No change to oil use soon, transition just began: Appec

Fossil fuel use is not going to change much in the next few years as the energy transition is just beginning, delegates said at the S&P Global Commodity Insights Appec conference in Singapore this week.

About 84-85pc of our energy is fossil fuel and that number has remained unchanged for the last 30 years, trading firm Gunvor chairman Torbjorn Tornqvist said. "If I look around, what I see today, is not going to be much different [in 2030]."

"The oil industry is being blamed for everything in this respect — the solution seems to be just stop drilling," Tornqvist said. "Clearly, that is not the way."

US private equity fund Carlyle's chief strategy officer of energy pathways Jeff Currie thinks the world is "not even in chapter one" of the energy transition story. "We're still, I think as Torbjorn says, at 84pc fossil fuels — that means we're in the introduction. We're not even in chapter one. We got a long way to go."

The problem seems to be the "unrealistic targets" that countries and companies have set for themselves in their quest to move away from fossil fuels and lower emissions. "Or you put the target, but you don't put the resources to achieve those targets," Tornqvist said. "It doesn't matter how much we want it. The cost of the energy transition is not fully understood, and it needs to be communicated."

But there are ways to go about this. "Solar power is, I think, actually extremely cheap," Tornqvist said. "So there are solutions. The problem is it's not big enough."

Another issue is that the transition away from fossil fuels is being largely driven by subsidies, Currie added. "Looking at all the politics and elections everywhere in the world, it's more driven by subsidies — more carrots and less sticks."

Southeast Asian countries like Singapore and Thailand have turned to carbon taxes to get producers and consumers to factor in the cost of carbon when making decisions — but the question is whether they should be set higher to be effective. "That would be optimal, but it's unlikely to happen," Currie said. "I think market-based solutions are becoming a thing of the past these days."

The pace of renewables growth in Asia is an issue, meaning oil may need to be around for longer. "I strongly believe even in 2050, oil products will take a very important and critical role in the society, especially for Japan," Japanese refiner Taiyo Oil's president and chief executive Takahiro Yamamoto said. "We have very limited renewable energy in our country at this moment."

Yamamoto is not worried about oil demand falling even as Japan's population continues to shrink because of the number of refineries that have shut down in the country, threatening oil product supply including transport fuels like conventional jet fuel. "So many refineries have been shut down in the past 10 years. I'm very anxious about how we can keep this supply ability as a country," Yamamoto said. "That's my concern, rather than the shortage of demand or consumption decreasing."

But delegates agree it is going to take a while to get to net zero and not everyone is going to get there at the same time. "I think it's a race that will take from now [a] minimum of 10 years," said Kuwait's state-owned KPC managing director of international marketing Shaikh Khaled Ahmad Al Sabah. Not everyone can afford it in some countries, he added. "It needs a lot more investment. It will have a lot of cost. Economics is a big, strong factor in this one."

By Reena Nathan