Alex Schneiter, CEO of Lundin Energy, warns that demand recovery post-Covid could cause a disruption to oil supply, highlights the threat of producers losing social acceptance lest they reduce their emissions, and advocates Norway’s carbon tax as a model to emulate.
Once oil demand returns, supply issues could cause a price spike
“Covid-19 has had a tremendous effect on oil demand, but now the question is how this is going to evolve. I think the consensus, which I tend to agree with, is that it will take some time to see demand get back to pre-Covid levels – we are not going to see a “V-shaped” recovery. The crisis has prompted trends which may be irreversible, for example we have realised that we were maybe travelling a bit too much and can do quite well working remotely.
From 2022, I think we will see a demand recovery because despite reduced travel and even with a different modus operandi among businesses, the world’s population is still growing and the huge growth in the middle class of emerging economies will increase the demand for energy, including oil. At the same time, we are seeing a dramatic reduction in capital expenditure by oil and gas companies, with many also shifting capital into renewables. There is a risk that by 2022 demand will have recovered but an undersupply of oil will lead to a spike in prices.”
Emissions savings from operational efficiency can be significant – especially for smaller companies
“A big part of achieving a 2-degree scenario will be efficiency. As a smaller company we do not have direct access to consumers and cannot change consumer behaviour directly, so we have to get our own house in order first and be as efficient as possible. We have pledged to become carbon-neutral by 2030 and are well on our way to achieving that. This is not insignificant, for example at our oil field Edvard Grieg we are saving about 1.2 million tonnes of CO2 per year through electrification, which is the equivalent of 600,000 cars. To put things in perspective, if all of the world’s oil and gas production operations were to electrify or otherwise reduce operational emissions to our target levels of near zero, we would save close to 2 billion tonnes of CO2 per year, the equivalent of 700 million cars.”
Companies will not have a license to operate if they do not produce as efficiently as possible
“It will not happen overnight and will take a lot of investment, but oil and gas companies will see clear benefits emerge from the actions they take to reduce emissions to the minimum possible. Certain projects will not be financeable in the future because they will simply not be considered good enough from a sustainability perspective. Being as efficient as possible and aiming to be best-in-class will add value not only through license-to-operate benefits but also preferential treatment by investors.
We are seeing this with consumers as well. People want to know where the oil is coming from and are increasingly critical about their consumption and the related carbon footprint. This is leading to the development of more ways to show how efficiently and responsibly oil is produced. For example, Intertek have just launched their certification process, CarbonClear, to qualify the carbon intensity of any barrel of oil produced. Our oil field Edvard Grieg was the first one to receive such a certification and confirmed our emission intensity of 3.8kg CO2 per barrel. The demand for this kind of information will only increase and the end users and consumer will then have a choice.
In fact, this will be a matter of survival for the industry rather than one of competition. It will no longer be acceptable to flare gas and ignore the climate change challenge, and companies will not have a license to operate if they do not produce oil in the most efficient way possible. The debate about companies’ carbon footprints and their response to the climate challenge is only going in one direction.”
The slow global uptake of carbon taxes is a missed opportunity
“While there are things we can do individually as companies, climate change also requires broader policy solutions. Norway implemented a carbon tax in the 1990s, when emissions were much lower down on the agenda. Today, we pay around $100 for every tonne of CO2 we emit, by far the highest such tax in the world, and the Norwegian government is planning to increase it by 5% per year. By incentivising industry – not just oil and gas, but all industry – to reduce emissions, the model works. However, the majority of the world does not have any carbon taxes in place, which is a missed opportunity.”
Alex Schneiter was appointed President and CEO of Lundin Petroleum in 2015, which changed its name to Lundin Energy earlier in 2020. Before becoming CEO, he was Executive Vice President and Chief Operating Officer of Lundin Petroleum.