Petronas to balance RE investments and returns

Energy demand is growing in tandem with environmental concerns and forcing countries to adopt more sustainable energy portfolios

by MARK RAO/ pic by TMR File

THE oil and gas (O&G) industry is undergoing a paradigm shift whereby consumers are not just asking for reliable and affordable, but sustainable energy as well.

This is the dilemma facing national oil companies (NOCs) like Petroliam Nasional Bhd (Petronas), who are tasked to meet the demands of a fast developing home economy and energy market, while falling in line with the global agenda to reduce carbon emissions and improve on energy mix.

The prospects for energy remain evergreen. Some 70% of the projected global population of over 9.8 billion in 2050 will be domiciled in Asia and Africa, and energy is set to play a key role in fuelling the growth and industrialisation of economies such as China, India and South-East Asia.

According to Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin (picture), primary energy demand in Asia is expected to grow 2.5% per annum to reach 7.1 billion tonnes of oil equivalent in 2035.

This will account for 42% of the world’s primary energy demand, he said during the 20th Asia Oil and Gas Conference (AOGC) in Kuala Lumpur last week.

Energy demand is growing in tandem with environmental concerns and forcing countries to adopt more sustainable energy portfolios.

Malaysia, for example, is targeting a 20% renewable energy (RE) mix of total installed capacity by 2025 from the current 2%.

The Paris Agreement — a multinational pledge to combat climate change by keeping the rise in global temperature substantially below two degrees Celsius — is tying governments across the world to similar commitments.

Herein lies the challenge for Petronas and other NOCs that are leading the foray into new energy, while striving to service a rapidly growing and energy-hungry population.

Time Will Tell

Petronas is adopting a measured approach to the RE space, as it is typically a lower return business and represents a smaller chunk compared to the overall energy mix.

Wan Zulkiflee said the company “should not be ahead of the curve” in the RE space as the returns from new energy and renewables are lower than the conventional O&G business.

“Essentially, it is a sweet spot that we have to determine…so we will not be financially compromised, but at the same time, we have the knowledge and competency to be in the new energy space,” he said during an AOGC panel session.

“That is why it is a very measured approach in the renewable space for Petronas.”

In Petronas’ internal scenario planning, he added RE is projected to account for no more than 18% of the generation mix even within a 20-year horizon, while O&G is to contribute to over half of the global energy mix.

Nonetheless, Petronas will review its energy portfolio at least once a year to determine how much is to be invested in the new energy space, as well as other opportunities in the market.

In April this year, Petronas made its maiden foray into the international RE market when it acquired Amplus Energy Solutions Pte Ltd, a Singapore-based solar energy company managing 500 megawatts of solar-generation capacity in India, the Middle East and South-East Asia.

Petronas has also ventured into the electric-vehicle market earlier this year

via Petronas Lubricants International with the launch of an “iona” range of e-fluids for passenger cars.

This is part of Petronas’ pledge to lower carbon dioxide emissions while meeting the demand from original equipment manufacturers that have to adhere to growing environmental regulations.

Time will tell whether the company has taken the right decisions in its approach to the new energy market, Wan Zulkiflee added.

Europe versus Asia

In comparison, Europe’s push for sustainable energy is propelled by the fact that virtually its entire population has access to electricity and affordable energy today.

For Swiss-based independent oil trader Vitol Group, the transition into new energy is imperative.

“European governments are changing the shape of the energy landscape very quickly through carbon pricing and electric-vehicle regulation,” group CEO Russell Hardy said in the same conference.

He added that the internal combustion engines, which burn petrol for fuel, could be banned by the Dutch government as early as 2025, while the UK is to follow suit in 2030.

“Things are changing quite rapidly in the European market. In a way, we can afford to do that because everybody has electricity and everybody has affordable energy today.”

He said the challenge facing Asia is to grow within the framework of sustainability.

“There is still a billion people (worldwide) without electricity and there is 30% world growth of energy consumption still to come, so how can we achieve the sustainability?” he stated.

In South-East Asia, some 65 million people do not have electricity, according to the International Energy Agency.

For NOCs, whose agendas are closely aligned with their respective sovereigns, ensuring the entire population has access to electricity is a national agenda.

The quickest way to do so is via conventional O&G-based power supply such as diesel generators or coal-based generation which are notoriously pollutive.

Building a Cleaner and Sustainable Future

The Paris Agreement offers financing avenues, as well as technology and capacity building frameworks to aid developing countries and countries vulnerable to high carbon emissions meet both global and national goals.

Malaysia is targeting to grow RE in the generation mix to 20% by 2025 with the participation of national power utility Tenaga Nasional Bhd and independent power producers in the country.

Petronas, on its part, is striving to reduce its carbon emission by some 4.5 million tonnes of carbon dioxide (CO2) equivalent to help Malaysia meet its sustainability pledge.

“In Malaysia, a lot of our fields are high CO2 fields, so we invest in technology and initiatives (to) manage this high CO2,” Wan Zulkiflee said.

He said Malaysia produces 370 million tonnes of CO2 equivalent, of which Petronas contributes 14.6% or 54 million tonnes. The company targets to lower its CO2 equivalent to 49.5 million tonnes in the next three to five years.

“Even to keep CO2 emissions at the current level is a challenge, but we have set ourselves a target to reduce this. It is a very big challenge for the organisation and we are committed,” Wan Zulkiflee said.

Petronas is not acting in isolation as Indian Oil Corp Ltd and PTT Public Co Ltd, the NOCs of India and Thailand respectively, are undertaking similar initiatives.

Indian Oil chairman Sanjiv Singh, who was also present at the AOGC, said India and NOCs in the country are committed to the sustainability agenda.

This includes plans to build some 5,000 power plants using complex biogas to provide cleaner energy and deal with biowaste in India.