The oil and gas industry is evolving, and has to, highlighted commodities trading and risk management company Ion Commodities VP product strategy Lance Fogtman, in a panel discussion at the 2024 African Refiners and Distributors Association conference, in Cape Town. He reviewed a particular aspect of the global markets for the energy transition – the carbon market.

Or, rather, the carbon markets, as there were currently multiple such markets in the world. There was no single global carbon market, and he doubted that there would ever be one. But the important thing about all the current carbon markets was that they put a price on carbon.

The most developed carbon market was the European one, he noted. The European Union (EU) was also currently working on its Carbon Border Adjustment Mechanism. This would impose costs on exporting crude oil from Africa to EU countries. These costs would vary, depending on the carbon intensity of the crude.

He affirmed that, for Africa, the key option was the Voluntary Carbon Market (VCM). This was run by third-party organisations, and was based on carbon offsets, and using those offsets to buy certificates.

But there were major challenges with the VCM, he cautioned. It involved greater illiquidity and price opacity than compliance markets. There was the risk of reputational damage, if a company was seen as engaging in ‘greenwashing’. And there were risk-management challenges, stemming from, among other things, nonstandard pricing, and complex optionality in pricing.

The current energy transition that the world was going through was the third such transition in just 200 years, Neuman & Esser sales director and business development manager: Africa Jiri Rus pointed out, while participating in the same panel discussion. (Germany-based Neuman & Esser manufacture a range of specialised machinery for, among others, the oil and gas industry and the hydrogen industry, including compressors, electrolysers and steam reformers.)

“An energy transition is nothing very special,” he observed. The first of the recent (in historical terms) energy transitions was at the start of the nineteenth century – the shift from muscle power to steam power (produced by burning coal). The second transition had been at the start of the twentieth century, the switch from solid fuels to liquid fuels (oil, petrol).

His company was continually developing new materials, new machines, to improve both reliability and efficiency (thereby reducing energy use). It was also developing modernisations for its older, already installed and operating, equipment, again to increase efficiency and reduce energy consumption. The company had also analysed the green hydrogen supply chain and discovered that a transition to green hydrogen would actually increase the demand for its products.