Navigating the uncharted waters of the energy transition would be a daunting task for a prepared adventurer with an identified path let alone an industrial machine made up of independent cogs being asked to basically abandon the way of life they’ve honed and grown over the past 250-plus years.
For the oil and gas industry, whose every step is met with scrutiny by the public eye, the road to the energy transition promises to be a bumpy one, and the mixed signals don’t help.
The International Energy Agency in Paris said recently that all new oil and gas exploration projects must end this year to control carbon dioxide emissions and reach net zero by 2050. However, the agency has also found growth in renewable power capacity slowed due to current supply chain and logistical challenges brought on by the COVID-19 pandemic. The cost of installing solar photovoltaic and wind power plants is expected to remain higher than pre-pandemic levels throughout 2022 and 2023 because of elevated commodity and freight prices, reversing a decade of declining costs. However, they remain competitive because prices for natural gas and other fossil fuel alternatives have risen much faster.
Mark Finley, fellow in energy and global oil at Rice University’s Baker Institute, pointed out that the agency’s high/low scenario for oil and gas demand in 2030, 8 years from now, is about 40 million B/D.
“By 2050, that high/low range is 75 million B/D,” he told attendees at the SPE/AAPG/SEG Unconventional Resources Technology Conference (URTeC) in Houston this week. “How do you plan for the future when somebody says demand for your product could be X, or it could be four times as big worldwide? How do you plan your business on that?”
Given what is known about production decline rates worldwide where investment is shut off, global volumes would fall woefully short of what would be needed to guide the world through the transition to carbon-free energy.
“No matter what the future holds, we know that the world will need trillions of dollars of new investment in oil and gas,” said Finley. “Even in the most aggressive, successful transition scenario, in a net-zero world, the world still needs significant new investment in oil and natural gas to meet the (predicted) demand profile.”
Natural Gas Has a Role To Play
The energy transition will be a slow, deliberate metamorphosis that takes the global energy supply and slowly turns it on its head, eliminating emissions-intensive fuels such as coal and oil while introducing more clean solutions: nuclear, wind, and solar. EY's Deborah Byers believes the changeover will need to include natural gas as a cleaner-burning bridging fuel.
“We need to embrace gas as a bridge fuel,” said Byers, Americas Industry leader at EY. “Gas is critical to a transition to the type of world where we can lower emissions … and the focus has to be on lowering emissions, not eliminating fossil fuels.”
Concerns of global population growth will also have the potential to interrupt the transition away from traditional fuel sources. According to the United Nations projections on population, people today are living longer. Projections to 2050 indicate we're going to have roughly 9 to 10 billion people globally—a potential 20% increase over today's figure.
“None of them are going to say 'I don't need refrigeration, I don't need a smartphone or transportation,'” said Byers. “They're all going to want exactly what 1.67 billion people in the OECD want. We have to find a way to give that to them in a way that is affordable and reliable. These development markets are really going to drive the transition more so than what we’re going to do here in the developed countries.”
Another key to the low-carbon future is the rapid expansion of carbon capture and storage (CCS) projects across the globe. While several large-scale projects have been announced, more investment will be needed for CCS to succeed worldwide.
“CCUS [carbon capture, utilization, and storage] is something that's got to get a lot more investment than it has, and we have to leverage some of the technology and tools that we have in order to bring that fully into focus,” said Byers. “It’s not going to be feasible for petrochem and other heavy industries to meet their net-zero pledges without CCUS, the diversion of the power, electrify everything."
She added, “Everyone’s starting to realize that not all carbon offsets are created equal. And then of course, when you think about digital, being able to measure it, use technology to validate it, and verify your carbon footprint is going to be critical, and it's not that easy. It's going to take new technologies to be able to do that.”
More Technology Breakthroughs on the Horizon
Technologies, many still undiscovered, will be the cornerstone of a successful energy transition. Greg Leveille, former chief technology officer at ConocoPhillips, points to the shale revolution as a blueprint for what can be accomplished when the industry puts its collective minds into solving a problem.
“US oil and gas production grew from about 15 million barrels of oil equivalent per day to over 30,” he said. “The US went from being a declining producer of hydrocarbons to being the world's largest producer … and that's the largest producer of oil, largest producer of condensate, the largest producer of natural gas liquids, and the largest producer of natural gas. What is even probably more incredible, we went from being the world's largest importer of hydrocarbons to a net exporter. So, this was a an amazing outcome which nobody foresaw. If you went back to 2000 and got together all the smartest people in the world and asked, 'how is America going to solve this energy problem,' none of them would have come up with the actual answer.”
Leveille added that the energy transition is just another new industry challenge—to minimize Scope 1 and Scope 2 emissions, to stop flaring, and to finding ways to keep the methane in the pipe.
“The good news is all kinds of advancements are being made in that space at a very rapid pace ... commercialize low-carbon energy sources ... many companies are now starting to develop solutions there,” he said. “Then, if you want to look at an ultimate game changer, is there a way to directly extract greenhouse gases from the atmosphere so that we don't have to go through enormous and costly effort to completely changing the energy infrastructure of the planet, but we can rather manage the level of greenhouse gases some other way.”
