MATHIAS STECK    Hello and welcome to the 13th series of the DNV Talks Energy Podcast. I'm your host, Mathias Steck. During this series will be exploring some of the key insights from DNV's Energy Transition Outlook - our annual independent model of the world's energy system and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we shed light on what's happening right now and the forecast as we move forward. We explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we ask how do we move from ambition to urgent action over climate change? I'm joined today by Fauziah MARZUKI, Head of Bloomberg New Energy Finance, Asia Pacific Power Gas and Carbon Market Research and Analysis with a background in the oil and gas industry and now focusing on market analytics and data-driven tools, she is uniquely placed to give a perspective on how the industry rapidly reduce its carbon footprint. In this episode, we focus on the industry that needs to undergo the most radical transformation of all if the world is to meet net zero targets - oil and gas. How can the sector contribute to global decarbonization? And what tools does it have in order to achieve this? How quickly can it reduce emissions and accelerate growth of clean energy production? We hope you enjoy the episode.

Welcome to the DNV Talks Energy Podcast, Fauziah. It's a pleasure to having you here for the benefit of our listeners. Could you tell us a little bit about your background and your role at Bloomberg New Energy Finance?

FAUZIAH MARZUKI    All right. Thank you, Mathias. So glad to be here with you today. So, yes, I'm with the Bloomberg NEF team and I take care of our APAC power, gas and carbon markets research and analysis. My background is at core, it started as oil and gas and I myself wanted to transition. So I joined BloombergNEF after years in the oil and gas industry. I used to work for the Malaysian National Oil and Gas Company, Petronas, and there I had roles in corporate strategy, LNG trading, upstream oil commercial operations to name a few. I took a bit of a break and then joined BloombergNEF and I started their short-term LNG trading analytics, research and analysis. Moving on then to take care of the entire global LNG service. And now in my current role, I take care of all of the APAC power markets. At BloombergNEF, we see ourselves as strategic advisors for the energy transition and our market research and analysis. Our tools are all used all the way from boardroom executives to decision-making to the trading floors.

MATHIAS STECK    I'd like to start with a very broad question. How much of the world's carbon output is attributable to the oil and gas industry, whether directly or indirectly?

FAUZIAH MARZUKI    A lot? Is that enough of an answer? No. So it is definitely a lot. So if we look at global greenhouse gas emissions, about 75% of it comes from electricity, heating industry, transport, buildings and other kinds of energy use energy sources. The remainder is forestry, agriculture, land use, etc. And so for electricity, we burn fossil fuels, we burn coal, gas for electricity. We use gas to heat our homes to cook and we use petrol to drive our cars. So yes, over 75% of global greenhouse gas emissions are attributable in some form or other to the oil and gas sector or oil and gas consumption.

MATHIAS STECK    So an important part of the energy transition is the decarbonization of the oil and gas sector. Could you describe a little bit what that means?

FAUZIAH MARZUKI    Yes. So decarbonization, ultimately what it means is to get rid of the carbon. However, it perhaps is a little bit awkward for the oil and gas sector since oil and gas is ultimately molecules of hydrocarbons. So when you say decarbonize oil and gas, sometimes it's a little bit sort of odd to think about it. When the energy sector looks at decarbonization, they usually mean it to be some transition away from the consumption of oil and gas or fossil fuels. However, when it's said from the perspective of the oil and gas sector, we take it to mean decarbonization is about reducing the carbon footprint of oil and gas operations. Most of the focus today, when we talk about decarbonizing the oil and gas sector, it's about emissions reduction.

MATHIAS STECK    So could you give a few examples of how exactly the oil and gas industry can decarbonize?

FAUZIAH MARZUKI    Sure. When we talk about decarbonization more broadly in the energy space, this is, for example, to heat your home you use electricity instead of a gas boiler, you use for a feedstock in petrochemicals, you use green hydrogen molecules that are produced from renewable energy as opposed to gray hydrogen molecules that were produced from oil and gas or gas in particular. That's proper decarbonization, if you like, like the energy sector's decarbonization. But when we talk about it from the oil and gas perspective. Decarbonization, for example, is something like reducing CO2 emissions from offshore oil production by capturing and sequestering it in the ground through CCS, or, for example, an LNG plant, liquefied natural gas using solar panels or grid electricity as opposed to gas turbines for power generation. This is all reducing the carbon footprint of still core oil and gas operations.

MATHIAS STECK    So appreciating that your main focus in your role is Asia Pacific. Do you see different approaches and a different pace how the oil and gas industry is pushing the decarbonization?

FAUZIAH MARZUKI    So interesting question. And with all interesting questions, there's always a yes and no answer. So let's talk about the oil and gas companies specifically. Depending on the national oil and gas company, the home domicile of international oil and gas companies, their take on decarbonization and their urgency to, you know, achieve net zero is usually aligned with some kind of national rhetoric if you like. So the pace at which they go, it's usually in keeping with how the country, their domicile kind of aligns to. So you will get varying strategies, you'll get varying paces. You'll have certain oil and gas companies which have now been rebranded as energy companies. You'll have some oil and gas companies who are still heavily investing in their core business of oil and gas. And they've got nothing to do else with other aspects of the energy space. So that's sort of what's different between Asia and Europe. We've seen European oil majors be a lot more trendsetters in the energy transition, whereas the laggards are mostly here in APAC or in the Middle East, sort of these national oil and gas companies. However, when you talk about decarbonization technologies or the net zero technologies, the stuff that's going to get us to net zero, technology is region agnostic, right? The application of CSS is no different in Brazil than it is in Malaysia. So in that sense, decarbonization strategies for the oil and gas sector are going to be the same.

MATHIAS STECK    Yeah, I want to touch on the CCS or CCUS topic a little bit later. There is another way how we can bring emissions down, and that's hydrogen in particular, green hydrogen. And at least from a DNV perspective, I can say that a lot of colleagues who have oil and gas experience are quite well prepared also to do or to use their expertise in that sector. So how do you see the development of hydrogen as a replacement fuel, especially for the hard-to-abate sectors?

FAUZIAH MARZUKI    It's a must. You know, there's only so much we can electrify, right? There's only so much renewable energy can penetrate. There are aspects of our energy sector that still require the properties of a physical molecule, and here comes therefore hydrogen. Hydrogen is definitely seen. Ultimately, it is gas right at the end of the day, it's just a clean gas. So I'm actually hopeful that, as you said, a lot of your oil and gas colleagues who will transition to become hydrogen specialists after. But, you know, I think it is a very key technology that's going to get us on track to net zero, especially for the hard-to-abate sectors, like you mentioned, cement, steel, production, all of these places that still require a physical molecule and sort of high-temperature heat processes, we're going to need hydrogen for that because there's only so much we can electrify. And then we've got the other question of sort of grid stability and all of that with so much electrification. So definitely a molecule that is going to be one of those key technologies for the energy transition from a business perspective.

MATHIAS STECK    Do you have any concern on the implementation speed?

FAUZIAH MARZUKI    Gotta be faster, right? Everything's going to be faster. Clock's ticking. I think one of the things that I you know, I come from an oil and gas background, right? So I do think there are a lot of parallels that we can take from the natural gas industry. And I think given the time constraints that we have with the deployment where we need to deploy hydrogen at mass scale in the next ten years, if we want to have any chance of meeting our net zero by 2050. So using the expertise, using the knowledge sharing, using the people who have actually been able to support the gas industry over the years, over the last 60 years for LNG at least, to help really get hydrogen up and running I think is going to be quite critical. I think we need all hands on deck if you like.

MATHIAS STECK    So technology to close the gap in the time by hydrogen hasn't picked up as much as we need it, is carbon capture and storage or carbon capture utilization and storage. And Bloomberg New Energy Finance has recently released a market outlook on CCUS. Can you tell us more about the role of Upstream CCUS in the decarbonization of the oil and gas sector?

FAUZIAH MARZUKI    Sure, absolutely. Thank you for giving me an opportunity to plug in our recent CCUS market outlook. So yes, this is an annual outlook that BloombergNEF does for its clients and we're going to see once again, we're going to see record investments in CCUS technologies. We've already captured from January to September, about USD 3.5 billion, sort of, like I said, of investment to be deployed for some kind of CCUS solution. For the oil and gas sector, CCUS is becoming one of those, it's a key tool for net zero. There's wide acceptance by the energy community, the scientific community that you are going to need carbon removal, carbon storage to a certain extent to really actually meet net zero. Again because there's only so much you can electrify. And sort of the other net zero technologies can be at play. It's an avenue to have 24/7 clean power. It helps with the hard-to-abate sectors, where we still may not be able to phase out fossil fuels entirely. So it's very critical. I think CCS today is quite well known in the oil and gas sector. About 70% of current CCS capacity or CCUS capacity is actually used for enhanced oil recovery. So big portion. So the oil and gas sector is actually quite well used to the technology. So now it's about applying that technology not for enhanced oil recovery, but for actual abatement. And that's changing now. So the destination, if you like, of the CO2 is now changing. And that's for a couple of reasons. The first is that with regards to tax credits, subsidies and incentives for carbon capture projects, you'll find examples like in the US and in Canada recently where storing the carbon, the CO2 actually is more incentivized than actually utilizing it again in such things like EOR. Same with Canadian tax credits, I believe now they're actually striking off EOR as a potential to actually receive such tax credits for CCS projects. That's one reason why we're seeing the carbon sort of changing its destination now at the end of the day. The second aspect is that the people and the companies that are interested in CCS are now changing. Predominantly it used to be just the oil and gas sector thinking about CCS because they were using it for enhanced oil recovery or they were using it as part of their petrochemical feedstock. They were extracting, you know, the CO2 stream from natural gas and using it for other products. Now it's power company, it's it's industrials. It's other types of corporations who are now interested in CCS as a decarbonization tool rather than sort of just another technology to help get value. And I think that's the critical mass and the change that's going to happen in CCS that will hopefully get it to scale and get it to a cost that everybody can again deploy at a large scale if we're going to make net zero.

MATHIAS STECK    Okay. Now, let me take a step back again and look at the broader picture. We are all aware of the importance of the energy transition, but we have competing challenges at the moment, the most prominent one being the conflict between Russia and the Ukraine, which has caused an energy crisis in parts of the world, high inflation, mounting government debt. What impact does that have in the long term, in the short term, on the speed of the energy transition and the decarbonization of the sector?

FAUZIAH MARZUKI    Right. Yeah. It's such a difficult time for the energy sector right now and particularly the gas industry. I bring it all back to this energy trilemma that we always think about, talk about. So this is energy security, affordability and environmental considerations or environmental externalities. At any given point in time, the weight placed on each of these three things varies with politician, prices and the current situation in the market and state of economies. Pre-pandemic, pre Ukraine, Russia war we were you know, we were going strong on the climate change angle and sort of the environmental considerations of fossil fuel consumption. Now, with the energy crisis, we're tilting slightly towards energy security and, you know, rightly so. Countries and governments are prioritizing keeping the lights on and keeping homes warm, you know, through the winter. We're tilting a little bit back to that, but I don't believe it's derailing the energy transition, as some might potentially say. Our founder, Michael Liebert, wrote a really fascinating piece about the great clean energy acceleration that is to come after the great price hike of 2022. It's about how import dependency of fossil fuels is now being seen as something that can be weaponized and be incredibly political. Gas can be very volatile. Prices can really hurt your average person with high electricity bills. This is going to cause a bit more of an expedited change to the energy transition. And, you know, that's what we're all hoping for, for net zero trajectory. However, having said that, it can go the other way as well. It could be that the current natural gas crisis or energy crisis sees us lock in more natural gas into the system. There are liquefied natural gas projects that I thought were completely shelved, and were never going to see the light of day now getting revived because of high prices and Europe's thirst for LNG through its desire to diversify away from Russian piped gas. But how long will that last for? I think the oil and gas industry, and particularly the gas industry, is at a pivotal moment in the next 3 to 5 years where its fate is really going to be decided on by how we move forward with this energy transition.

MATHIAS STECK    So according to the DNV's Energy Transition Outlook, we find that the demand for oil will decline after 2025. What would you think are the main drivers for that?

FAUZIAH MARZUKI    For oil specifically, given that its biggest sort of sector is transport - this is an electric vehicle penetration story. So we, at BloombergNEF, we see road fuel demand also peaking around the same time in 2027. This is based on BNEF's economic transition scenario, which is modelled on market forces and techno-economic changes without any new policy enactment. So road fuel demand is going to go down and we're going to see the demand for oil change with electrification of vehicles. And is actually it's not even just EVs, it's shared mobility services and even at a point in time autonomous vehicles. So you are going to see a big change in that. And I think the fate for oil is a bit more, shall we say, accepted. Nobody usually denounces the notion of peak oil. I think that's something that, you know, it just depends which consultant or research house you look at in terms of the year when you when you reach peak oil. But no, I think I think one of the main driving factors is that I think for oil it's transport. And to us that's to an extent, also substitution for it as a feedstock in certain petrochemicals. But this sort of enter hydrogen, enter these other fuel molecules that can help displace oil demand.

MATHIAS STECK    So how about if we look at the players in the oil and gas industry, there's a very prominent example from Denmark Orsted ex DONG Danish oil and natural gas company who have shifted like completely from being an oil and gas player to being a very successful offshore wind mainly player. How do you see this develop with the other large players in the oil and gas industry?

FAUZIAH MARZUKI    Right. So I think the problem with large players is that they are large and they are conglomerates in the sense that they do many, many, many things. So it's hard for them to completely put all their eggs in one basket as let's just kind of not how they operate. So many oil and gas companies have started to slowly make that transition. We've seen the European oil majors, as I mentioned, particularly be the trendsetters here, sort of investing more in renewables and clean energy technologies, quite a number of them, changing their logos and changing their names to have energy and not oil and gas anymore. But Mathias, when I get a question like this, one thing that I always like to talk about, because it's perhaps a bit of a double edged sword with regards to oil and gas companies trying to transition or trying to decarbonize. So a strategy that oil and gas companies adopt is to shed off their oil and gas portfolios, and that's called decarbonization because they've gotten rid of their oil and gas assets. They're their high emitting, high emissions, carbon intensive assets. But when these reputable international oil and gas companies shed these assets, these assets are still producing, and they likely find their way into the hands of either local developers or perhaps some national oil and gas companies. You know, these aren't these assets aren't retired. They're still producing. But they're now just in the hands of another company that perhaps doesn't have the same shareholder pressure to decarbonize, to monitor emissions, to, you know, just be aligned with net zero and Paris. So when this happens, it is problematic for the industry, because if you're still going to have consumption of oil and gas, now, the assets are in hands of, you know, companies that are not necessarily aligned to what we want to do, not necessarily a good thing. And, you know, we've seen examples of this in West Africa, for example, where IOCs have relinquished some of their assets. It was a very deliberate, strategic call, but it's gone into the hands of local producers. And now with Russia-Ukraine situation, a lot of these IOCs are self-sanctioning and deliberately saying we're going to exit our Russian operations. What's going to happen to these Russian oil and gas producing assets? They're probably going to go back to the NOCs. And, you know, that's where we have to kind of acknowledge that when this happens, it's a lot harder to monitor and control emissions from said producing assets. So your question, it was about sort of like oil and gas companies getting more into renewables. So most of them in some sense in some way, the big ones all dabble in renewables in some form or other, even if it is a token project. But I think the thing that we need to monitor most is that, what's actually still happening to some of these oil and gas assets? Even if these energy companies transition, what's happening to oil and gas? It's still there. It's still in the system. And how do we manage that?

MATHIAS STECK    To make that transition happen, we talked about electrification, renewables, hydrogen, CCUS. We need infrastructure, among others. We need power grids. We need gas grids. What's your view on the role these grid operators play and can they follow the pace?

FAUZIAH MARZUKI    They need to? Right. I think with all this electrification, I think it's it's all great that we're sort of doing a lot more deployment of renewable energy. But one of the key questions that we are asking ourselves at BNEF is really how do we ensure 24/7 clean power supply? And one of the things I probably share is that BNEF's Pioneer Program last year actually found sort of companies that had various different ideas and new technologies that can actually support things like this. I think this is one of the, shall we say, undercurrents of the energy transition. We're talking about solar, wind, solar, wind batteries, solar, wind, batteries. But we forget about being able for the system to take it. And grid operators once again, it's not going to work without the grid operators making all of this successful. I'd like to plug in one more thing actually. It's something that I feel quite strongly about. It's, you know, Mathias, we know all the technologies, right? We know all the technologies that are supposed to get us to net zero; hydrogen, carbon capture, storage, battery, solar, wind, etc., etc.. But we haven't talked about the people and the behavioral change that is required to make this transition work. We know exactly what to do, but it's about people wanting to make sure that they actually don't watch the Netflix all the time, turn off their TVs. I'm based here in Singapore. My air conditioning is on all the time. It really shouldn't be. You know, it's things like that. It's the behavioral change. It's education that I feel the thing that we're kind of lacking as part of the energy transition. There's also the element of consensus, I know it's very hard, but consensus about what that pathway is supposed to be like, what we need to do, and that's lacking. But it's also down to the individual. And I think, you know, we as individuals always want our governments or our big corporations to take care of us. But I think this energy transition, we're also the enablers, right? I think the oil and gas industry has some fantastic people that are also going to be very key enabling this transition. We talked about sort of the gas people helping the hydrogen transition. So I think, yes, definitely, it's one thing that I feel strongly about that we need to not forget about as part of this transition.

MATHIAS STECK    So Fauziah, for my last question, I would be interested in your personal view and your optimism towards the energy transition. When we look at the oil and gas industry and the energy industry, how confident are you that we make the race toward net zero in time?

FAUZIAH MARZUKI    Can you invite me to come on this podcast in five years' time and I'll give you my answer to then? So I'm cautiously optimistic, but I think I've been saying that for many years now. I told you earlier, I myself want to transition away from that core oil and gas role to now working with Bloomberg, which is an entity that is very at the forefront of sort of climate change advocacy. And we, you know, advisors in the energy transition. I think we really will have to see, I don't know just yet. And I think the reason is because I mentioned that we kind of know what's the fate for oil and we kind of know what the fate for coal is. Nobody likes coal anymore. It's going to get phased out. I think the biggest question mark is gas. That's the one that I don't quite know how it's going to pan out. I've been in gas for a very long time and I, I think all eyes are going to be on Europe in the next coming years, too, in the next two or three years or so. Because if Europe decides to keep gas in its system, if it prolongs the use of gas in its system after this Ukraine crisis and the tensions with Russia, if it still maintains gas in its system, other countries will follow suit and they will come back and continue to use gas in the system. And that doesn't just derail the energy transition, but you're still keeping hydrocarbons in the system, right? If Europe aggressively cuts out natural gas from its system, others will follow suit too, and they will see that it is possible and they will be able to lead that. One of the things that I think the gas industry needs to wait and see and ask itself is with this energy crisis, with COVID and everything that's happened in the gas market, with high prices and everything and the tensions coming about from Europe's dependence on Russian gas is we're going to have to see whether gas demand growth, this new dawn of gas that everybody was expecting, this big growth in gas. Is it on hold right now because of high prices? Is it that the gas demand growth has been just lost? This is the lost years of gas or have we actually destroyed gas demand? Totally. Nobody wants gas anymore, I think I don't know this yet. I don't know the answer to this yet, Mathias. But I do think in 3 to 5 years' time, it might actually become clearer what gas's role in the energy mix is going to be, because in that time, Mathias, you're going to see a whole bunch of LNG supply coming back into the market with a whole bunch of new projects from Canada to Mozambique to Qatar and even potentially Russia as well. When a whole bunch of LNG supply comes into the market, what happens? Prices go down. When gas is cheap, what happens? You might actually see a revival in natural gas demand, right? So it's going to be a test to see whether that gas demand comes back. And if it does, then gas is still in the system and then we need CCS to help make that net zero. But if it's removed from the system, then maybe, I don't know, maybe we're a little more on track for net zero then, but we really will have to see. So please invite me to your podcast in a couple more years' time.

MATHIAS STECK    Yeah. Thank you so much. Thanks for these really valuable insights for us here and was an absolute pleasure talking to you.

FAUZIAH MARZUKI    Thank you. Likewise.

MATHIAS STECK    Thank you for joining us. For this week's episode, Fauziah provided us with knowledge and insight into what decarbonization actually means for the oil and gas industries and the steps that these industries are taking in their attempt to reduce harmful emissions. She was also able to give us an explanation about how carbon capture and storage is contributing to decarbonization within hard-to-abate sectors. And we also discussed how global security issues mean that the need for innovation and bravery in the energy transition is now more relevant than ever.

Join us next time as we discuss what is needed from the policy perspective in order to deliver on net zero obligations.

To hear more podcasts in the series, please visit dnv.com/talksenergy.