Market risks also “diverse opportunities” for refiners

An increasing number of refiners are jumping aboard the energy transition, but this new foray for the refining and petrochemicals industry is also unveiling new challenges. How can industry players navigate these, and ultimately come out on top? Asian Downstream Insights chats with Dominique Rouge, Vice President of Sales & Technology at Air Liquide Engineering & Construction, to find out more.

Thank you for your time! To start off, tell us a little more about Air Liquide and what you do.

Air Liquide is a world leader in gases, technologies and services for Industry and Health, and present in 78 countries with approximately 64,500 employees serving more than 3.8 million customers and patients. Oxygen, nitrogen and hydrogen are essential small molecules for life, matter and energy. They embody Air Liquide’s scientific territory and have been at the core of the company’s activities since its creation in 1902.

Air Liquide’s Engineering & Construction World Business Unit provides a comprehensive portfolio of proprietary and customizable technologies to help refiners and the downstream sector. Our innovative solutions, including those in Air Separation, Hydrogen production, CO2 Capture and Green Chemicals & Fuels specifically are helping our customers make their businesses more sustainable and contributing to a low-carbon future.

Going forward, what’s your outlook for refiners?

We believe that in all industries, with new commitments around the world to reduce emissions and build a sustainable future, it will be important for refiners to make the transition and adopt new technologies to decarbonize their assets and build the plants of the future, going forward.

In making the energy transition, how can refiners be sure to capture benefits?

The energy transition to establish a low-carbon economy requires profound transformation across all industries, and society at large. As an integral part of the existing energy system, with business models founded on fossil fuels, refiners face particular challenges to adapt. The need for change extends to the core elements of refining businesses throughout the entire lifecycle – from feedstock selection and procurement, to process modification, to the delivery of new products to customers.

Despite the clear sense of urgency to tackle climate change and reduce carbon emissions, there are a wide range of regulatory, technological, and market uncertainties which mean that refineries will need to manage in a climate of rapid change and continuing uncertainty. Trends such as electrification and declining reliance on gasoline will have a long-term impact on the refining business globally, likely to result in rationalization, the re-purposing of facilities, and retrofitting of existing infrastructure. As the energy transition unfolds, there will also be wide variations from region to region. In the changing market environment, refiners will need to demonstrate agility and flexibility when responding to these developments.

While there are many risks facing refiners in this market, there are also diverse opportunities, underpinned by continuing growth in global energy demand driven by factors such as continuing population growth and increases in consumption resulting from increasing living standards worldwide.

However, the nature of demand will shift significantly, towards product diversification resulting from declines in fossil-based fuels, moving towards the increasing processing of biofuels, and potentially exponential growth in demand for clean fuels such as hydrogen.

What would you say is the role of Natural Gas in the energy transition? What are some challenges facing natural gas adoption in refining?

Natural gas has an important role as a transition fuel in the energy transition, given its lower carbon emissions than other fossil-fuel alternatives such as oil and coal. This makes it more resilient to the changes in the market driven by the energy transition, because natural gas can play a valuable role in supporting countries move away from dependence on coal and in supporting efforts to decarbonize economies.

When combined with carbon capture use and storage, natural gas can provide a zero (or close to zero) source of energy. The prospects for LNG are also positive – with continuing growth, especially in Asian markets. However, the role of natural gas in the energy mix is also affected by the speed of growth in renewables, which will continue to expand as the costs of wind, solar, and other renewables continue to fall.

For refiners, these scenarios create a range of challenges and opportunities. For example, the need to reduce carbon emissions has obvious consequences for existing refining capacity, boosting the desirability of producing alternative products such as biomethane – a purified biogas which has the potential to substitute fossil gas in domestic gas heating grids and large-scale industrial applications.

The fact that biomethane can be substituted everywhere where natural gas is used makes it a carbon-neutral source of energy for industrial processes which cannot be electrified, for instance. And for road-hauliers and retailers with logistics operations, biomethane is already helping them to cut emissions in their truck fleets. Of course, the environmental benefits of biomethane are dependent on the feedstock used to produce it, indicating the benefit of solutions based wholly on organic waste streams such as food waste, and industrial residuals.

Tell us a little more about Air Liquide’s commitment to sustainability – what’s your vision to transform the industry and implement a more circular economy?

Air Liquide has long been working to combine growth with concern for the environment and society. Air Liquide contributes through its environmental and societal actions and commitments to achieve some of the Sustainable Development Goals set up by the United Nations, wherever it can make a real difference.

This means performing steadily in the present and preparing well for the future thanks to a deeply resilient and diversified business model. Performance and Sustainability are therefore both core to our strategy.

It also means supporting our clients and patients and addressing the urgency of climate change and societal transformation.

Hydrogen seems destined to play a part in tomorrow’s energy plan. How can operators best prepare, and how can Air Liquide help?

Demand for hydrogen is likely to grow significantly, with estimates that it could contribute 20% of the required greenhouse gas emissions reductions needed to achieve global targets by 2050.

Hydrogen energy is a rapidly developing alternative to fossil fuels. We believe it has the potential to play a significant role in providing clean, carbon-free energy. It is already used to power hydrogen fuel cells for stationary applications as well as for clean mobility: in forklift trucks, for urban transportation, and increasingly in passenger vehicles. In each of these areas, it contributes to improvements in air quality. Hydrogen can also be used for heating, and in power generation in locations where it is difficult to use electricity. Hydrogen energy is therefore now included in decarbonization scenarios, both by the major international energy agencies and by countries, not only in Asian countries such as Japan or Korea, but also at the European level. All these developments recognize the role of H2 to decarbonize end uses, integrate more renewables and serve as a basis for a global low-carbon energy market.

For operators, the emergence of hydrogen increases the need for carbon-free hydrogen production, requiring expertise in gas separation, recovery, purification, storage and safe transportation. For industrial users, the ability to produce hydrogen cost effectively provides a great commercial and competitive advantage. Realizing the potential of hydrogen is likely to require operators to work in partnership to tackle issues of scale and cost, and to be prepared to engage in demonstration projects to learn and develop at the fastest possible pace.

In the past 50 years, Air Liquide has developed expertise across the entire hydrogen supply chain, from production and storage to distribution and the development of applications for end users. We have developed a portfolio of technologies for clean, cost-effective and efficient hydrogen production. We have wide experience of applying these technologies in our own operations and draw on this know-how when supporting our customers. We have, for example, designed and installed more than 120 hydrogen fuelling stations around the world.

What are some of the challenges and opportunities that downstream players will face when trying to implement CCUS technologies into their operations?

For many years, carbon capture use and storage (CCUS) has been considered too expensive or insufficiently tested to be applied at scale. Concerns about the safety of transporting carbon dioxide, and about its safe long-term storage, have also contributed to the slow adoption of CCUS. While some large-scale industrial projects have successfully operated, the technology has not been widely deployed at a significant scale.

These challenges remain – but they are felt to be far more manageable now. Air Liquide has a comprehensive portfolio of carbon capture technologies to meet the needs of refinery and petrochemical customers. Our Cryocap™ technologies, for example, draw on our industry-leading experience in cryogenics – in which gases are separated at extremely low temperatures. The technology can be adapted to specific applications in combination with other Air Liquide technologies including absorption through solvents, the use of membranes, and pressure swing adsorption (PSA).

Do you think that sustainability is increasingly becoming a corporate CSR and ESG concern? How can organizations adapt to stakeholders’ sustainability demands?

At Air Liquide, we believe taking action for sustainability is already vital to the future competitiveness of all sectors of the economy. Stakeholder demands are many and various, and cover a wide range of environmental, social and governance concerns. The range and depth of concern means that organisations need to take a balanced approach to responding to them, but based on a clear strategic vision of what the business can contribute to making the world more sustainable. In addition to having a clear vision of their own role in the future, organizations need to recognize the need for partnership and engagement – with other businesses, with governments and regulators, in their supply chain, and in understanding and responding transparently to the views of stakeholders.

A key part of our belief is that companies need to be customer centric. As part of our transformation, we are increasingly moving toward an approach focused on the end user, transforming the traditional value chain. In this changing environment, our strategy is to bring new, effective solutions to respond to the new expectations and needs of our customers, helping them to increase their competitiveness and to make a difference in their markets.

What is the main driver influencing change across the future of the oil & gas industry?

A range of factors are driving change in the oil and gas industry, which, considered together represent the need for an energy transition. The key driver, the need to tackle climate change, is revolutionizing business models, changing strategic priorities, spurring the development of new technologies, driving process and efficiency improvements in operations, catalyzing new business partnerships such as joint ventures between oil and gas and alternative energy firms, and reshaping the way in which these companies engage with their customers throughout their value chain.

In addition to the risks and challenges of global warming, there are heightened environmental concerns about biodiversity and pressures on natural resources. Oil and gas businesses, and businesses in other sectors and society at large, face the need to adapt to these changes, quickly.

The need to reduce carbon dioxide emissions is set alongside other important drivers such as increasing demands for energy from growing populations worldwide, and the need to ensure clean energy is available for all, at affordable prices. Together, these pressures are driving rapid change in the sector.