FUTURE OF HYDROCARBONS

FUTURE OF HYDROCARBONS | La Jolla Conference 30 th Anniversary Policy Brief

makes clear that as much as we can and should electrify the value chain, there will always be areas or sub-sectors that cannot be fully electrified. In assessing the future, it is vital to look at the trends and try to spot the inflection point. The energy transition has long been touted, but now we are seeing a strong acceleration. All indicators support that we have reached the inflection point. The IEA report is perhaps best understood as part of an accumulation of signals that tells us we are entering the end of the life-cycle of the oil and gas industry. There is an ever-growing mosaic of alternative technologies to support Net-Zero pathways, but with a lack of clarity as to the ultimate winners and losers. Most notable for hydrocarbons is carbon capture utilization and storage (CCUS) and hydrogen, with the latter becoming increasingly analyzed by countries including Chile, Brazil, Argentina, Costa Rica, Panama, Peru among others. Fossil-fuel derived hydrogen is not novel in the region, but new pilot projects aimed at harnessing the region’s burgeoning – and cheap – renewable energy point toward a different chapter for the future of hydrogen – green hydrogen. Indeed, for many, hydrogen has very rapidly, in the space of just months, become the long-term solution. CCUS has been talked about for decades but has yet to take off. Several companies in the oil and gas sector have spent considerable resources to commercialize the technology. Most are now involved in large-scale field trials. It is critical for many countries in Latin America that have deep and

inextricably linked fossil fuel-led economies to embrace CCUS. As appropriate, the market will decide technological winners and losers; for the most part, policies are currently technology agnostic. However, as the world embraces climate action and companies devote time and treasure as well, we see policies that come with money, not just words. For instance, there are economic recovery packages that are focused on funding clean energy, the so-called build back greener mantra. Perhaps more importantly, emission reduction commitments by developing economies are increasingly conditioned on external financial support and ESG commitments. Indeed, as countries review and reset their climate pledges and nationally determined contributions (NDCs) on the road to Glasgow and COP 26 in November, they are arguing for increased funding. Energy Security Long defined as the driver of the world’s most contentious geopolitics, energy security is best understood as the availability of sufficient and reliable supplies at affordable prices. But beyond that it is diversification of sources and guaranteeing a key input for economic activity. It has also long been synonymous with oil. The changes in how the world approaches the energy sector is also hugely affecting decades-old consensus on energy security.

FUTURE OF HYDROCARBONS | INSTITUTE OF THE AMERICAS