APPEC: Energy security, sustainability goals require collective action, financing

The interplay between energy transition and energy security has come into focus, with governments, national oil companies, IOCs and financial institutions required to play a pivotal role to collectively strike a balance between these objectives amid turbulent markets, industry experts said at the Asia Pacific Petroleum Conference 2022 organized by S&P Global Commodity Insights.

"Right now, the world is in a perfect storm of crises," VP Chief Sustainability Officer Petronas Charlotte Wolff-Bye said Sept. 26, noting that setbacks included nature-based crises, social inequality, supply chain issues, climate change disruptions and those related to prices. These adversities were testing both countries and companies, necessitating swift action, she said.

Some players and companies are being more proactive than others in addressing those issues, she said, noting Malaysia has made a very strong commitment to decarbonization with the recent launch of The National Energy Policy 2022–2040 aimed at ushering the country toward energy transition.

This comes on top of the Twelfth Malaysia Plan 2021-2025 that targets 31% of Malaysia's total installed energy capacity being renewable by 2025 and the Malaysia Renewable Energy Roadmap target of achieving 40% renewable energy by 2035.

Petronas was also committed to pushing Malaysia forward in its decarbonization journey, Wolff-Bye said.

"Carbon capture and storage is absolutely essential for us... going forward, we would like to develop services around it," she said.

Petronas's wholly owned entity GENTARI was launched in September with the aim of becoming a one-stop integrated clean energy solutions provider, beginning with a suite of renewable energy, hydrogen and green mobility solutions for commercial, industrial and retail customers.

GENTARI in a statement Sept. 15 said it had inked an agreement with Petronas Refinery and Petrochemical Corporation to introduce a zero-emissions vehicle fleet supported by EV charging points and explore the potential for hydrogen fuel cell vehicles at the Pengerang Integrated Complex, among the biggest integrated petrochemical facilities in the region.

Indonesia's state energy firm Pertamina is also supporting a government sustainability agenda by restructuring its businesses recently to not only create a leaner structure but also focus on sustainable energy including carbon capture solutions and technology, renewables and electric vehicles, Fadli Rahman, director of strategic planning and business development Pertamina Power Indonesia, said during the same panel discussion.

In addition to tackling climate change, it is also imperative to ensure energy affordability and an equitable distribution while also preparing people to embrace change, Rahman said.

"We [Pertamina] have RON 95, RON 98 and recently RON 92 [in gasoline grades]. Previously, we used RON 88," Rahman said, noting that "because of the environmental aspects, the government is imposing upon us to not use RON 88 anymore."

"We need to make sure there is a just transition before we can ensure there are higher RONs. We are waiting for the right time to make sure that the citizens of Indonesia can accept it," he said.

S&P Global's executive director upstream solutions Nick Sharma noted that renewable power generation and increasing its presence further down the value chain were among the primary focus areas at present.

European GIOCs spent 5%-15% of their organic spend toward low carbon in 2021, which will likely rise to 20%-40% by 2026, he added.

Financing energy transition

To build a competitive position in energy transition, corporate venture capital investments and partnerships are seen as a viable pathway, with companies also tapping new financing approaches including sustainability-linked debt or green bonds, impact funds, equity deals, SPACs and IPOs, Sharma said.

A lot of financial institutions are still very much committed to net zero, but they also realize the trajectory is going to matter, Galid Lahdahda, MD head of downstream and chemicals at Standard Chartered Bank, said in a separate panel discussion.

"There is a big role for the government [to play in ET] ... we [industry] should also adjust because if we do not adjust, we are looking at a $100/b oil and $50/MMBtu LNG and then we are in trouble as a global community," he said.

Robert Johnson, head of oil & gas and petrochemicals at MUFG, said what the regional governments can look at is reducing the risk associated with financing and providing assurances for the cost of money coming in. This could be in the form of regulatory or legal measures or in subsidies to make the project more profitable, he said.

There has been tremendous growth in the green bonds and green loans market, Lahdahda said. "What's next is transition financing and I'm sure there might be some on the plate coming along," he added, noting this was a good thing because it helps set the right incentives for borrowers.

In addition to green bonds and sustainability-linked loans, there will be more products in future, Johnson said. "In our bank, it takes an entire department just to manage this transition... it's an exciting place to be in," Johnson said. "But it has to be done responsibly," he added.