Financial institutions and renewable energy directives are contributing to significant underinvestment in oil and gas projects, Tengku Muhammad Taufik, the president and group CEO of Petroliam Nasional (PETRONAS), and Dr Daniel Yergin, the vice-chairman of S&P Global Ratings, told ISFI.
In a press conference closing off the first day of the inaugural Energy Asia conference, Tengku Muhammad and Dr Daniel posited that the traditional energy sources have a role to play in Asia’s energy transition agenda, with a radical shift to renewable energy sources not being a viable option for most nations due to the higher relative cost of renewable energy.
“The reality is we are seeing a lot of narratives from policymakers being pushed to extremes … The system that we are moving to is not ready yet and calling for an absolute halt in one is just a recipe for disaster,” Tengku Muhammad told ISFI.
Maintaining that traditional energy sources should be part of the energy mix while Asian nations work toward energy transition, the energy producer CEO held that existing top-down regulatory directives and in-house sustainability policies from financial institutions often exclude oil and gas projects from accessing financing.
According to Tengku Muhammad, the current energy financing landscape has resulted in PETRONAS struggling to secure financing. In a pricing exercise for a fossil fuel project, the energy producer found that the risk premium for the project was either too high or financial institutions were imposing impractical conditions on the project financing.
“There was always the concern in 2017, 2018, 2019, that money put into oil and gas would be stranded capital,” Tengku Muhammad elaborated on PETRONAS’s experience speaking to financial institutions.
According to Dr Daniel, the significance of underinvestment in traditional energy sources was particularly evident in the autumn of 2021 prior to the Russian invasion of Ukraine.
“That was simply because of the strong economic growth that ran up right up against available supply. So that’s the risk that hangs over the market when we are in a period of renewed economic growth,” Dr Daniel explained to ISFI.
Dr Daniel also opines that Asia is the most vulnerable region to underinvestment in oil and gas, citing how Bangladesh and Pakistan had to revert back to coal due to liquified natural gas not being affordable in the region.
Instrumental to energy transition are energy security and energy affordability, Dr Daniel summarized.