FUTURE OF HYDROCARBONS

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

For starters, the IEA and its effort to influence the Net-Zero and energy transition debate is a major change in global governance for an institution created by major consuming nations to indeed guarantee their energy security and economies. Some now see the IEA pronouncements as politically driven. Meanwhile, the OPEC cartel and also OPEC+, as the broader producers are known, are almost resurgent. But with the transition and accelerated by the pandemic, oil demand is forecast to trend down and decline over time according to a host of industry and trade group analyses. This is important - as oil declines, there is concern that a greater share of supply – exceeding 50% by some estimates - will be placed in the hands of OPEC. In short order, this becomes an issue of how OPEC will choose to use what many feel is its increased power.

outcome. Surely, whether for energy security or rent and fiscal reasons, it is not unrealistic to expect that some countries will maintain a portion of production of oil and gas. If the precept of an irreversible global market trend away from oil and gas is accepted, debating the future of hydrocarbons in Latin America suggests that governments and the region are not harnessing the full potential. The abundance of renewable resources bears repeating. For a decade, the region has counted some of the most sought- after markets for investment in renewables and particularly wind and solar. Clean energy auctions have been hugely successful in driving diversification and reducing electricity prices. The successes have been copied far and wide. Role of Industry and IOCs Fundamental to the discussion of the future of hydrocarbons is how industry and government fit together. With the arrival of the Biden administration in the US, the advance of ESG impacting capital deployment, along with the corporate activism discussed above, there have been unmistakable changes across international oil companies (IOCs). Even before the momentous week in May, the acceptance of the need for change in oil companies has been dramatic over the last year. There is a shift to activity and action. Certainly, ESG investing has helped create this shift. To wit, companies are shifting the way they approach

While most scenarios point to OPEC taking overall control of oil supply, there will be internal pressures to counter this

FUTURE OF HYDROCARBONS | INSTITUTE OF THE AMERICAS