Emergence of the alternate fuel and likely transition in the fuel industry

Energy is the cornerstone of the economic development. It is most vital input to all the goods and services and drives the agriculture, industrial growth, transportation and all the other operations of the modern economy

Emergence of the alternate fuel and likely transition in the fuel industry

Energy is the cornerstone of the economic development. It is most vital input to all the goods and services and drives the agriculture, industrial growth, transportation and all the other operations of the modern economy. Energy consumption is high both in developed economies like United States (US), France, Germany which are highly industrialized nations and also in developing economies like India and China which are rapidly expanding and has huge population.  Non-renewable sources such as coal and oil account for vast majority of the energy demand in these nations.  However, in the last few decades there has been lot of criticism and challenges in form of intense gas emissions like carbon dioxide, carbon monoxide, and sulphur dioxide impacting the quality of air. Use of these sources of energy is also causing temperature to rise and raising concerns about the global warming. The United Nations (UN) Environmental Program warned even if countries meet commitments made under the 2015 Paris Agreement, the world is heading for a 3.2 degrees Celsius global temperature rise over pre-industrial levels, leading to even wider-ranging and more destructive climate impacts.

In addition, oil, coal, natural gas are natural resources and there are fears about depletion of these reserves and availability concerns. For many emerging nations like China and India there is huge dependence on the foreign supply. Like India imports oil from OPEC (Oil and Petroleum Exporting Countries), Saudi Arabia, US which makes the country vulnerable to price fluctuations and adds to inflationary pressures in the economy particularly during times of rising oil prices.  All of these are listed in the chart below:

Given the aforementioned shortcomings, across the globe there is conscious effort to shift away from the fossil fuels towards alternate fuels.  The International Energy Agency (IEA) Sustainable

Alternate fuels are typically renewable sources of energy like solar, biofuels, wind, hydroelectric and enjoy the merits of low carbon emissions and abundant supply.  Some of alternate fuel options are:

  • The solar energy is one of the best alternate fuel with abundant supply as it comes from sun. People are typically installing solar panels in their homes to generate electricity.
  • Ethanol is produced from corn and other crops. It produces less greenhouse gas (GHG) emissions than gasoline or diesel.
  • Hydrogen is considered as one of the most promising sources of energy and can be produced from diverse resources including natural gas, biomass, and water electrolysis with electricity.
  • Natural gas although a fossil fuel is considered to be alternate fuel because it does not contain harmful compounds found in other fossil fuels. As a transportation fuel it comes in two forms - CNG and LNG compressed and liquefied natural gas, respectively. Natural gas is widely used for the domestic purpose.
  • Electricity is considered to be one of the highly efficient sources of energy sourced from electrical grid and stored in the rechargeable batteries of all electric vehicles or hybrid vehicles that make use of both electricity and conventional fuels causing emissions than gasoline- or diesel-powered vehicles when in operation.

However, there are several challenges associated with use of these alternate source of fuels as well. Key ones are they are costly, maintenance cost, need to develop technology to harness more energy from them among others.

Development Scenario and the Shell Sky Scenario maintains global liquids demand at 66.7 million barrels per day (mm bpd) in 2040, or 30% below 2018 levels. The shift is bolstered by significant growth in electric vehicles, energy efficiency, biofuels, and hydrogen.

In the recent years, all of these alternate sources of energy are gaining popularity to have safe, sustainable environment. Many developed nations like Europe, UK, New Zealand are aiming for net zero emissions policies for 2050 and government in many developing nations like India and China are also focussing on tapping these renewable sources of energy and bring in the energy transition. Like for instance, Finance Minister Nirmala Sitharaman announced in the Union Budget 2021-22 to provide capital infusion of Rs.1,000 crores to Solar Energy Corporation of India and Rs. 1,500 crores to Indian Renewable Energy Development Agency. Also launched a National Hydrogen Energy Mission (NHEM) for generating hydrogen from green power sources. The government has committed nearly Rs. 1.97 lakh crores, over 5 years starting FY 2021-22 including Rs. 4500 crore for ‘High Efficiency Solar PV Modules’ which will be will be implemented by Ministry of New & Renewable Energy (MNRE).

Way ahead

Globally, given the emphasis on the alternate fuel and decarbonization, the mainstream oil and gas companies need to reshape, replan their future business strategies to sustain and emerge as a key player in the energy transition going forward.  Some of the likely strategies these organisations can adopt and in turn the role play in future economic development is as follows:

  • Need to adopt climate-focused Environment Social Governance (ESG) principles into business models which will include assessment of the environmental risk, complying with the environmental standards, bring in more transparency and implementing frameworks for carbon disclosures etc.
  • Diversification in the mainstream business and shifting the focus towards electrification and alternate energy services which have low carbon emissions
  • Extending support towards technologies aiming at decarbonization at company and industry level wherein hydrogen is one of the most promising contenders for decarbonizing petroleum
  • Use of natural gas as an alternative to coal - a low-cost fuel in the developing countries providing more reliable renewable resource.

Besides the aforementioned strategies by major oil companies, major oil producing nations, global policy makers will also play a major role in bringing energy transition and contributes towards balancing act of meeting global energy demand, invest and support alternate fuels and ensure low carbon emissions and sustainable environment.