Annual Meeting 2022: Building Resilience in the Transition

The New Producers Group is celebrating 10 years in 2022 amidst a climate crisis and in a global industry in flux. The theme of the meeting was Building Resilience in the Transition. Our discussions focused on the following:

• The industry is in flux: What lies beyond current market conditions?
• Making the sector work for emerging producer countries
• Adapting the sector to the transition

At the outset of the meeting, we asked participants to write down their greatest worries, which were the following:

• Having stranded assets while energy poverty persists
• Remain where we are for another 30-40 years
• Lack of interest in oil and gas prospects in our country
• Financing challenges in view of zero-carbon agenda
• Unjust transition: Market dominance by incumbents at the expense of new producers
• Not having the needed capacity to enter the production stage
• Africa will continue to allow the developed world to dictate our energy policy
• As a global society, we will not find the unity that is required to map the future

These worries about the prospects for their countries to successfully navigate the transition permeated the discussions.

There is a push to invest in oil and gas in the wake of the Ukraine war, but this may not help emerging producers. While oil and gas prices are high, the market is characterised by high uncertainty. This prompts companies to focus on assets that can be monetised more quickly. Participants indicated that there was almost no investor interest in exploration, but companies were keen to develop discoveries (and to fast track this development).

To draw in investment, there is a risk that emerging producers make concessions that harm national interests. Contracts with stabilisation clauses, for instance, make it difficult for host governments to adopt new carbon policies that impact costs. For natural gas, long-term off take agreements appear as necessary conditions for investment, but these curtail the prospects for the gas to used domestically.

The group discussed how to manage the growing consensus among industrialised countries that there should be no more new oil and gas – at least, outside the OECD. Several officials emphasised the necessity of minimising GHG emissions of oil and gas production – and indeed of developing a net zero petroleum sector. There is clearly a tension between the need to reduce costs and the need to reduce carbon intensity, but the medium-term viability of projects will be questioned without a focus on emissions. Clarity on this goal is necessary from licensing to the review of field development plans and in ongoing monitoring. Colombia’s recent introduction of carbon neutrality as a biddable term for new licenses was cited as an innovative measure. Developing a net zero sector – with emissions mitigated at production and the unabatable emissions offset with national projects – was seen as the best strategy for new producers. Governments and NOCs around the table agreed that the New Producers Group should articulate a narrative to better explain the complex policy challenges emerging producers face and how a net zero strategy can help to address these.

The discussions also focused on national transition plans. The cases of South Africa and Nigeria illustrated the centrality of energy security in this planning. For the many energy-poor countries in the New Producers Group, a transition plan will not aim to ‘decarbonise’ since their emissions contribution is very low, but to spur development and energy access while minimising emissions growth. The experiences shared by participants emphasised the importance of having their population on board with transition planning. Extensive and ongoing public consultations and transparency are necessary to that end.