Oil and gas industry is waking up to competition from renewables
By Chris Tomlinson Updated: March 7, 2017 10:31pm houstonchronicle.com
The world's energy demand will continue to grow in the decades ahead, but who will consume it, and in what form, has oil and gas companies scrambling to protect market share.
With all of the chatter about the world relying more on electricity and less on liquid fuels, CEOs of the biggest oil companies are at CERAWeek bragging about their expanded natural gas holdings, recognizing the risks of climate change, identifying new markets and asking for simple regulations that will promote global trade.
Now if only the Republican majority in Congress would pay attention, pass a carbon tax, set common-sense regulations and get with the international program.
"This is going to require common sense at scale for the world to recognize that we are going to need all forms of energy," BP CEO Bob Dudley said. "You can't just turn off oil or coal."
Dudley was also one of many CEOs who declared that the industry needs to reduce greenhouse gas emissions and fight climate change in order to stay in business. He chairs the Oil and Gas Climate Initiative, a group of 10 energy companies that is spending $1 billion to develop ways to reduce carbon dioxide and methane emissions.
Exxon Mobil is not part of the initiative, but CEO Darren Woods also called on political and industry leaders to recognize climate change and embrace a carbon tax.
"A policy fostering transparent, uniform carbon prices that will allow market forces to drive tech solutions, minimize initiative burdens and promote global participation can be effective," he said. "Policies that form subsidies, mandates and trade barriers only hinder progress."
The quickest way to reduce carbon emissions is to switch from burning coal and oil to cleaner natural gas. Many major energy companies are increasing their natural gas holdings in anticipation of high demand from power companies as developed nations use more electricity for transportation and less oil.
Electric vehicles make up only a tiny share of new-vehicle sales, but with prices for batteries dropping fast, some estimate 100 million electric vehicles could be on the road by 2025. That electricity has to come from somewhere, and most analysts predict natural gas will be the primary fuel supplemented by wind, solar, hydroelectric and nuclear.
The desire for a piece of the natural gas business was the main reason Canadian pipeline company Enbridge purchased Houston-based Spectra, Al Monaco, CEO of Enbridge, said in a Chronicle interview. Enbridge also has a significant wind energy business in North America and Europe.
"The reality is that there is a growing share of natural gas and renewables, and that's why it fits very well for us," he said. "You're going to need all of those sources of supply. The costs of renewables are coming down, and they match up very well with natural gas, and the returns are pretty good."
The majority of new demand for energy, though, will take place in developing countries outside North America and Europe. India's growing economy will make it the largest source of demand growth, and officials there want to develop local natural gas and renewable resources in addition to importing more liquefied natural gas, said Shri Dharmendra Pradhan, India's petroleum minister.
"Gas is 11 percent of our energy mix today," he said. "We want to increase that to 15 percent in the next year or two and another 15 percent in five to six years."
Talk about electrification of transportation and a possible peak in the demand for oil has Saudi Arabia worried that companies won't invest enough in new wells, said Khalid Al-Falih, the national energy minister. In particular, they might not invest the $2 trillion that the kingdom is expecting when it sells 5 percent of Saudi Aramco on Wall Street next year.
"The risk of under-investment by such theories amount to nothing less than compromising the world's energy security by squandering vast quantities of our planet's natural energy endowment," he said.
CERAWeek is the fossil fuel crowd's big annual meeting, and most speakers proclaim a long and prosperous future for their industry. But companies and countries that rely on oil and gas income are recognizing that renewable forms of electricity and liquid fuels are gaining traction as prices come down and their popularity rises.
That's why executives are adapting their portfolios to add cleaner fuels and moderating their rhetoric on climate change. They are also more aggressively marketing their products as critical to helping the poor and meeting the needs of a growing global population.
"A low-carbon future will reshape the energy space. Some see this as a threat to our industry, but we should rather look for and act on the opportunities it offers," said Eldar Sætre, CEO of Norway's Statoil. "We have to respond more forcefully to the challenge of climate change."
The oil and gas industry has clearly recognized that its monopoly on transportation fuels is weakening for the first time since automobiles replaced horse-drawn carriages.
And the industry will do everything possible to avoid meeting a similar fate.