Gas

Ricardo Ferreiro: "Gas is a critical step on the path of Transition"

Tecpetrol's Managing Director of Business Development, Gas and Energy and Marketing shares an informed view of the key role that gas is beginning to play in the complex energy transition process at the global level and discusses the assets that Tecpetrol can contribute.

#3_November 2021

What do you think about the impact of the current energy transition on the company's strategy?

I think this is a necessary process, but its implementation presents a somewhat complex challenge. The energy transition is a bridge that we must all cross, but we shouldn't forget that we can't do this if we suddenly do away with all the pillars supporting that bridge, including hydrocarbons. The crisis unleashed by the fall in oil and gas production is a case in point. This is a consequence of the cycle created by the pandemic and the impact of the International Energy Commission report, which said that if we want to achieve a decarbonized world by 2050, we should stop developing new oil and gas right now.

In this context, some oil companies, especially the majors, cut back or announced reductions in their hydrocarbons investments. However, we are now seeing that as economies begin to recover, the supply of hydrocarbons is not enough to meet the demands of a growing market, leading to price hikes and even energy rationing. The bottom line is that, even though a political and strategic understanding is determined to reduce CO2 emissions, the world continues to demand energy to keep running. Increasing numbers of people agree that gas is the energy source best able to help fuel this transition, which by the way, seems likely to be longer than predicted. This is so because using gas offers significant advantages, as it is the fossil fuel that generates the least carbon and particulate matter. We have recently seen how even those large countries or blocs heading up the energy transition have openly expressed the need for a transitional energy source such as gas (or even nuclear). The recent crisis has made it abundantly clear that they can't manage without them (paradoxically, today, more coal is being consumed than ever before due to the transition crisis).

 

And what about Argentina? Where does Vaca Muerta fit into this?

Argentina has a reasonably-well decarbonized energy matrix and has managed to reduce the percentage of its emissions from 1% to 0.75%, mainly due to the widespread use of gas in its matrix. At world level, however, coal is still being consumed in large amounts (just over 40% of the world's electricity is coal-based), so it could be said that, if a significant part of that coal were replaced with gas, it would make a vital contribution to reducing CO2 emissions worldwide. In this context, Argentina could play a crucial role in this transition, mainly due to the huge potential for gas production in Vaca Muerta, not only because of its sizable reserves but also thanks of the efficiency and productivity achieved. Some countries like China are already moving down the path to replace coal with gas. And, although many countries are investing heavily in renewable energies, they are also seeking ways of ensuring there is sufficient supply to power this transition and cover deficits such as those arising when there is no sun or wind or not enough rain. Recently, this has been the case in several countries, which has only deepened the crisis and underscored the unreliable aspect of renewable energy sources.

Without pausing to dwell on macroeconomic considerations, it could be said that Argentina has the potential to become a major gas exporter during these decades of transition. We could point to Chile in the region, which has a substantial coal-fired power generation base that could be replaced by gas through existing pipelines. If we can create the proper infrastructure and market conditions, we could substantially contribute to Chile's decarbonization process and other economies in the region. As a gas-producing country, Argentina's objective would be to foster greater trust among its neighbors that gas supply will not be affected by either political or social factors. In this sense, I'm optimistic and confident about Tecpetrol's positioning in Vaca Muerta. The productive capacity we have achieved at our operations in Fortin de Piedra indicates excellent potential and capabilities. We need to succeed—and we are working very closely with the authorities and other companies operating in this country—to develop the infrastructure necessary to transport more Vaca Muerta gas throughout the country and the region.

 

Do the leading global powers agree with this outlook?

Let's not forget that the growth in using natural gas as an energy source is relatively recent in the history of hydrocarbons. Gas was considered an unwanted by-product for many years in the oil industry. When gas liquefaction technology arrived on the scene, gas practically became a commodity, and a rapidly forming market, which is crucial today. It offers alternatives as a backup for renewable energy intermittency problems and helps reduce emissions overall. Technology today allows us to transport liquefied gas from Argentina to any other country without problems.

Now, the question is whether using gas as an alternative source during the energy transition could lead to a cost issue, prompting many economies to redouble their commitment to developing renewable energy at a lower cost, even if the benefits are only visible in the long term.

Let's revisit the issue of the intermittency of so-called clean energies. The costs involved in producing wind or solar power, for example, are falling significantly. Still, until there is a widespread, economical, and reliable way to store it (for nighttime, cloudy weather, or windless days), there must be a fuel able to ensure continuity of supply.

The automotive industry is already taking a significant step, moving faster than other sectors since a car can use a battery to drive medium distances. However, it's pretty different from storing the energy necessary to power an airplane, a ship, a factory, a city, or even a country, 24/7. This is why work is underway to develop other alternative energy sources like hydrogen. This is still very early and cannot be deployed on a big scale as such references are not yet economically viable. We are barely taking the first steps on this path of transition.

As we find ways to resolve all these technologies, we'll be able to analyze more accurately their cost profile, viability, and how much they reduce the impact on the environment. It's precisely at this point in the transition that natural gas offers a very attractive alternative. The transition proposed will last for at least three decades, creating opportunities to develop new technologies, new carbon capture methods, and other less polluting fuels.

We must also bear in mind that not all countries are starting from the same place. We can discuss the many advantages of using hydrogen. However, in Africa, this option is still highly remote, as most people use more readily available and cheaper fuels such as coal or firewood. So we can conclude that the energy transition will not develop in the same direction, as each country will progress at its rate, depending on other issues. We should aim at a gradual and sustainable reduction, replacing coal with gas, incorporating renewables, making electrification more widespread, and, later, introducing the overall commercial development of hydrogen. Not everyone agrees that this "gradual" approach is the right one, and many are demanding an immediate all-in shift towards renewable energy. However, the current crisis shows us that this is not possible, at least not within the announced deadlines.

 

Are there other countries considering the use of natural gas as a step within the transition process?

Yes. This has been the case in China, and we have also seen requests for gas coming from many European countries. Regionally, there is the case of Brazil, a country that historically has a predominantly hydroelectric energy matrix that recently supplied almost the entire country. However, a series of prolonged droughts have left Brazil in a highly critical situation this year. The availability of hydroelectric energy meant that this country, with a long-standing oil-producing tradition, never sought to develop gas as a component of its energy matrix.

Consequently, it is now racing to ensure the supply of LNG... For this reason, a few weeks ago, the Brazilian government openly expressed its intention to achieve a greater degree of energy integration with Argentina. For both Tecpetrol and Argentina, this is a major opportunity for future development. Although much depends on the political context of both countries, intensive work is being carried out to develop these opportunities and bring them to fruition.