This article first appeared in The Edge Financial Daily on November 9, 2018

KUALA LUMPUR: There may be no chance for Malaysian oil & gas (O&G) firms to rest on their laurels given the anticipated demand preference policy activism towards green energy and renewables, which will eventually result in lower fossil fuel consumption.

“There is a lot of debate about how to fuel the future moving forward,” said Institute for Democracy and Economic Affairs (IDEAS) senior fellow Professor Renato Lima de Oliveira.

“However, renewables have shown impressive gains in competitiveness in recent years, and in some cases, the cheapest sources for electricity generation.

“Concurrently, innovations are happening worldwide to facilitate the energy evolution. As it is, there may be some complacency in Malaysia’s energy industry,” he said.

Using patents — an imperfect but widely used metric for innovation output — De Oliveira pointed out that Malaysia is behind countries like Singapore, South Africa, Mexico and Brazil in cumulative patent applications for renewables between 2000 and 2015.

Similarly, De Oliveira also pointed out that Petroliam Nasional Bhd (Petronas) has few upstream patents compared with other national oil companies in Mexico, Saudi Arabia, Venezuela and Norway, among others.

“We were doing fine with our level of efficiency ... Petronas, for example, is a national oil company that is highly efficient and highly credible. Innovations came later — so perhaps this [innovation] agenda should be emphasised more and faster,” he told a forum in conjunction with the release of the research paper titled Powering the future: Malaysia’s energy policy challenges by IDEAS.

To incentivise innovations, De Oliveira pointed to Brazil, where up to 1% of gross value of oil production from highly-productive fields has to be spent on local research and development investments, with compulsory tie-ups with local companies.

“The domestic O&G sector could play a much stronger role in promoting innovations, given its magnitude in the share of the economy and the technical challenges that it faces,” he added.

De Oliveira also stressed the critical need for O&G firms to diversify as the energy evolution gains traction.

He said the supply of O&G could become “abundant” given the expected growing demand for green energy.

“There is no peak oil in sight, but perhaps there will be peak consumption — where there is more O&G available but the consumers may not want to consume them in light of better (more environmental-friendly) alternatives such as renewables,” said De Oliveira.

He noted there is additional supply from unconventional O&G resources globally in countries such as the US, Canada and Brazil.

In 2017, the unconventional tight oil and shale gas production in the US added 12.8 million barrels of oil equivalent per day (MMBOE/d), according to data from US Energy Information Administration.

On the converse, the combination of policy activism, such as to reduce carbon footprint, and consumer preferences — such as towards use of electric vehicles — are forces that energy firms based on fossil fuel “will have to reckon with”, De Oliveira said.

“A shift in policy and consumer preference could add to O&G companies’ cost of doing business,” he added.

The global supply in renewable energy has grew significantly to 1,286.65 terawatt hour in 2016 from 32,294 gigawatt hour in 2000. But as context, the renewable energy generated worldwide in 2016 is equal to only 2.1 MMBoe/d, or about 2.2% of global oil consumption.