energy transition, but it does not mean the imminent end of the oil industry
Ahmed Zaki Yamani, Minister of Petroleum of Saudi Arabia said a wise phrase: “The Stone Age did not end for lack of stone, and the age of oil will end long before oil runs out.” The same has been used in the energy sector as a warning for a world in which oil and its derivatives are no longer the main fuel. Energy transition is a planet-friendly goal, but what does it mean for oil-producing countries in Latin America? Brazil raises around US$2 billion in the latest pre-salt oil and gas auction.
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COP26, held last month, where governments and companies around the world announced their desire to move towards zero emission of greenhouse gases, with the need to reduce global CO2 emissions by 45% by 2030, brought this omen closer and closer.
Achieving the global zero-emission target will require a 75% cut in crude oil demand.
There are some scenarios suggesting that reaching the zero-emissions target will require a 75% cut in crude oil demand from now to 2050, says Francisco Monaldi, director of the Latin American Energy Program at the University's Baker Institute. Rice, in the US state of Texas. But there are other analysts who estimate that there will be little oscillation in demand and that, in 2050, it will even be slightly above where it is currently.
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“This last scenario indicates that we are going to reach a peak in demand and that, from there, it will start to decrease, but obviously it would not be a scenario even remotely so catastrophic. In any case, it is inevitable that the energy transition takes place, and that the demand for oil does not continue to grow as in the past”, he adds.
Uncertainties about the energy transition execution pace will affect, for example, the ease of obtaining resources to finance new projects in the oil and gas area, since some demand high amounts and imply decades of production, with oil extraction by 20 or 30 years.
“Imagine, for example, an exploration project in deep waters in the Gulf of Mexico. We are going to see less and less of this type of project. The ones that are already in progress, like the ones Brazil has in the Pre-Salt, will be developed, but the new ones will be more difficult.”
“Brazil, for example, has not done well in the last rounds of bidding, in part because the risks have increased that the auction winners end up with assets in which they invested heavily, but will not be able to continue using them because the energy transition is accelerating”, he assesses.
Countries more dependent on oil will suffer from the energy transition
Although the drop in oil demand affects all producers in the region, according to Monaldi, the countries with the greatest dependence on oil, such as Venezuela, Ecuador and Colombia, are the ones that will benefit most from the global goal of clean energy.
We can mention Venezuela, which, for example, has 95% of its currency coming from oil – until the crisis deepened in the country, with a sharp reduction in production by the state oil company PDVSA and the sanctions imposed by the United States.
In 2019, oil sales from Ecuador totaled US$ 7,8 billion, 34% of the value of exports. In Colombia, oil sales abroad totaled US$ 13 billion, equivalent to 32% of exports, according to data from the OEC.
Still according to the expert, despite not depending on oil, the energy transition could also affect Mexico, Brazil and Argentina, since, commodity it has a significant weight in the economy, representing important export revenues, tax revenues and investments.
For Brazil, Monaldi says that the country has become “the great oil producer in Latin America”, with almost three million barrels per day, a number similar to that reached by Venezuela and Mexico “in their best days”.
“Brazil does not depend on crude oil, but the size of Petrobras and its importance make it a relevant issue for the future”, he says.
In the case of Argentina, the expert points out that the country has discovered deposits of unconventional oil – known as shale or shale oil – which have enormous potential, but whose discovery coincides with this moment of energy transition.
Energy transition does not mean the imminent end of the oil industry
Although the energy transition brings doubts and uncertainties to oil investors, it does not mean the imminent end of the oil industry, as even in the current context, producing countries have some opportunities.
“The most reasonable scenarios indicate that a lot of oil will still be consumed in the next three decades. The countries that will manage to continue to produce and make the business profitable are those that achieve two things: first, to be much more efficient and reduce production costs and, secondly, to reduce their carbon footprint and other greenhouse gases” , says Monaldi.
For the expert, the Brazilian oil giant Petrobras may succeed in this strategy because it has very productive wells in deep waters, which favors the company from the point of view of carbon intensity.
In his view, three factors will define which projects will survive: costs, intensity of greenhouse gas emissions and the type of investment required, whether short or long cycle.
“All these countries have to prepare for this transition, taking advantage of the opportunities that are within the logic of the global policy against climate change, but understanding that it is a business in decline”, he warns.
by – Ángel Bermúde BBC News Mundo
