CHAPTER 19 OIL PRODUCING COUNTRIES AND OIL COMPANIES' IMPERATIVE MOVE TOWARDS A LOW CARBON ECONOMY
| Jurisdiction | Derecho Internacional |
OIL PRODUCING COUNTRIES AND OIL COMPANIES' IMPERATIVE MOVE TOWARDS A LOW CARBON ECONOMY
Veirano Advogados
Rio de Janeiro
Monica Kauffman
Shell Brasil Petroleo Ltda.
Rio de Janeiro
Humberto Quintas
BP Brazil Ltda.
Rio de Janeiro
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ALI EL HAGE FILHO is a Brazilian lawyer and a solicitor of England & Wales. He is a partner at Veirano Advogados and has extensive experience in the Oil & Gas sector, working in projects and operations in Brazil and in the UK. Prior to joining Veirano Ali worked for circa 13 years in senior in-house legal counsel roles for BG Group, based initially in São Paulo, then in Rio de Janeiro and lastly in Aberdeen, UK as the Vice President leading the Legal, Compliance and Contracts and Procurement areas of one of the most important business divisions of BG Group, responsible for the company's UK and Norway oil and gas production. Ali holds an LLM from the University of Warwick (UK) and Insper (Brazil). He has worked across different businesses segments within the oil and gas industry, from natural gas distribution and transportation to the full life cycle of the upstream, from early licensing and exploration to production and decommissioning. Ali has led and coordinated legal support to a variety of matters relevant to the oil and gas industry, from financing, M&A transactions and project development to critical issues closer to companies' operations, including disputes, compliance, emergency response and procurement.
MONICA KAUFFMAN is currently Head of Legal Department of Shell Brasil Petróleo Ltda. and also responsible for the management and oversight of all legal aspects of the non-operated portfolio, including the giant pre-salt fields of Santos basin, such as Lula, Sapinhoa and Libra. She has 24 years of experience in legal departments of private and multinational companies in Brazil, with solid knowledge of the oil & gas sector and commercial transactions as in house lawyer. Monica graduated from Universidade Federal do Rio de Janeiro in 1996, with post-graduation in Business Law from IBMEC in 2001 and Oil & Gas Business from Instituto Brasileiro do Petróleo (IBP) in 2003. She started her career in the financial market working for approximately 7 years as an in house lawyer in the banking, capital markets, privatization, corporate and credit to consumers areas at CVC/Opportunity Asset Management in 2001 and at Banco BBM S/A from 1995 to 2000. Monica joined Shell Brasil in September 2001 as senior legal counsel and in 2004 became managing counsel in the exploration & production legal department where was responsible for the Bijupira & Salema project, which were the first producing fields from an IOC in Brazil. After that she was the main lawyer for the development and production of Parques das Conchas fields (BC-10) including its unitization in 2008. In 2009 she did an international assignment at the Shell headquarters in The Hague. In 2010, Monica moved to BG Group as legal manager, responsible to the support to non-operated ventures, such as BMS-11 (Lula and Iara fields) and BMS-9 (Sapinhoa and Lapa fields) and its unitization processes. In 2015 she became head of legal/legal director of BG Brasil, responsible for the management and oversight of all legal aspects of BG Group's businesses in Brazil and led the combination between Shell and BG Group in Brazil. In December 2016 Monica re-joined Shell Brasil Petróleo as a result of such combination.
HUMBERTO QUINTAS initiated his activities in 2001, as an attorney with ExxonMobil's Upstream in Brazil. In 2005 Humberto left Exxonmobil to join the Brazilian Petroleum and Gas Institute (IBP), providing legal assistance to the oil companies acting in Brazil. In 2006 Humberto joined Devon Energy Corporation as General Counsel for Brazil, position that he occupied up to 2011, when he became Legal Director and Vice-President for BP in Brazil and Uruguay, the position that he occupies since then. Humberto Quintas holds a degree in English and in Law (J.D.) from PUC-Rio University and a post-graduation in Petroleum Management from the IBP. He is also a journalist. Humberto is the author of the book "History of Petroleum - In Brazil and in the world" and is currently the treasurer for the International Bar Association's Oil and Gas Committee and the vice chairman of the IBP's Legal Subcommittee.
1. Introduction
Type "Energy Transition" in Google and you will get 3,380,000 hits in a fraction of a second onto your screen. It may sound to some just as one more trending topic of the moment, of unclear importance and urgency, one that is hard to keep track of in terms of what, when and how it is taking place. On a closer look, however, it becomes much clearer that, despite uncertainties, technological improvements in energy efficiency and power generation from renewables, coupled with a desperate need for getting global warming under control, are prompting a revolution to the ways energy is produced and consumed globally.
Oil is now seen as an evil largely responsible for the current and future impacts of climate change and the main obstacle to achieving Paris agreement goals for controlling global warming and moving to a low carbon economy. There is a realization that the world cannot cope with its current dependency on fossil fuels (which represent 80% of today's global energy mix1 ) and that different energy sources are now believed to be able to provide a more sustainable and balanced solution.
Natural gas, on the other hand, is seen as the "transition fuel", to replace energy sources such as coal and oil, particularly in power generation. As outlined later on in this paper, the world will become more electrified, and natural gas is a key component.
The pace of change seems overwhelming. Reports of technological advancements signal reduction in costs and efficiency increase in respect of electrical cars, renewable power generation and electricity storage, leaving an impression that energy transition may occur faster than ever anticipated.
However, this scenario is far from simple and the path towards a low carbon economy is not at all straight-forward. At the same time that the marvels of greener energies and the concerns about the environment are played as a unisonous tune that virtually no-one would dare to
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disagree, carbon emissions are still growing, as well as the projections of oil production and consumption worldwide,2 while regulation is still divided between imposing more radical controls and protecting (legitimate) economic interests.
Oil companies and oil producing countries are facing a dilemma that involves embracing the fight against climate change, living with the threat of seeing oil become obsolete ("leaving barrels on the ground") and continuing to extract the wealth and benefits that derive from oil's value chain.
Governments and oil companies are trying to find alternatives that can allow progressing with supporting the move to a low carbon economy while ensuring a place for a sustainable oil output. It is not projected under any scenario that oil will vanish as an energy source, but it is still unclear how oil companies and oil producing countries will navigate this sea of uncertainty and manage a significant reduction to oil demand in the next decades.
Society's attitudes tend to follow this movement, expecting governments to implement policies and regulation, investors to become more selective and oil companies to remain attractive as employers. In response to these claims, it is visible now how much oil companies are acting to be perceived as and effectively promoting energy transition. Many have begun setting strategic objectives towards reducing emissions within its productive processes and diversifying to investments in renewable energy and energy efficiency.
In this context, oil companies are pressed with criticism from all sides. Some stakeholders will question proposals for venturing into areas beyond oil & gas, concerned with lack of expertise, assumption of unknown risks and lower returns; others will cast doubts about the feasibility of long-term oil projects with "peak oil"3 approaching; and some will also demand more investment in greener energies and transparency as to actions related to the fight against climate change.
Governments are also trying to introduce new regulation and implement new policies to deal with control of emissions and global warming, but it is still early days to assess how effective those will be, especially in developing nations.
Society is also divided. Relying on combustion engines, enjoying large dividend payouts, tax collection and a healthy offer of employment from oil companies are still necessities to which there are no realistic replacements. But avoiding hazards relating to aggressive weather conditions and poor air quality is an even more critical question (of survival), although not yet felt every time one is driving to places or paying bills.
For the foreseeable future, there will be a place for oil - either as an energy source or raw material. There are still certain sectors that are "difficult-to-decarbonize", such as heavy freight and maritime transport, aviation and many industrial processes (e.g., which use oil to create lubricants, plastics, paint and clothing).4 A more sustainable balance to the energy mix, with oil still playing an important role is a much more reasonable and possibly more attainable prediction of the future of energy.
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It is not reasonable to assume that oil companies will completely phase out from oil and that governments will put an end to exploration and production activities, renouncing to the revenues associate with their government take.
So, what will they do? Where are the areas in which governments and companies can act to take their share of responsibility for combating global warming? An...
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