Any analysis on oil must consider what is happening in the climatic, geopolitical and technological spheres, from which in turn derive the main consequences in terms of regulation that determine its evolution. To this must be added the monitoring of a market deeply impacted by the economic crisis as a result of Covid-19, its effects on the supply and demand of oil and energy, and on these three parameters.
In climate matters, as Europeans, the scenario is that of compliance with the more demanding targets for reducing CO2 emissions set by the Paris Summit, which must serve to achieve three strategic objectives: the opportunity for the EU to regain the weight lost in recent decades in an international scenario in profound transformation; place the technological and industrial challenge at the heart of the European project and avoid the real risk of Europe’s decline vis-à-vis other economic geographies; and definitively build the European Energy Union, essential to achieve the energy transition.
From a global and geopolitical dimension, what happened this October in the European neighborhood: the Nagorno Karabakh conflict, the tension in the Eastern Mediterranean between Turkey, Cyprus and Greece –among others–, Libya, or the fragile stability of Algeria in the that Spain’s is a subsidiary, it is not alien to hydrocarbons. In terms of emissions, the big news has been the Announcement made by China this month at the United Nations General Assembly that it aims to reach its maximum CO2 emissions by 2030, and to reach full carbon neutrality by 2060, advancing and overturning its own calendar.
This announcement has fueled debate about whether the pandemic and the economic recession it has caused could have accelerated technological change in the energy sector. Because what is happening in the technological field? In the race to reduce emissions, improve competitiveness and maintain industrial capacity and what depends on it – quality employment, fiscal capacity and well-being – industries, agents and technologies compete in a time of great complexity which requires innovative audacity, transparency and good regulation. In this framework, oil is not only a fuel, it is also the basic raw material for a very wide range of materials of all kinds. In OECD countries, companies in the oil sector are immersed in ambitious strategies to convert to multi-energy, while, thanks to their technological capacity and size, they manage emission reduction projects. In this context, there are two great debates open today for the sector. On the one hand, that of «technological neutrality» in the transition so that the decarbonisation route is the most cost-efficient and not deterministic – developing emission capture technologies (CCUS), for example, or others such as hydrogen that not long ago they seemed technologically inaccessible. On the other, that of gross or net emissions, taking into account the complete industrial life cycle and each and every one of the emissions.
It is still too early to really know if Covid-19 has accelerated technological change. The European Recovery and Resilience Plan should provide the necessary instruments for its previously non-existent potential financing. Until we know for sure, we can only anticipate that the oil market, like so many others, will recover when we overcome the health and economic crisis that it has generated. While, we must get our regulation right, because the future of the planet and our future as Europeans with a socially sustainable way of life and well-being, depend on it.
Juan Moscoso del Prado is director of Deusto Global Affairs (Deusto Business School)