ESG And Sustainable Development Of The Oil And Gas
The Impact of Decarbonization on the Oil and Gas Industry
Marat Kalmenov, KAZENERGY AssociationThe solution to the energy sustainability issues, the need to meet the current needs of the energy sector, and the construction of energy systems of the future are carried out today in search of an optimal balance between the three main characteristics of the energy system: security, accessibility, and environmental sustainability united in the concept of "Energy Trilemma" (within the broader concept of Sustainable Development).
Until recently, Kazakhstan's energy policy and corporate strategies were developed considering the need to ensure, firstly, energy security (the technical ability of the energy system to meet the current and future demand for energy from internal and external sources). Secondly, compliance with the principle of energy availability (physical availability and economic accessibility of energy for consumers) and environmental sustainability (generation and consumption of energy in the most environmentally friendly way).
With the adoption of international commitments on Kazakhstan's transition to carbon neutrality by 2060, the environmental sustainability of energy systems and the need for their decarbonization are becoming a key priority for developing the fuel and energy complex within the framework of determining the optimal balance of the Energy Trilemma.
For our neighbors in Central Asia and the CIS, ratifying the Paris Climate Agreement and the assumption of voluntary commitments to reduce greenhouse gas emissions by 15% by 2030 from 1990 levels is a kind of play, an opportunity for dynamic economic development. And for Kazakhstan, this agreement had a more limiting effect since, already in 2017, we reached the 1990 emissions level. In 2018, we exceeded this threshold. During the pandemic, we rolled back a bit in emissions, but the country's energy consumption grew even with a negative GDP result.
What is decarbonization? It should not be confused with low-carbon development. First, this is the refusal to burn fuel of any kind, not only coal but also lubricants, oil, and gas. How is this possible, and how realistic is it for the economy of Kazakhstan, which consists of 70% coal generation? At the state level, the decarbonization of the economy is planned to be carried out through the transition to more sustainable energy sources and the use of electricity and heat instead of the direct burning of fossil fuels, and increased use of natural gas in the interim transition period.
What is the challenge of decarbonization for Kazakhstan, which has one of the most carbon-intensive economies in the world?
In the structure of fuel and energy resources used in the country in 2020 (150.7 mln tons of oil eq.), oil and petroleum products account for 41%, coal and coal products – 29.4%, natural gas, including compressed (motor fuel) – 7.6%, electricity – 16.2%, thermal energy – 5.8%. The share of RES in the domestic energy consumption of the country is 2%.
Despite the fact that the share of coal and coal products is less than 30% (in comparable energy units), its contribution to national net emissions exceeds 55.7%. Accordingly, the main emphasis of decarbonization is placed on the electric power sector. According to the basic forecast scenario of IHS Markit, the share of coal generation in Kazakhstan's energy system will decrease significantly from 69% (in 2020) to 34% by 2030 and 26% by 2050, which means that coal will still be present in 2050.
At the same time, it is assumed that by 2040, the systems for absorbing greenhouse gas emissions (carbon capture and storage, CCS) will reach sufficient maturity and economic feasibility for use in coal-fired power plants, which will extend the terms of their application. Thus, if there is no breakthrough in energy production technologies, Kazakhstan may return to commissioning coal-fired capacities to maintain economic development.