< Previous20 OUTLOOK oilandgasmiddleeast.com JANUARY 2022 More effort needs to be made on working with partners for the oil and gas industry to address energy transition challenges, says Montri Rawanchaikul, CEO of Thailand’s PTT Exploration and Production IT’S TIME TO MOVE TO COLLABORATION FROM COMPETITION21 OUTLOOK oilandgasmiddleeast.com JANUARY 2022 grew up, we started working overseas in international projects. We actually came to the Middle East back in 2002 with the project in Oman, we were the operator of the oil and gas project in Oman. And we grew. Today, we have about 40 projects in around 15 countries. But recently, about five years ago, we were looking back at our history, the successes we have had, and the failures we made. We looked at lessons learned to examine what we are good at. Based on our experience, the expertise we have, we came up with a strategy that we call “coming home.” The coming home strategy is based on coming back to what you are actually good at. We believe that part of it is in the Middle East, in UAE, in Oman, because we’ve been in this region for quite some time. So now the strategy is that. We also have operations in Thailand, in Malaysia, and neighbouring countries to Thailand, producing gas, supplying the gas to Thailand. In the Middle East, our focus is on Oman and UAE. I’ve seen recently there’s been a couple of announcements from PTTEP regarding projects in the Middle East. Could you walk me through what the presence looks like here at the moment? The UAE just recently celebrated their 50 year National Day. Thailand and UAE has relationship I think about 45 years old. Thailand and PTT, our parent company, is a major oil buyer. We buy a lot of crude from the UAE, from ADNOC, and we have worked on the relationship for some time. We started in Oman back in 2002. More recently in 2018, when UAE started opening up exploration blocks, we worked through our partners and became partners with Eni as the operator. We are joint venture partners, we have three offshore exploration blocks in Abu Dhabi, block one, two, and three. Three just came up recently, we’re doing exploration there now including seismic surveys, and are now drilling a well there with Eni as the operator. We are comfortable working in this country as a host country - the UAE and Thailand have a good relationship over the last 45 years. So afterwards ,when Eni said they also had an onshore exploration project, we were interested. We expanded our exploration to onshore Sharjah block Area C, we took 25 percent of the exploration. The block is actually for exporting gas because SNOC, the Sharjah National Oil Company, already have a gas processing plant producing gas for one block, so we realised that if we can find gas in an adjacent block we could send it to that plant. So that’s the recent investment we made in UAE. Talk to me about PTTEP and sustainability? How is the company adapting to the energy transition? Happy to do so. For more than five years people have talked about disruption. We took a deep dive to gain some understanding, and we believe that disruption in energy is not as simple as in other sectors, like fintech. We looked at it as how we could keep the company going in terms of the business and be more sustainable, we had to come up with a clear business direction: One we are good at oil and gas, so we keep E&P as our core business and continue to do so, but the core business has to change, you cannot live in this world by not addressing the concerns of climate change. With our E&P we have begun to gear towards gas, gas has to be cleaner. And when I say cleaner, what is it? In this regard we are now looking at CCUS, carbon capture utilisation and storage. We believe that the project that has been done successfully in Europe can also be implemented in Southeast Asia, and Thailand can be a hub in terms of carbon dioxide storage and cross country storage. So, one is to maintain, sustain our E&P business, and keep it as a core. Secondly, we call ourselves a cautious diversified player. In this regard we need to go and look at new businesses, such as renewables, technologies, and power sectors. That’s our second direction. Thirdly, is the energy transition that we talk about. The energy transition can be hydrogen, it can be a new form of energy with less carbon dioxide. These are the clear three directions of So to start with, I think maybe it’d be useful if you could give us a bit of an overview about who PTT Exploration and Production are and why we’re talking here in the UAE? PTTEP is a national oil company, PTT is our parent company, and we work in exploration and production. We’ve been in the business 37 years now. First 10 years was mainly in Thailand, with joint ventures or with investors coming into Thailand, onshore oil fields, offshore gas fields, and now we have grown up. We 22 OUTLOOK oilandgasmiddleeast.com JANUARY 2022 but without any policy attached. To me, we have done so little and we need to do more, the policymakers need to come out and say they will give the support and make the changes happen. We need to work collaboratively, the government, the private sector, and investors like us, we really want to do it, we’d like to reduce carbon. PTTEP set a target to decrease our greenhouse gas emissions by 25 percent from the baseline by 2030. And, believe it or not, I just reviewed our five year plan before I came here: That target will be met next year, by 2022, 25 percent greenhouse gas reduction, that will be our target next year, eight years early. But then, what’s next? You cannot just say reduction of greenhouse gas because the world is going to net zero, that’s going to be carbon capture utilisation and storage. And that has to be on a bigger scale across the world, the policymakers, the carbon tax, carbon credit, investment across the workforce. We’re talking at the point where the Covid-19 pandemic seems to be receding. Do you feel that the oil and gas industry is back to normal? Number of things to look at here. The pandemic is now endemic, we are going to have to live with it. During the pandemic, during the lockdown, we learned what we call the new normal. Now, you can work from anywhere, you can work from home, with the technology we have. So that will be the new normal that we’d like to implement in PTTEP. Starting from next year, we actually have a trial of this co- working space, hot seat rotation and so on, you can work from home you could work from anywhere, as long as you have the technology and security in the technology. That would be a new normal that I see in the post-Covid world. Industry-wide, Covid-19 shocked demand, but soon after, when the economy started to recover, you saw demand outpace supply, because people cut investments over the last few years. So now the oil price started going up again. That will not be sustainable in the longer term, the imbalance of demand and supply, we need to think about it and find solutions. What is your expectation for 2022? How do you see things going in the short term? 2022 will be a challenging year because we are coming out from this pandemic. Coming back to oil and gas, a return to the balance of supply and demand will be very important. It’s one thing that I really want to see happen, because I don’t want to see the price go high up and then collapse. We have seen so many recoveries in the last 20 years. We don’t want that again, we want something more sustainable. But that’s harder than just saying it because to see that happen you need to actually catch up with the supply to meet the demand. But if I will add something here, I think collaboration is going to be key. Three years ago, we came up with a new vision called PTTEP is the energy partner of choice. We are focused on energy, and we would like to partner with everyone. The landscape has changed, the landscape has changed from competition to more of collaboration. the company. That’s where PTTEP is going, and that’s how we form part of our sustainability targets. Do you think the energy industry is doing enough to embrace sustainability? Where do we need to work on more? And where do the challenges still remain? People are saying, “enough said but not enough work,” only a few things have been done in terms of decreasing carbon emissions. We need to do more. But in my view, I think we need to do more, but we also need more work to happen at a high level. Policymakers need to come and say, “Look, we’d like to make this happen. This is what we can do with a policy. This is your incentives.” I’ve seen what can happen when a policymaker comes out and does this, the project will take off from the ground. But sometimes I see it in reverse, the leader comes out and says, “We’d like to be carbon neutral by this date, we’d like to be net zero by then,” Chemicals Industrial Infrastructure MiningConstruction Gas Re ning Oil Pipeline Petrochemicals Renewables Power O shore Water24 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 202225 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 2022 C limate change and the energy transition have been top of the agenda for the energy industry, with discussions at the COP26 summit in Glasgow, and ADIPEC 2021 focusing heavily on how to move to a lower carbon future. A recurring topic in these discussions has been hydrogen, be it green, blue, or any of the myriad of other colours suggested. However, the feasibility, challenges and difficulties facing the nascent technology have still to be overcome. As such, Oil & Gas Middle East has launched an ongoing thinktank discussion with experts, industry insiders, and stakeholders from the energy industry in a bid to better help our readers understand hydrogen and the developments in the sector. The thinktank will continue to meet on a quarterly basis. In this, the first discussion, Oil & Gas Middle East was joined by Otmane Benamar, GM of New Units Engineering, GE Gas Power Europe, Middle East, and Africa; Alan Hayes, Head of Energy Transition Pricing, S&P Global Platts; Vinod Raghothamarao, consulting director at IHS Markit; Rajeev Singh, Partner, EY; and Gurmeet Kaur, partner at Pinsent Masons. SETTING THE STAGE The discussion began with an examination of the industry’s current perception of hydrogen as a power source. “I think hydrogen is really important for the power generation sector … carbon capture technology and hydrogen provides a lot of flexibility,” Benamar says. “The technology can accommodate burning hydrogen, then you can decarbonise depending on the level of the blend, then you will decarbonise to different levels.” Benamar notes that by decarbonising using hydrogen technology, investment is maximised in the long term, in contrast to gas technology which, while attractive currently, will not be able to completely decarbonise in the future. Oil & Gas Middle East ’s first hydrogen thinktank series discussed the challenges ahead for hydrogen adoption, including difficulties in categorisation and the competition between blue and green hydrogen Examining the Middle East as a hydrogen hub Words: Matthew Amlôt Vinod Raghothamarao26 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 2022 Hayes explains that in terms of efforts to decarbonise, hydrogen investment represents the biggest “bang for your buck,” given the opportunities to use the technology to decarbonise markets that are difficult to electrify. The flexibility of how hydrogen can be developed and used is a key advantage of the technology, Hayes adds. “In theory, you could go all the way from having hydrogen injecting into your existing gas pipeline network, all the way through to planes, using hydrogen as a fuel source. This flexibility is what has helped to generate the excitement around hydrogen as a decarbonisation fuel,” Hayes says. Meanwhile, Singh notes that in terms of commercial scalability, he believes hydrogen is still 5 to 10 years away, and the energy industry is making an effort to capitalise on the potential of hydrogen. He compares it to the solar energy market, where he says energy majors generally missed “a great opportunity” a few years ago because “they always thought solar PV was much further away than they thought it would be.” As such, international oil companies are now taking the energy transition much more seriously and becoming “a little bit more aggressive around their hydrogen strategy.” “They don’t want to be caught napping with being two steps behind. So this time around, it’s the large IOCs and the NOCs who are stepping up beginning to put their money where their mouth is and say ‘we want to be the first movers in this space.’ And that’s creating some serious buzz in the market around this discussion,” Singh explains. The GCC, and especially Saudi Arabia and the UAE, were highlighted by Raghothamarao as “potentially attractive locations” for hydrogen investment. In particular, Raghothamarao notes that the region will likely need to embrace both blue hydrogen and green hydrogen to tap the innate resources of the region. Rajeev Singh27 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 2022 “I agree that we shouldn’t forget the discussion on blue hydrogen this part of the world given the decline in oil prices, and some of the challenges that companies are facing,” Kaur comments. Benamar likewise notes that the advantage of blue hydrogen over green can currently be found looking at the difference in volumes. As an example, Benamar points to the world’s biggest green hydrogen project in NEOM, Saudi Arabia. When completed, the facility is set to produce 650 tonnes of green hydrogen daily, but it requires a huge investment, carrying a price tag of $5 billion. “One of our latest technology gas turbines will consume that in a single day … so making such volumes available with green hydrogen is quite a major investment today … I think blue hydrogen is more important than the other colours. I think we need all those streams to make sure that we supply enough volume,” Benamar adds. Oil and gas firms are inherently in a positive position to pivot to blue hydrogen as the essential ingredients needed to make the product can generally be found using waste gas and existing infrastructure. “I think these companies, the big oil companies, have an interest to provide blue hydrogen, because this is what will sustain the industry, the oil industry in the region, and make enough hydrogen available for the different industries,” he notes. Contrasting this view point, Singh notes that the oil and gas industry buzz around blue hydrogen is simply because it represents “a very small natural diversification of their current portfolio to step up production … this is what the commercial realities are today.” The excitement around green hydrogen, however, is quite different, with the enthusiasm focused on the possibility of bringing costs down to the same level as blue hydrogen. Singh also notes that it is important to pay attention to the way in which the world is dividing into “a couple of large centres of hydrogen production for export.” In this regard, the Middle East has a natural advantage, although the nature of scaling up green hydrogen production for a global market still leaves some questions unanswered, Hayes says. “In terms of how that affects the Middle East, [the question is] what’s the cost advantage that can be achieved by the traditional definition of green hydrogen in the Middle East? “If we can deliver something along the timetable that we’ve seen in the solar sector, then we’re looking at by the end of this decade, or not that much longer, for green hydrogen to be cost competitive,” Hayes says. “ALL OF THE DIFFERENT COLOURS OF THE RAINBOW” While the general excitement around hydrogen has continued, the way in which the fuel is produced is quite varied. Most industry conversation has focused on green and blue hydrogen, but other alternatives exist, such as turquoise and pink hydrogen. The colour refers to the different method in which the fuel is produced, and can also stand as a reference as to how climate friendly it is in production. However, these differences mean that pricing hydrogen as a whole is a difficult process, with the climate friendly nature of different types of hydrogen proving a challenge. Instead, Hayes suggests that developing a new classification system is key to delivering a global hydrogen market at scale. “We’re looking at something that completely gets rid of the colour designations. And you have what is developing in other commodity markets where you have carbon accounted commodities,” he says “You don’t really think about the production route or whether it’s green or blue, you just say this production route has this much amount of carbon attached to it, and you almost separate that from the molecule. And then in that way, you bring the whole hydrogen market together as one to facilitate the scaling up that we’re trying to deliver for the hydrogen economy on a global basis,” Hayes explains. This change would combine “all of the different colours of the rainbow into one hydrogen market where you can easily trade across regions because you understand the carbon intensity of my hydrogen versus your hydrogen,” he notes. “My own view is that the colour coding is a proxy for the carbon content that you’re talking about. So people are just I THINK HYDROGEN IS REALLY IMPORTANT FOR THE POWER GENERATION SECTOR … CARBON CAPTURE TECHNOLOGY AND HYDROGEN PROVIDES A LOT OF FLEXIBILITY, OTMANE BENAMAR, GM OF NEW UNITS ENGINEERING, GE GAS POWER EUROPE, MIDDLE EAST, AND AFRICA Otmane Benamar 28 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 2022 using that as a simple way of [designating the type of hydrogen they want], which is like Germany saying, ‘I’m happy to take green hydrogen from anywhere in the world, but I will not take blue hydrogen,’” Singh says. MORE REGULATORY WORK NEEDED In the Middle East, Kaur points to the regulatory framework as a key challenge facing hydrogen development, noting that it’s “really quite undeveloped at the moment.” Without a solid regulatory framework, “there’s no clear incentive to actually move the industry in one way or the other,” she says. In comparison to the solar industry, frameworks on how to distribute solar power and legislation were put in place to try and incentivise the market, and a similar push is needed for green hydrogen, Kaur explains. Meanwhile, Raghothamarao notes that the lack of specific country wide and national hydrogen strategies has left different governments in the GCC with “complete freedom” without a specific path to decarbonisation and hydrogen development. While from the outset this may appear as a negative, Singh explains that when examining the evolution of the power and renewable energy sectors, regulations tended to follow the introduction of large scale investment. Incentives were also highlighted by participants as a significant trigger for the introduction of substantial hydrogen development. “I think incentives are quite important. As we’ve seen with renewables, in this area the incentives will be key,” Benamar says, noting the incentive structure could take different forms. Incentives could be linked, “to the fuel itself, or to the carbon emission,” he adds. “I think both can be a good play to make sure that the introduction of hydrogen goes faster than what we are seeing,” Benamar comments. However, despite the importance of these incentives, Benamar notes that these have been absent from the Middle East so far, despite conversations ongoing. Opposing the likelihood of these incentives, however, Kaur explains that the introduction of these incentives would be against the historical development of the Middle East. “I think traditionally in this part of the world you wouldn’t see the sort of incentives that [Benamar] mentioned,” Kaur comments. “I think we’ve discussed and tried this a few times when solar was first talked about, but it never eventuated in any sort of regulatory policies … I very much doubt that you will see that sort of incentives and it will be more along the lines of giving probably tax holidays or some kind of investment support.” LOOKING TO THE FUTURE Given the ongoing nature of the hydrogen discussion, all participants were asked for their outlook on the future and what developments are likely to occur over the next three months and further into 2022: “I think next year is going to be connecting ammonia and hydrogen together to deliver the potential for hubs like the Middle East, to get the hydrogen out into the world. We can look 10 years down the line and there will be more I THINK NEXT YEAR IS GOING TO BE CONNECTING AMMONIA AND HYDROGEN TOGETHER TO DELIVER THE POTENTIAL FOR HUBS LIKE THE MIDDLE EAST, TO GET THE HYDROGEN OUT INTO THE WORLD, ALAN HAYES, HEAD OF ENERGY TRANSITION PRICING, S&P GLOBAL PLATTS Alan Hayes29 SUSTAINABILITY oilandgasmiddleeast.com JANUARY 2022 vessels potentially, that are capable of moving hydrogen. But there are markets that exist right now and technologies that exist right now to transport blue ammonia out of the Middle East and into the rest of the world. And I think that is going to become much more part of the conversation as we get into next year,” Hayes says. “I think over three months we will definitely see multiple decarbonisation pathways with probably more focus on how to keep the costs coming down further, more improvements in technologies, in enterprise capacities, and also probably even government support in establishing new hydrogen programs and initiatives to drive forward different goals of different GCC countries,” Raghothamarao says. “I think what will be interesting is to see the development in Oman and WE SHOULDN’T FORGET THE DISCUSSION ON BLUE HYDROGEN IN THIS PART OF THE WORLD GIVEN THE DECLINE IN OIL PRICES, AND THE CHALLENGES THAT COMPANIES ARE FACING, GURMEET KAUR, PARTNER AT PINSENT MASONS elsewhere, with new players coming in. So more and more private sector players moving away from just the companies that we’ve heard so far … I also think there’ll be more discussion about storage and transport of hydrogen, because in order to get to a truly global market … what we really need to discuss is storage and transport,” Kaur says. “With this short term I think what we will see is more conversion of those announcements about long term objectives, and people trying to lay out the path to achieve those objectives. I think we will see every country, every industry, laying out that path in the short term. And also this will be especially true for the region. I think this will be pushed by the organisation of COP27 and COP28 in Egypt and the UAE,” Benamar says. “I think Abu Dhabi will start taking pole position in our region, I would be hopeful to see some development, positive development in Saudi Arabia, because I think at the moment, there’s more talk there, but I want to see some action. And I would be delighted to hear an announcement of an actual project or some sort of initiative that’s happening … And then, of course, the regulation and development. I think, hopefully Abu Dhabi will, by that time, have appointed their advisors, which demonstrates, I think, another positive step on the ground,” Singh says. Gurmeet KaurNext >