Energy transition - the need for cohesive, planned and integral action
As I enter the final years of my professional career, I’ve realized that what I do with my time needs to be ever more purposeful. Said another way, I am keener to work on things that matter, fit into a bigger picture, and leave this place in a better state that I found it. As a petroleum geologist, manager and executive with nearly 30 years in the oil & gas business, wrestling with this need for purposefulness is further challenged by the stark reality of climate change that has been profoundly influenced by human activities, especially the burning of fossil fuels.
“Observations from around the world show the widespread effects of increasing greenhouse gas concentrations on Earth’s climate. High temperature extremes and heavy precipitation events are increasing. Glaciers and snow cover are shrinking, and sea ice is retreating. Seas are warming, rising, and becoming more acidic, and marine species are moving to new locations toward cooler waters. Flooding is becoming more frequent along the U.S. coastline. Growing seasons are lengthening, and wildfires are increasing. These and many other changes are clear signs of a warming world.”
However, I have been gladdened to learn through my research, that there are opportunities to tackle this problem whether you’re in business, government, or just a citizen of the planet. The oil and gas industry has a role to play, just as much as other sectors focused on renewables. It is clear to me that an integral approach will be required, and that just like my own struggle with my own place, each of us with have personal values to consider and perhaps adapt, and that every business, government and individual needs to contribute to planned and cohesive action.
Both human and natural factors influence Earth’s climate, but the long-term global warming trend observed over the past century can only be explained by the effect that human activities have had on the climate. (Source: Fourth National Climate Assessment)
One of the problems I have encountered is the politicization, even weaponizing of the debate around climate change. Many politicians and business people appear to take polarized positions to advantage their position or business. Examples include at one end of the spectrum declaring anthropogenic climate change a “hoax” in spite of pretty well incontrovertible evidence (see for example the figure above), at the other end, a campaign in California calling to an end to in-state petroleum exploration and production while the state continues to consume over 600 million barrels per year, most of it for fueling road transport, and an increasing proportion is from foreign sources (see figure below).
Crude oil supply sources to Californian refineries (Source: California Energy Commission)
I am not going to get into this politicized debate, rather I’d like to spend my time, energy and money to discuss and support actions that support or are direct elements of a concerted effort to meet our energy needs in a way that steadily, if radically is not possible, reduces greenhouse gas emissions. There are three further points about which the reader should make no mistake. Firstly, I am not a wealthy philanthropist or angel investor; so no ability to provide backing to new ventures and deserving programs. Secondly, I still believe in a future for oil and particularly gas exploration, at least within my lifetime and will continue to make investments in that sector, as well as others. Thirdly, the purpose of my research, some it reported in this and possible future blogs, is to increase may capability as an advisor to energy companies and investors.
If you’re still with me, now let’s talk about energy transition.
The picture above - best viewed on DNV-GL’s website - is one projection of how the energy transition might play out. DNV-GL have modeled both supply and demand sides of the equation, including projections on the cost-of-supply changes in sources such as solar. Insights from this analysis include a peak in overall global energy demand in 2035 because of increasing energy efficiency. Other peaks in supply and demand are also mapped, including peak oil demand in 2023. Interesting milestones on the outlook include increasing use of electricity for transport, for example, half of light vehicle sales in 2033 are of electric vehicles. However the future that DNV-GL forecasts is not the future humankind desires. Even with a peaking of energy demand, and fast uptake of renewables and electric vehicles, the energy transition trajectory is not fast enough for the world to meet the ambitions of the Paris Agreement.
So what can be done to accelerate the change, and yet maintain cost-effective energy supply and avoid other societal problems? What does this mean for companies and governments invested in fossil fuels? What opportunities and risks does this present to investors? In future blogs I hope to address some of these questions. I am going to finish this article with several important points on cost of supply of various fuel sources from Lazard’s latest annual Levelized Cost of Energy Analysis (LCOE 11.0), which shows a continued decline in the cost of generating electricity from alternative energy technologies, especially utility-scale solar and wind.
The increasing cost competitiveness of alternative energy sources compared to conventional (fossil fuels and nuclear) is expected to lead to ongoing and significant deployment of alternative energy capacity. This is true in the United States, rich in oil and gas reserves. It is a particularly important component of the energy transition for countries like Costa Rica without such resources.
“Although alternative energy is increasingly cost-competitive and storage technology holds great promise, alternative energy systems alone will not be capable of meeting the base-load generation needs of a developed economy for the foreseeable future. Therefore, the optimal solution for many regions of the world is to use complementary conventional and alternative energy resources in a diversified generation fleet. ”
A final note related to the quote above brings this article back to my assertion at the beginning. To meet the challenge of climate change and meet the energy demands of the world, we need to deliberately take on the energy transition in a cohesive and integral way. Everyone has a role to play.