'Hydrocarbons will continue to play a relevant role in the world's energy matrix'

The energy transition has forced stakeholders, particularly those in the hydrocarbons industry, to retool plans and expand their business scope to include renewables and sustainable initiatives, among other changes.

"Increasingly, the global energy transition is being driven by economics rather than government policies or international agreements, as technological advances and economies of scale drive down the costs of renewable power and electric vehicles," states the BNamericas Intelligence Series report How Much Time Is Left for Latin America's Oil and Gas Producers?

To gain additional perspective, we pose questions to Danielle Valois and Gabriela Bezerra-Fischer, partner and senior associate, respectively, at Brazilian firm Trench Rossi Watanabe, a partner of international law firm Baker McKenzie.

BNamericas: Talk of stranded assets has come to the fore now more than ever due to the energy transition. Should hydrocarbon-dependent countries be concerned that such resources may remain below ground?

Valois, Bezerra-Fischer: Hydrocarbons will continue to play a relevant role in the world's energy matrix for the upcoming years, but it is clear that the trends of industrialized countries have indicated that, different from the past, today it appears to be a window.

Hydrocarbon-dependent countries will be required to act fast and smartly to be able to maximize their earnings with the production of hydrocarbons and also plan in advance to adapt to the new energy transition reality. 

BNamericas: What opportunities are there for oil and gas companies to keep their operations relevant, and where in Latin America?

Valois, Bezerra-Fischer: The strategy of several major IOCs has been to reposition themselves as energy companies instead of traditional "oil and gas companies."

This way they continue to conduct their hydrocarbons production while in parallel investing in alternative energy sources and investing in research and development so that new technologies can achieve compatible prices in the foreseeable future.

Also, measures to decarbonize oil and gas production are being studied and implemented by oil companies worldwide. In LatAm the traditional oil- and gas-producing countries with stable political environments are likely to continue to be of key interest: Brazil, Mexico, Colombia and Argentina.

BNamericas: Is there increasing legislative, regulatory and tax pressure on companies to step up decarbonization?

Valois, Bezerra-Fischer: Yes, governments and regulatory bodies around the world are recognizing the urgency of addressing climate change and implementing policies to drive the transition to a low-carbon economy, which include emissions reduction targets, stricter regulations on greenhouse emissions, as well as carbon pricing mechanisms.

What countries in Latin America have become more stringent? It is important to consider that these regulations are not always country- or region-specific, so companies should be aware of the legislation that may impact their business and access to the international market.

As an example we can cite the European Union deforestation regulation, which requires companies to conduct extensive due diligence on their supply chain to ensure the products are deforestation-free. This will impact all countries exporting to Europe, especially countries in which deforestation is a big concern, such as Brazil.

BNamericas: There are increasing calls for greater engagement between authorities and stakeholders to further define roadmaps and policies to migrate to a cleaner energy matrix. What work needs to be done on this front?

Valois, Bezerra-Fischer: In the energy transition context, the dialogue between the multiple stakeholders is of key importance. We have been seeing growing interactions between the public and private sectors in shaping the policies and roadmaps for energy transition with public consultations and public hearings.

International cooperation will also be key since, in the end, we are all living on the same planet, so the solution must be broad enough to account for that. In other words: reducing emissions in one place while increasing in another will not solve the problem, so cooperation and coordination will be essential.

BNamericas: Besides geopolitics and energy crises, what other factors may curb efforts to progress to net zero?

Valois, Bezerra-Fischer: The main challenge is the so-called energy trilemma: how to balance affordability, reliability and sustainability.

The technological challenge will be relevant, as transitioning to net zero requires development and deployment of new technologies at scale. This also links to another big challenge which will be cost: how to make the decarbonized solutions competitive vis-à-vis the traditional fossil fuel-based solutions.

In Latin America infrastructure will also be a big challenge, to the extent that transitioning to net zero requires a robust and flexible energy infrastructure, including being able to deal with the intermittence of renewable energy ensuring reliability of the energy system.