Question

Energy transition has become a global issue. Natural gas has been recognized as ‘bridge fuel’ in this transition. Due to its attractive characteristics and increasing demand in the power and non-power sectors, major natural gas producers initiated steps to establish the Gas Exporting Countries Forum. You have been asked to presentation to Alhaji LAP and Company on whether an ‘OPEC like’ organization can be successfully established in the gas sector. Kindly discuss why this is possible or otherwise.---

Answer 1

he energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO₂ emissions to limit climate change. Decarbonisation of the energy sector requires urgent action on a global scale, and while a global energy transition is underway, further action is needed to reduce carbon emissions and mitigate the effects of climate change. Renewable energy and energy efficiency measures can potentially achieve 90% of the required carbon reductions.

The energy transition will be enabled by information technology, smart technology, policy frameworks and market instruments. IRENA has assessed decarbonisation pathways through REmap, and is equipped to support and accelerate the energy transition by providing the necessary knowledge, tools and support to Member countries as they increase the share of renewable energy in their power sectors.

Our energy transition work is built around three pillars:

Power sector transformation knowledge: knowledge products and methodologies.

Energy system models and data: techno-economic and electrical models with associated data.

Energy planning support: application of knowledge and modelling tools to support member countries.

Current discourse on the transition to a decarbonized energy system future is dominated by renewable energy solutions. Initial conditions for this transition may vary across different regions and countries. There are, however, also opportunities for innovative solutions that utilize other low‐carbon energy sources and technology mix. Sustainable development is a contested concept and varies with priorities attached to social, economic, and environmental goals. Therefore, the one‐size‐fits‐all type of solution paradigm needs to be broadened, to accelerate action in the short to medium term. Our argument is that natural gas can be an important complementary transition fuel to support renewable energy in the short‐ and medium‐term transition phases. This means that the goal of zero fossil fuel as a short‐ and medium‐term solution needs to be reconsidered. This takes us to the next argument that innovation and upgraded technology in the low‐carbon fossil fuel sector will provide an important impetus for low‐carbon transition, which we see as a phase lasting until the middle of the century. However, the transition toward a sustainable energy future of gas‐fueled solutions has challenges from the social, technical, economic, geographical, and political points of view. Suitable local solutions should, however, also be assessed. These should take into consideration infrastructure, local demands, resources, and economic aspects as well as national energy policies. An analysis based on the experiences of four countries, both developed and developing, is presented in this study. The countries selected for this study can be placed in two categories: those with an abundance of natural gas reserves (Iran and Norway) and those that are import‐dependent (India and UK). The cross‐country analysis will help us to understand the realistic challenges and opportunities of natural gas as a transition fuel.

Keeping the natural gas (NG) option open as an addition to renewable energy (RE) will provide innovation scope, diversity in technology development, and choice, due to the resource endowment differential and short‐term priorities. In addition, to highlight that there is no threat of struggle with fossil‐dependent countries, a smooth, socially and economically acceptable transition needs to happen.

The environmental constraints of energy use are becoming more apparent with economic growth, and the debate concerning economic growth and its environmental impact has been ongoing. One of the important parameters of development is access to modern energy conversion and/or distribution technologies. An increasing global population has resulted in challenges related to access to energy and to living conditions. It is recognized that it is of great importance to the world today that these are dealt with in an environmentally sustainable manner.The “sustainable development” discourse has resulted in a range of policies due to the integration of environmental elements into the economic activities required at the individual and collective levels. Control and diversification of the energy supply and energy use are agreed to be one of the important mitigation policies for dealing with climate change.

India’s domestic production of natural gas can only partially fulfil the expected increase in demand in the coming years, and the country will have to increase its imports to fill the gap. Such dependence on external sources makes the country’s energy security vulnerable to regional and global events. As global demand for natural gas is projected to increase, India must ensure a robust natural gas import diversification strategy. This brief offers a geopolitical evaluation of India’s energy relationships with gas-producing countries, the changing geopolitical dynamics of natural gas markets, and the implications for India’s import strategy. It explores some of the LNG import strategies of prominent consumer countries to evaluate if they can present any competition, or otherwise opportunities, for India’s own gas strategy.

Indeed, in the past five years, the government has worked on building infrastructure for boosting the growth of natural gas in the country. It intends to increase the coverage of CGD network in the country to cover 70 percent of India’s population across 50 percent of the country’s geographical area. Investments worth US$ 2.8 billion are being planned by the Indian Oil Corporation for gas distribution to homes, industry and transportation sector.The Ministry of Oil and Natural Gas in its 2018 year-end report says it is working towards constructing an additional 13,500-Km gas pipeline to achieve the national gas grid requirements.

The Government of India intends to increase the number of Compressed Natural Gas (CNG) stations in the country to 10,000 by 2030. CNG vehicles in the country may witness a ten-fold increase from 3.3 million in 2019 to 33 million in 2030, according to a study conducted by Nomura Research Institute.

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later joined by: Qatar (1961) – terminated its membership in January 2019; Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, reactivated it in October 2007, but decided to withdraw its membership effective 1 January 2020; Angola (2007); Gabon (1975) - terminated its membership in January 1995 but rejoined in July 2016; Equatorial Guinea (2017); and Congo (2018). OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria, on September 1, 1965.

OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

OPEC rose to international prominence during this decade, as its Member Countries took control of their domestic petroleum industries and acquired a major say in the pricing of crude oil on world markets. On two occasions, oil prices rose steeply in a volatile market, triggered by the Arab oil embargo in 1973 and the outbreak of the Iranian Revolution in 1979. OPEC broadened its mandate with the first Summit of Heads of State and Government in Algiers in 1975, which addressed the plight of the poorer nations and called for a new era of cooperation in international relations, in the interests of world economic development and stability. This led to the establishment of the OPEC Fund for International Development in 1976. Member Countries embarked on ambitious socio-economic development schemes. Membership grew to 13 by 1975.

The 1980s

After reaching record levels early in the decade, prices began to weaken, before crashing in 1986, responding to a big oil glut and consumer shift away from this hydrocarbon. OPEC’s share of the smaller oil market fell heavily and its total petroleum revenue dropped below a third of earlier peaks, causing severe economic hardship for many Member Countries. Prices rallied in the final part of the decade, but to around half the levels of the early part, and OPEC’s share of newly growing world output began to recover. This was supported by OPEC introducing a group production ceiling divided among Member Countries and a Reference Basket for pricing, as well as significant progress with OPEC/non-OPEC dialogue and cooperation, seen as essential for market stability and reasonable prices. Environmental issues emerged on the international energy agenda.

The 1990s

Prices moved less dramatically than in the 1970s and 1980s, and timely OPEC action reduced the market impact of Middle East hostilities in 1990–91. But excessive volatility and general price weakness dominated the decade, and the South-East Asian economic downturn and mild Northern Hemisphere winter of 1998–99 saw prices back at 1986 levels. However, a solid recovery followed in a more integrated oil market, which was adjusting to the post-Soviet world, greater regionalism, globalisation, the communications revolution and other high-tech trends. Breakthroughs in producer-consumer dialogue matched continued advances in OPEC/non-OPEC relations. As the United Nations-sponsored climate change negotiations gathered momentum, after the Earth Summit of 1992, OPEC sought fairness, balance and realism in the treatment of oil supply. One country left OPEC, while another suspended its Membership.

The 2000s

An innovative OPEC oil price band mechanism helped strengthen and stabilise crude prices in the early years of the decade. But a combination of market forces, speculation and other factors transformed the situation in 2004, pushing up prices and increasing volatility in a well-supplied crude market. Oil was used increasingly as an asset class. Prices soared to record levels in mid-2008, before collapsing in the emerging global financial turmoil and economic recession. OPEC became prominent in supporting the oil sector, as part of global efforts to address the economic crisis. OPEC’s second and third summits in Caracas and Riyadh in 2000 and 2007 established stable energy markets, sustainable development and the environment as three guiding themes, and it adopted a comprehensive long-term strategy in 2005. One country joined OPEC, another reactivated its Membership and a third suspended it.

2010 until now

The global economy represented the main risk to the oil market early in the decade, as global macroeconomic uncertainties and heightened risks surrounding the international financial system weighed on economies. Escalating social unrest in many parts of the world affected both supply and demand throughout the first half of the decade, although the market remained relatively balanced. Prices were stable between 2011 and mid-2014, before a combination of speculation and oversupply caused them to fall in 2014. Trade patterns continued to shift, with demand growing further in Asian countries and generally shrinking in the OECD. The world’s focus on multilateral environmental matters began to sharpen, with expectations for a new UN-led climate change agreement. OPEC continued to seek stability in the market, and looked to further enhance its dialogue and cooperation with consumers, and non-OPEC producers.