A shift in Chinese policy toward controlling carbon emissions may intensify the global energy transition now gathering pace, but oil and gas will still have an important role to play in the global energy market for years to come, according to Daniel Yergin, vice president of consultancy giant IHS Markit.
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Participating in Brazil's Rio Oil & Gas 2020 digital event, Yergin said aligning factors in what he terms the G2 countries — China and the US — meant that it is now appropriate to consider energy policy through a prism of "before and after" the COP21 Paris climate agreement.
Biden 'will move closer to European position on climate'
In the US, he said the election of Democrat Joe Biden and the naming of former US secretary of state John Kerry as special presidential envoy for climate marked a major shift, as did President Xi Jinping’s announcement, in September, that China will aim to hit peak emissions before 2030 and reach carbon neutrality by 2060.
“In Biden’s case, I think he will move closer to the European position and the US will become very active in climate diplomacy,” said Yergin, in a one-on-one interview with Clarissa Lins, president of event organiser, the Brazilian Petroleum Institute (IBP).
'Very big change in policy' for China
"China imports 67% of its oil needs and will be at the centre stage of any geopolitical discussion on energy. But China has now set these targets for 2030 and 2060. This is a country that takes 60% of its total energy from coal and there are lots of levers they can push, but this is a very big change in policy,” Yergin said.
Yergin, who has just launched a new book called "The New Map: Energy, Climate and the Clash of Nations", said China has a host of questions to answer about how it will reach these targets.
“There may be a geopolitical element to this, with China putting itself forward as the leader of globalisation… Their targets are very challenging. Oil and gas will still have an important role, which suggests that carbon capture will be key to this strategy,” Yergin said.
China's crude consumption on the rise
Yergin also noted that Chinese consumption of crude oil has continued to grow during the Covid-19 pandemic, rising between 300,000 and 400,000 barrels per day on the year.
“Demand will continue to go up in China in the medium term,” he said.
While big developing economies such as China and India continue to support demand for fossil fuels, the overall global transition will be an uneven affair, Yergin suggested.
He noted that the oil and gas industry had shown itself “very good at keeping the world supplied without disruption during the pandemic,” and suggested that retaining this capacity could be important.
“It takes time to develop technologies and new supply chains for net-zero emissions," he said, something that demands enormous scale.
'All sorts of challenges'
"We will have a mixed system for some time and there will be all sorts of challenges in many areas, including supply chains. Geopolitics could start to collide a bit when you consider this complexity,” Yergin said.
He predicted that demand for oil will return to 2019 levels by 2023, providing the vaccines against Covid-19 are effective.
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On Europe, Yergin said he wondered if ambitious plans could run into cost and budget restraints after the economic fallout from Covid-19.
"There is a lot of ambition but there may be competition or tensions between economy and finance ministers and their counterparts at finance and economy ministries,” he concluded.