How the current pandemics and recent tendencies could shape the future of oil generation towards low-carbon clean energy substitutes in Brazil?
Taking into consideration the rising and volatile prices of oil in the current uncertain scenario promoted by the COVID-19 pandemics, the experienced supply shock caused by industry lockdowns as well as a fragilized reputation of the Brazilian government, the proposed analysis consists in the elaboration of three scenarios around the strategy aim.
In a year where the world, despite suffering from the pandemics, committed a record $501.3bi to decarbonization, in which companies, governments and households invested $303.5bi in new renewable energy capacity (BloombergNEF, 2021), the importance of considering the low-carbon energy transition as a contingency plan for Brazil, arise not only as an economical opportunity but also as a vector to promote ESG practices among its stakeholders.
Notwithstanding, a major issue to be pointed out is that companies who does not develop its competitive advantages in the market, tends to be deteriorated with time. Based on data collected by BloombergNEF (2021), the European major companies are shifting to zero-emission goals. Shell, Repsol, Galp, are leading the expansion into the new sustainable energy production market from mid-to-big-size solar and wind plants, to hydrogen fuel cells, biomass, biofuels and geothermal energy generation. The South Korean petrochemical group, SK Innovation, has made a $1.5bi partnership with Plug Power to accelerate the hydrogen economy expansion in Asian Markets (Plug Power Inc, 2021).
Thus, it’s not difficult to observe such a supportive agenda considering sustainable factors, i.e., low carbon emissions and a shift to green practices, from current world leaders. Taking into consideration the announced 2040 Hydrogen Economy Roadmap by the South Korean government, according to Jeong E. Ha (2019), the Korean government is hoping that by supporting and investing in the development of the hydrogen economy at a national level as an effort to decrease its high unemployment rate, will foster the country’s economic growth. Despite such a strong movement as the one stated above, it is imperative to notice a global shift toward a clean energy revolution.
When world-leader’s agendas, such as Joe Biden’s plan to achieve a carbon-free electrical grid by 2035, promote the dissolution of 2.4 trillion kilowatt-hours fossil-fueled-electricity consumed in the U.S., 60% of total consumed electricity in 2019 (WILLIAMS; LAMPERT, 2021), one of the biggest problems the Brazilian petrochemical industry will face is the neglect of our current government regarding environmental concerns and improvements in the efficiency, sustainability and transformation of the world’s energy sector as a whole.
Scenario 1
Despite the current scenario, marked by enormous challenges caused by the COVID pandemics and the global supply shock, the Brazilian oil sector has managed to reverse the trajectory of its accounting result in the first semester of the year, ending 2020 with a solid operating and financial performance, in the case of Petrobras (2020). Amid such a fast recovery and ability to remediate the risks faced on the former year, the sector should start to solidify its operations, noticing the bottlenecks in the current supply chain model and work towards a better than ever performance. As much as the pandemics evidenced the fragility of the industry, such events must be treated as black swans. Together with a good management, the evidenced flaws will strengthen the industry which tends to head back to previous growth levels faced before COVID-19 in a short period of time.
Scenario 2
For an industry that strongly depends on its international partners for oil exportation, as well as a source of refinement for the heavy oil produced in the country (GRAGNANI, 2019), the actual scenario that Brazil faces should be an alert to the industry. Due to the malfunctioned contingency plan for the COVID-19, besides the upswing in political instability faced in President Jair Bolsonaro’s administration, according to Lima (2020), the country’s foreign direct investments are falling back to historic numbers only seen about 25 year ago.
Taking into consideration all the factors contributing for the current situation in Brazil, together with the lack of environmental and sustainable governance in the sector, a pessimistic approach would encompass that this scenario will tend to remain and get worse. Companies will keep flying out of the country, increasing foreign pressures will affect the current business model adopted by the industry and the sector will fall behind less volatile alternatives and speed up the low-carbon energy transition to sustainable products.
Notwithstanding the progress backstop amid the global situation, companies such as Petrobras and the industry should start elaborating and considering new models based on efficient and sustainable alternatives to its broad oil operations, proving to stakeholders the need to a different resource allocation and vision towards the sustainable energy revolution. Based on the diversification of its operations, the sector will be less prone to volatility and at the same time, while encompassing ESG practices, become ahead of companies that remains in the old orthodox operational model.
REFERENCES
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GRAGNANI, Juliana. Se o Brasil é autossuficiente em petróleo, por que ainda importa o recurso? BBC News Brasil, London, 6 nov. 2019. Disponível em: <https://www.bbc.com/portuguese/brasil-50316414>. Acesso em: 6 mar. 2021.
HA, Jeong Eun. Hydrogen Economy Plan in Korea. Netherlands Enterprise Agency, [S. l.], 18 jan. 2019. Technology and Science. Disponível em: <https://www.rvo.nl/sites/default/files/2019/03/Hydrogen-economy-plan-in-Korea.pdf>. Acesso em: 4 mar. 2021.
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PLUG POWER INC. Plug Power and South Korean SK Group to Form a Strategic Partnership. GLOBE NEWSWIRE. 6 jan. 2021. Disponível em: <https://www.ir.plugpower.com/>. Acesso em: 4 mar. 2021.
WILLIAMS, Nia; LAMPERT, Allison. Canada plans hydropower push as Biden looks to clean up U.S. grid. Reuters, CALGARY, Alberta/ MONTREAL, 9 fev. 2021. ENERGY & ENVIRONMENT. Disponível em: <https://www.reuters.com/article/us-canada-hydro-idUSKBN2A92JB>. Acesso em: 6 mar. 2021.
