Calling for absolute halt to fossil fuel investment is recipe for disaster: Petronas CEO

Underinvestment in oil and gas has caused extreme market volatility and impacted energy security, and calling for an untimely and absolute halt to fossil fuel investment is a recipe for disaster, Tengku Muhammad Taufik, Petronas' president and chief executive, said at the Energy Asia conference 2023.

Malaysia's Petronas, which has been fighting declining hydrocarbon production, is one of the largest national oil companies in Asia and is saddled with the responsibility of maintaining the Southeast Asian country's energy supply amid calls for accelerated energy transition.

"Our aspiration is to reach 2.7 million barrels of oil production per day," Taufik said. Petronas recorded daily production average of 2.434 million barrels of oil equivalent (boe) per day in financial year ended Dec. 31, 2022.

However, he said the industry still faces underinvestment.

There was an initial period of underinvestment because of two price collapses in the past decade, and then financial institutions said money put into oil and gas would be stranded capital with a finite runway because of decarbonization, Taufik said.

He said post-Ukraine, investment manifested again after 40% of natural gas was taken off the system in Europe, and a structural gap or structural deficit emerged.

"We are now barely coping as we've been hit with the perfect storm of recovering demand and quite simply no molecules," Taufik said, adding that LNG prices swung between $2/MMBtu and $40/MMBtu in a span of 18 months.

"This is not how energy should be managed, it's not sustainable and both for buyers and consumers, the visibility of both security of supply and security of demand needs to be managed in a far more systematic and fundamentals-based manner. Financial institutions have not helped," he said.

He said policy makers were being pushed to extremes on energy investment, and some called for a complete cessation of fossil fuels.

"[But] the system that we are moving to is not ready yet," he said. "So I think we need to stop these violent pendulum swings, particularly in Asia, where we need a runway to return to economic activity to at least pre-pandemic levels."

Asia most vulnerable

Daniel Yergin, vice chairman of S&P Global, said the region that is probably most vulnerable to underinvestment in oil and gas is Asia.

"And we saw that impact for countries like Bangladesh and Pakistan who were not able to afford LNG and had to go back to coal," he said. "Very simply you're really not going to have a successful transition without energy security and affordability," he added.

Taufik highlighted that much of the promised energy transition funding, including the $130 trillion of private capital committed by Glasgow Financial Alliance for Net Zero (GFANZ), has yet to fully materialize.

"But literally the problem here is that making it available does not necessarily make it accessible," he said.

He said when Petronas was testing the waters to raise money for fossil fuel projects, almost universally either the risk premiums were elevated or lending conditions were simply impractical.

"In other words, it was a roundabout way for financial institutions to say 'we're not going to make this easily accessible for fossil fuels," he said.

On the other hand, financial institutions were holding back on financing carbon capture and renewables, saying that CCS was a means to legitimize oil and gas, and redirecting money to renewables in places where policy frameworks aren't mature was risky.

"So it's a double whammy," Taufik said. "The reality is that as an industry, we now need to start rethinking how capital is deployed," he said.

Taufik said that in his personal opinion, if funding continues to lag, NOCs could be forced to make a choice between energy security and affordability on one hand and energy transition on the other.

"We will make sure it's affordable and secure first rather than going for energy transition," he said, adding that if you don't deal with energy security, then there cannot be an effective transition