All countries have had to deal with the intensifying effects of climate change in recent years. As a direct response, we are in the process of moving toward a low-carbon future. The Paris Agreement and the EU’s Green Deal have already urged all sectors to take measures to reduce carbon emission levels, and the energy transition movement is rapidly growing. COVID-19 has also hastened this global movement.
The main plan for reducing carbon emissions is to increase electrification and decarbonize the electricity sector through renewables. This is a great plan, as far as it goes, but electrification of all industries is not an easy target, and renewables have their own struggles. Unlike fossil fuels, which are available at any time, wind and solar power plants generate electricity only when the sun is shining and the wind is blowing. A huge challenge arises as electricity is, in principle, generated and consumed simultaneously. Additionally, renewables cannot replicate certain qualities of fossil fuels, such as high heat.
Cutting-edge technologies help increase the share of renewables in the energy sector. Storage technology, which was previously only employed in niche markets, can now be broadly used since the average cost of batteries has fallen drastically. This will allow renewable-based power plants to increase reliability and balance. Smart grid technologies and grid digitization, on the other hand, will reduce losses incurred through grid operation.
Based on these latest developments, increases in the share of renewables in the electricity generation mix are expected to push to 30% in 2021 globally, according to the International Energy Agency, the highest rate ever achieved. A strong drive by governments toward de-carbonization also helps to increase the share of renewables and causes a downward shift in oil and gas demand. Therefore, it is not surprising that upstream investments have slowed. The share of renewables in Turkey is also increasing, in line with global trends, and is expected to reach at least 30% of the electricity generation mix by 2023. Heavy dependence on oil and gas imports also compelled Turkey to prioritize renewable energy resources.
Although technology and governmental acts help the move away from fossil fuels, achieving climate change targets based only on electrification and renewables will be a long plateau. We still need oil and gas in the energy transition process. According to BP’s Statistical Review of World Energy 2021, oil continues to hold the largest share of the energy mix with 31.2%, while natural gas holds a share of 24.7%, among all primary sources in the world. Regarding the regions, natural gas dominates in the CIS and the Middle East, while oil remains the dominant energy resource in Africa, Europe, and the Americas. If energy transition trends lead to a shortfall in investments, they could cause future supply shortages risks. Therefore, we can expect to see regulations that continue to support the oil and gas market, in parallel with regulations supporting renewables. Turkey also continues to invest in domestic oil and gas exploration and production activities. Especially for natural gas, transmission and distribution networks and storage facility capacities have been increased of late, and new international pipelines have been implemented. The Turkish Natural Gas Futures Market will also open on October 1, 2021.
In any case, the oil and gas sector now rapidly needs to reorient investments based on the energy transition trends. Future investments should be environmentally friendly and impact-focused, and they should adopt new strategies accordingly. The first priority of oil and gas companies should be to maintain a low cost and lower carbon emissions. Indeed, it has become increasingly common for oil and gas companies to provide commitments to reduce emissions and move to supply a diverse range of fuels and electricity for that purpose. They are working on alternatives such as (1) biofuels, which when burned release the same amount of carbon the plant captured when growing, provided that the process of turning plant matter into usable fuels runs on zero-carbon energy; (2) green hydrogen, to be produced based on renewable energy; and (3) carbon capture, storage, and use.
The oil and gas sector appears trapped between electrification and decarbonization strategies and the trends to replace fossil fuels with renewable resources. Although we will need oil and gas in the energy mix for years to come, the future of the sector depends on how successfully it can adapt to a sustainable low-carbon structure.
By Nigar Gokmen, Head of Energy, Mining and Infrastructure at Esin Attorney Partnership