FUTURE OF HYDROCARBONS

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

partnerships, as the recent announcement from CEMEX and BP aimed at lower-emission cement production highlights. Markets have been driving the evolution of the industry more than governments. There is a role for governments but we also need to trust markets to drive change. At the same time, incumbents are incumbents. IOCs have all technical capabilities but climate leadership is not coming from within. They are being reactive to external pressures. The transition will also lead to a changing role for oil and gas companies. IOCs have a critical role to play in it. They have to think about the transition from an integrated value chain perspective. Their knowledge will be increasingly important as we integrate the value chain further in the future. They have an opportunity to play a key role in the transition, but it will require a shift in culture and thinking. The investment model will be different as well, as IOCs will want and need to protect dividends as they transition. Large profits made during past oil super cycles will be gone. But yet, IOCs will play an important role in the consolidation effort, which has already been witnessed in North America. Many IOCs have embraced the idea that there are opportunities in the transition. It extends far beyond the energy sector, as it affects any large emitter. IOCs have an opportunity to play a critical role in navigating solutions for these emitters. Arguably, the shift and trend dates back to 2019 when capital markets first started to seriously question strategies around the transition and emissions profiles, but it is now becoming a central focus of corporate strategies.

Role of Government and NOCs It is useful to distinguish between IOCs and NOCs. In select countries in Latin America, government seemingly makes state companies and their operations more reluctant toward addressing climate change. Most obvious is the current government policy framework in Mexico aimed at its state energy firms.

For IOCs and NOCs alike, there will be a change in the way partnerships are carried out and new partnerships will be formed. With the world demanding less petroleum, we can expect to see more oil companies merge. IOCs are much better prepared for the transition, but how will NOCs make this transition?

FUTURE OF HYDROCARBONS | INSTITUTE OF THE AMERICAS