OTC Asia: Rising Oil Prices Prompt Words of Caution and Calls for a Sustainable Comeback

Today's high oil prices have not removed the memories of some top upstream executives about how swiftly boom-and-bust cycles can move, nor have they eroded their mission to lower carbon footprints.

Petronas CEO Tengku Muhammad Taufik tells industry professionals in Kuala Lumpur to be wary of high oil prices and not lose sight of their emissions goals.
Source: OTC Asia 2022.

Some of Southeast Asia’s top oil and gas executives spoke at OTC Asia on Tuesday about the dual challenge of achieving production growth while meeting the low-carbon demands of the energy transition amid a backdrop of rising energy prices and a world economy that is trying to get back on its feet.

The OTC Asia technical conference kicked off in Kuala Lumpur little more than a week before Malaysia is set to fully open its borders 2 years since the start of the COVID-19 pandemic and during a week when oil prices have bounced back above $110/bbl. Both circumstances served as a reminder that as one source of volatility is fading, another has arrived with the Russian invasion of Ukraine.

In response to the month-long war and subsequent sanctions, some of the biggest energy companies in the world have pulled out of Russia, or heavily curtailed their future investments there, which has jeopardized the country’s ability to bring to market between 4 and 5 million B/D of oil exports.

“There’s a degree of optimism today, given improved oil prices, and players in the energy ecosystem can probably rejoice. But we cannot be irrationally excited by this period of relative sunshine,” warned Petronas CEO Tengku Muhammad Taufik.

The leader of Malaysia’s national oil company was recounting to those at the conference the perils that come with the industry’s boom-and-bust cycles. He recalled how in the middle of the past decade, high oil prices were followed by a painful downsizing and restructuring that spared no corner of the industry.

These pains were felt all over again with the onset of the COVID-19 pandemic that initially sapped global demand by an average of 8 million B/D only to leave it unable to fully supply a global economic recovery as vaccinations increased and storage injections dropped.

While the world watches Europe’s largest armed conflict in nearly 80 years unfold, Tengku Taufik said the oil and gas industry must be once again on alert that its ability to provide energy security to the world is at risk.

“We are now presented with a conflict between Russia and Ukraine which has escalated alarmingly. And this has exposed the potential of an even deeper energy crunch,” he said. “The unfortunate lack [and] depth of investments for new oil and gas, and the real scarcity of discoveries in recent decades, has left the market rather unprepared for such a shortage.”

Though the sudden breakout of war has upended commodity markets and sent oil and gas prices soaring to historically high levels, Tengku Taufik said Petronas and the wider industry must remain focused on its goals to lower carbon footprints and increasingly embrace alternative forms of energy.

“The knowledge developed and refined by the energy industry needs to be repurposed to offer the solutions much needed by Asia and the world at large to transition to this much desired lower-carbon future,” he said.

Several other executives spoke at the conference’s opening about the need to balance society’s demands for low-carbon energy with the realities of its rising demand for hydrocarbons. This is an especially intimate issue for Asian nations which are projected to be home to 60% of the global population and half of global GDP by 2050.

Hasliza Othman, CEO Petronas Carigali, the exploration and production subsidiary of Petronas, labeled the energy transition as the industry’s “biggest challenge” while noting that its customers' urgent pleas for lower-carbon energy sources are on an upward trajectory.

“But until the renewables can resolve this intermittency issue, the traditional fuel—the oil and gas—is still very critical,” said Othman.

She went on to explain that Petronas Carigali is embracing meaningful decarbonization efforts that on the small scale include remote operations which reduce the need to transport as many personnel to offshore installations. On the larger scale, Petronas Carigali is aiming to eliminate gas venting over the next 2 years and all routine flaring by 2030.

Perhaps on an even grander scale, Petronas Carigali is embarking on a carbon capture, utilization, and storage (CCUS) project that will help it monetize a high-CO2-content gas field. The Kasawari gas field development offshore the Malaysian state of Sarawak has a CO2 cut above 40%, which as of last month, was announced by the company as the source for the CCUS effort that may involve up to 4 mtpa of CO2.

Othman said the plan is to strip the CO2 out of the field’s natural gas stream and then move it via what will be an at least 100-km-long pipeline to distant and depleted offshore fields.

“Inshallah, we will have our first injection at the end of 2025, and when it comes on, I believe this will be one of the largest CCUS projects in Southeast Asia,” she said.

Mansoor Mohamed Al Hamed, CEO of Abu Dhabi’s Mubadala Petroleum, said his company is among those that consider clean-burning natural gas along with CCUS and hydrogen production as critical enablers for the energy transition.

“Our strategy reflects these important initiatives,” he said. “But at the same time, the market needs to have the right regulation and the right infrastructure to make it equitable.”

The role of government in the energy transition was raised several times by other conference speakers. But in the example of Shell, that role may take on a shape that the industry would rather not see.

In May 2021, Shell became the first oil company in history to be held legally liable for climate change when a Netherlands court ordered the company to reduce its CO2 emissions by 45% by 2030 from 2019 levels.

“And once we don't think that's right—we don't think is the right way to achieve energy transition through one single company being held accountable for [climate change]—what it has done is made us reflect on ourselves and to look at if we could actually go faster” said Peter Costello, the executive vice president of conventional oil and gas at Shell.

Speaking on an executive panel, he said Shell responded by deciding it could move faster on its energy transition and emission-reduction targets. Costello also said that if government, along with society, can adopt more of partnership relationship than an adversarial one with the upstream business, then “we can together accelerate though the energy transition [as] expeditiously [as possible].”

Another view on the relationship that the industry must strike with society came from Datuk Mohd Anuar Taib, the CEO of the Malaysian oil and gas services company Sapura Energy Berhad.

He said the dual challenge is not just about providing additional oil and gas production and mitigating CO2 emissions but that “it is also about cleaning up the mess that we put in.”

“And in every talk about carbon emissions, everybody talks about global warming—but there are eyesores out there that we also need to go and generate value out of,” he said, referencing the hundreds of derelict oil and gas installations that are found offshore several Southeast Asian countries.

Taib said offshore Malaysia alone there are almost 450 facilities and that about half of them are no longer producing. The chief of the offshore service company said more consideration needs to be given to these forgone assets while noting the company’s recent contracts to decommission dozens of offshore platforms as examples.

In 2020, Sapura Energy relocated seven Chevron-owned platform jackets offshore Thailand to a site nearly 320 km away where the structures were converted into artificial reefs. Taib also applauded the government of Brunei which is considering a tender for the removal and repurposing of more than 50 offshore platforms.

“We have got to create an economic movement out of the decommissioning, or what I call the recycling, reuse, and repurposing of facilities,” he said.

The fourth edition of the biennial OTC Asia conferencehas earned the participation of more than 7,000 professionals who are joining virtually and in person from 40 different countries. The technical conference runs through 22–25 March and will feature more than 300 papers.