At the opening plenary of the on-line Baker Hughes Annual Meeting 2021, Dan Yergin, vice-chairman of IHS Markit, contributed his insights on the complexity of the energy transition in the Middle East and the world and how this would impact the market in following decades
Following the welcoming keynote by Lorenzo Simonelli, chairman of CEO of Baker Hughes, who outlined the three themes of this year’s annual meeting – Rethink, Redefine and Renew – Yergin took part in a fireside chat moderated by Steve Sedgwick, anchor at CNBC.
Yergin commented, “The issues we know for the region [Middle East] stretch from ISIS to Iran, and are challenges to state systems. But I think there is another challenge. They tell you in your own stock portfolio you should be diversified, but some countries are very heavily dependent on oil. Some are starting to look at diversification giving the volatility that comes to your economy when is so dependent on a commodity which can go up and down.”
“If we look at Abu Dhabi, and the UAE, in 2007 it really started to diversify its economy. The work that we have done indicated that 60% of its GDP is now not oil. This is an incredible achievement. Saudi Arabia have tried to do this that but it is hard to diversify a much larger economy, and even harder now with Covid-19. It turns out if you want to diversify away from oil it sure helps to have oil revenues.”
Yergin also discussed why the energy transition was not a simplistic term, and neither would be the switch to renewables. He commented, “Everywhere you go in the energy world or climate world you run into the term ‘energy transition’ but I think it is thrown around a lot without looking at the numbers. Directionally we are clearly going towards lower carbon, but the scale of this is not fully understood. In 2019 we had a US$87-88 trillion world economy that depended on fossil fuels for 80% of its energy. You can’t just change that overnight.”
“There is a transition but it will take time, and oil and gas will remain important for a long time. If you look at India, their energy transition means oil and gas and moving away from wood burning and not burning waste product to cause indoor pollution. There are different meanings to the energy transition. One thing that is clear is that carbon capture and storage has to be a part of the mix, even though some people reject it. The numbers simply do not work without it.”
Sedgwick was keen to point out following this point that the advancements of technology and innovation are not just about renewables, but also making the hydrocarbon value chain cleaner; for instance there is still lots of ground to be made with methane capture, which has the potential to dramatically reduce emissions in the future.
Yergin added, “Baker Hughes is focusing on this and addressing the application of technology and engineering to solve problems. The energy system is really big and you need companies who know how to execute large projects and can deal with scale. Baker Hughes is part of making the energy transition, and it will be a transition that will involve oil and gas but in a cleaner way. Wind and solar are fifty year-old industries. But it is only in the last ten years they have become competitive, commercial and got the scale.”
While advising caution on expectations around the energy transition, Yergin finished on a positive note. He concluded, “In this whole carbon management you are going to see a lot of new technology and brain power going into this. The need is there, and when that is there and the focus is there you will get results. Ten years from now we may be talking about a new revolution to energy that is really not on the agenda in the present day, but will be very significant a decade from now.”
