The transition towards renewables as a way of dealing with climate change is not a process that can be reversed by circumstantial events such as the war between Russia and Ukraine, it actually moves based on its own characteristics and not necessarily based on global models, this is ARPEL’s position.
EDICIÓN 104 | 2022
Elizabeth Riva Álvarez
The Oil & Gas industry moves based on regional circumstances and, even more, based on the characteristics of each country, therefore, it is not possible to speak of a “global model” that reacts in a single or joint way to ongoing circumstances, such as the Covid 19 pandemic and the war between Russia and Ukraine.
The transition to alternative energies is a consolidated trend, “with no turning back” that has been slowed down by current circumstances, but it will not be reversed or paralyzed because of its relevant importance in order to satisfy the world´s growing energy demand. These points of view were expressed by Carlos Garibaldi, executive secretary of the Regional Association of Companies in the Oil, Gas and Biofuels Sector in Latin America and the Caribbean (ARPEL) and Irene Alfaro Barrios, director of Downstream of the same entity, in a virtual interview held by ENERGÍABolivia magazine.
THERE IS NOT EVEN A MODEL
“There is not even a Latin American model, but rather an energy transition model for each country, according to their very own realities, poverty levels, development and the rights they have to monetize their resources for the benefit of the people,” Garibaldi said, indicating that what Europe is currently experiencing, because of the war and hydrocarbons, is the result of a trend within European companies that are under a lot of pressure to stop being exclusively oil & gas companies and becoming energy corporations.
“They are facing radical transformations to become energy companies and not just companies focused on hydrocarbons, they are proactively investing in natural gas and decarbonizing their operations, thus balancing their portfolios with massive operations in renewable energies,” he added.
“The Latin American and Caribbean region is not yet under great societal pressure regarding to climate change and still has significant demographic groups below poverty levels. However, it has immense hydrocarbon resources to be monetized, unlike the European model”, said the ARPEL executive.
In this context, the increase in the oil prices, due to the war in Eastern Europe, (140 dollars a barrel last week, with the likelihood of reaching 300), was described by both as “a conjunctural issue” . “We do not see that in the long term this will modify the trends. However, when the price goes up, there is an increase in what is the substitution towards other energy sources, such as natural gas”, Irene Alfaro said.
TRANSITIONS
Based on ARPEL’s Director of Downstream opinion, each country must consider its particular “energy mix”, its resources availability, infrastructure, economic development, geography, consumption patterns and, based on that , generate an energy transition path.
“The trend towards transition was simply slowed down by the pandemic, it was not reversed. The process continues, there is no turning back,” she said. In this regard, she specified that each region must also understand and adopt its opportunities towards the integration and complementarity of its energy sources to generate a more efficient energy system that balances the needs at different times of the year, thus maximizing the efficiency as a region.
In addition to natural gas, which is a fuel with many advantages for energy transition, the use of other energy sources depends entirely on each country´s perspective, there is no common denominator, but the region is considered very rich in wind, geothermal, solar, hydraulic energy sources and also hydrogen, according to the executive.
OIL AND GAS
Carlos Garibaldi, said that all energy sources will be needed because the world´s economy continues to grow and so does the population, highlighting the importance of having an energy mix where renewables along with oil and particularly natural gas, continue to bolster the transition to more decarbonized economies. “There is no replacement, there is a transition,” Carlos Garibaldi emphasized.
Theoretically, the rise of oil prices, should spur more exploration for oil & gas, however, it has been significantly limited in recent years and this has been seen in “poor” production replacement, he said.
“A hypothetical price of 300 or 500 dollars a barrel of oil is not based on costs, nor on supply and demand in the long term. Oil & Gas companies do not look at the volatility, but to the trends. It is a short-term situation, sooner or later the market will be balanced”, ARPEL representative points out.
REGULATIONS
For investments, the contractual and regulatory framework of the countries weighs more than the geological complexity. “Within the regulatory framework there are very good aspects such as environmental conditions, but what is worrying is the unappealing rigidity of contractual and fiscal models”, Highlights the Executive Secretary of ARPEL.
According to Garibaldi, the current models that are being used were designed to maximize the profitability generated by the country in times of high demand for hydrocarbons, which under current circumstances work, but later, in times of market contraction, it will be necessary to adapt in order to attract contractors, where those contractual and fiscal terms will have to be updated.
“The income that is generated depends on production and this depends on investment. A nominal return of 90% of income based on a low investment and production field is less than what can be generated considering a return of 60% based on a field with higher production that demands a considerable investment, because what matters is not the percentage, the most important thing is the cash flow with the monetary dimension that the country can monetize”, Garibaldi remarked.
Irene Barrios added that it should not be forgotten that legal certainty at the national level is an essential factor in attracting investments to energy projects. “It is important to ensure a coherent and sustained public policy framework, stable policies, agreed among interested parties. Clear governance structures and also institutional stability are key factors.”
In a situation of war crisis, like the one Europe is going through, Latin America can be a gas export hub for Europe. “This requires huge investments, and no one is going to do it if they are not sure that they will be able to find gas, and that there will be contractual stability and legal stability,” said Carlos Garibaldi.
ARPEL CONFERENCE 2022
The Regional Association of Companies in the Oil, Gas and Biofuels Sector in Latin America and the Caribbean (ARPEL), will hold a conference on hydrocarbons and energy transitions to renewable energies from November 14th to 16th this year in Lima, Peru; an event where a variety of topics will be discussed focusing on hydrocarbons and energy transition towards renewable energy, with the participation of middle and high-ranking managers from the region’s hydrocarbons sector, as well as from other continents and representatives of different governments.
ARPEL´s Conference is the main regional forum that promotes a debate among leaders in the energy sector, and will bring together executives and technicians from operating companies and suppliers of the oil & gas industry, renowned exhibitors, and prominent government authorities, who will provide their vision of the present and future of a thriving industry that is key for the growth of the region.
“We want to support the challenges the regional industry is facing towards the energy transition. What we want is promoting a fair transitions, that balance the rights that each country has to monetize their reserves and attack poverty. There is no fight against poverty without energy, so accessible energy is a must”, said the Executive Secretary of ARPEL.
…In a situation of war crisis, like the one Europe is going through, Latin America can be a gas export hub”
