New Oil Producers Group considers implications of global transition to cleaner energy

Dec 03, 2019 News

– Agrees that sector policies must evolve to avert risks

By Kiana Wilburg

For nations such as Guyana which is on the cusp of oil production, there are a number of expectations about the wealth this new industry will beckon. There are expectations of great financial returns and more jobs for locals. But one factor that does cast a shadow of uncertainty on these hopes is the global transition to cleaner sources of energy.
This new dynamic along with its implications were recently discussed at the annual meeting of the New Petroleum Producers’ Discussion Group in Uganda. The event which was facilitated by good governance agencies such as Chatham House, Natural Resource Governance Institute (NRGI) and the Commonwealth Secretariat saw officials from 23 countries addressing this issue.
NRGI, in its report on the meeting, said that expert opinion varies widely on how quickly the world will transition away from fossil fuels to the kinds of cleaner energy sources necessary to meet global climate goals. The Institute also said that the prospect of a sustained long-term decline in fossil fuel demand carries with it, the possibility that some oil and gas projects that would have otherwise been viable may become “stranded.” For prospective producer countries, NRGI said that this possibility puts further strain on what were in some cases already over-burdened expectations for the sector’s impact.
While the transition may not happen rapidly, or systematically, NRGI said that the sheer uncertainty around the trajectory of transition has prompted various reflections by new oil producers and how their policies should evolve to manage this risk. In this regard, it was noted that several speakers at the event pointed to the likelihood that the projects most likely to be stranded as energy transition proceeds are the most expensive ones.
Furthermore, NRGI opined that most new producer countries face a natural disadvantage in this regard, in that oil and gas deposits in frontier areas are more costly to develop than projects in countries with a long history of production. The Institute said that the ability of governments to influence where they sit on the cost curve is therefore limited by geology. Nonetheless, NRGI said that governments can take steps to reduce the costs of production by increasing regulatory efficiency.
Another point of interest was the need to have an evolving approach to local content—the development of jobs, technology transfer and opportunities for local companies to supply the sector with goods and services.
In this respect, NRGI said that previous New Producers’ Discussion Group meetings have focused heavily on “local content. It noted however that this time around, the energy transition is beginning to impact the way that some participants think about their local content priorities.
Kaieteur News understands that conversations emphasized the need to adapt a local content strategy to the evolving energy sector, both domestically and globally, to avoid the risk of a country building capacity in jobs or business models that quickly become outmoded.
NRGI noted that indeed, this is easier said than done, of course, and future discussions will turn with more specifics on how to tailor strategies to markets that are evolving so unpredictably.

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