REGION - AMERICAS, MIDDLE EAST AND OCEANIA

Clean Energy
Transition: Oil & Gas
Demand for clean energy and biofuels
expected to growOil and gas are an integral part of the energy mix of theAmericas, Middle East and Oceania. In the US and Canada,fossil fuels make up 80% of the domestic supply, with
the US alone consuming more oil than any other country
in the world. Brazil is the largest oil producer in Latin
America and among the world’s top ten largest producers.
Five of the global top ten oil producers can be found in the Middle East;Saudi Arabia, Iraq, the United Arab Emirates, Iran and Kuwait. The vast majorityof electricity generated in the Middle East (nearly 95%) comes from oil and gas.
Oil accounts for the largest share of Australia’s primary energy mix, followedby coal then gas.
Oil and gas clearly have an important role in each of these markets, so how
will they achieve the transition to clean energy?
Speaking at recent COP28 in Dubai, the Executive Director of the International
Energy Agency (IEA) said: “Oil and gas producers around the world need to makeprofound decisions about their future place in the global energy sector.” To achieve
the Paris Agreement target of slowing global warming to 1.5˚C by 2050, the IEA
warns that the oil and gas industry would have to cut their own emissions by 75%
by 2050.

Highlights in the Americas, Middle East and Oceania
Rewiring the Nation
This is an investment programme ofAUS 20 billion to update Australia’s
electricity grid, so that it meet thegrowing demand for clean electricity.

Hydro
Hydro-energy, also known ashydroelectric power, harnesses
the energy of flowing or fallingwater to generate electricity.

Diversification is likely to be critical for the survival of muchof the industry, and the journey ahead will be complex. If oiland gas companies invest in switching their focus from fossil
fuels to renewables, will they be responsible for the disposalof the redundant infrastructure? And if they do invest in
growing clean electricity production, will the existing electricity
grids be able to carry the increased loads of electricity?
What’s more, there is the need for ongoing oil and gas
supplies to ensure the security of energy supply duringtransition and also to provide fuel for sectors and emerging
economies where lowering emissions is much morechallenging. So how do we decide which oil and gas producers
can continue to produce, and which need to make the big
decision to end operations, which to invest in the (costly)
switch to clean energy?

Industry opportunities include
diversification into other energy
services, or areas such as plastics
recycling.
Atradius Underwriter, Canada

What do Atradius underwriters see as the primary issues
for the sector in the specific regions?
In North America, the Inflation Reduction Act (IRA) andCanadian Clean Energy Plan are accelerating energy transition
by supporting growth in renewables. Our underwriters in thosemarkets noted the opportunities that government incentives
can provide, with our colleagues in Canada adding that further

Canadian Clean Energy Plan
Canada’s 2030 Emissions
Reduction Plan aims to achieve40-45% emissions reductions
below 2005 levels by 2030.

possibilities could be opened up through partnerships between
private companies and government entities to develop clean
energy infrastructure. Challenges include the capital costs
associated with transition as well as regulatory issues.
Our underwriters in Brazil acknowledged the size ofcountry’s hydropower industry and said: “Vast naturalresources continue to provide a competitive advantage inclean energy production.” And, in a nod to new growth areas,
they added, “demand for biofuels is expected to grow in thenext years.” Echoing industry concerns about the cost oftransition they said: “A major industry challenge is finding
the capital to invest in new technologies to produce clean
energy while maintaining profitability and shareholder value.”In the Middle East, our industry specialists acknowledged
there is a huge opportunity for the industry to “make asignificant expansion into this new business segment of cleanenergy.” Hydro is the biggest source of renewable energy in theMiddle East, followed by a growing solar sector. Transitioning
from and oil producer to an energy producer holds huge
potential for the region, but this hinges on the willingness ofthe region’s governments to move in that direction.
Our local industry specialists in Australia also point to
the potential presented by utility-scale solar photovoltaics,including better profit margins from clean energy sources.
However, a risk impacting the electricity sector is the country’s
creaking electricity grid. The government programme,‘Rewiring the Nation’ is focusing on updating this.
An issue shared across all of these markets is geopoliticalrisk. Each of our industry experts listed it as a challenge,
with geopolitical uncertainty in Eastern Europe andthe Middle East representing the areas of most concern.

Challenges: What are the most urgent challenges forthe sector over the next three years?
1. Maintaining profitability
How to maintain profitability while winding down a key
business area and investing in new technology is one of thebiggest challenges facing the industry. Although when facedwith the dilemma, adapt or die, transition towards clean
energy may be the only option for most industry players.
2. Geopolitical risk
Geopolitical tensions have had a significant impact on
the energy market, including the energy crisis that followed
Russia’s invasion of Ukraine. Furthermore, an escalationof the conflict between Israel and Hamas could lead toinstability in the Middle East’s oil markets.
3. Government regulation
There is no level playing field when it comes to sustainability
regulation. Some governments have introduced incentives
and support to help oil and gas companies explore
alternatives such as the generation of clean energy. Others
have carbon taxes and others have no incentives in place.
In a global market place, the varied map of governmental
regulations seems to be challenging.
Opportunities: What are the greatest opportunities forthe sector over the next three years?
1. Growing demand for alternative fuels
The demand for sustainable fuels and energy fromrenewables and biofuels is expected to grow significantly
and is likely to present opportunities for several markets
including the Middle East, Brazil, Australia and the US.
2. New technologies
The development of new technologies can enhance
production optimisation, cost reduction and the reduction of
the carbon footprint. This could range from greater efficiency
in the use of oil and gas, to technology such as carbon
capture and storage to reduce greenhouse gas emissions.
3. Transferable skills
With engineering skills and real estate, the industry has
the potential to play a significant role in developing andimplementing clean energy technologies.

The oil of castor seed is one of raw materials used in the productionof biofuel in Brazil.

Where next?
In each of the geographies we spoke to political risk was
highlighted as an issue affecting the oil and gas industry.
Each of our underwriters spoke about the importanceof political support for the industry on a domestic
level, particularly as it faces the costly processingof decommissioning old technology and investing in
a whole new approach to energy generation. Somemarkets are able to benefit from government support,investment and incentives. But globally, there is no levelplaying field and industry players in smaller, poorer
countries risk getting left behind.

Connect with Atradius
on social media
youtube.com/user/atradiusgrouplinkedin.com/company/atradius

Atradius
David Ricardostraat 11066 JS Amsterdam
P.O. box 8982
1006 JD Amsterdam
The Netherlands
Phone: +31 (0)20 - 553 91 11
info@atradius.com
www.atradius.com