The energy world’s top leaders and influencers recently gathered in Houston for the annual IHS Markit CERAWeek. Discussion at the event is always a good barometer for gauging the state of the industry, both today and into the future.
Climate change and the energy sector’s response was a frequent topic. Recent events highlighted the pressure for more action, including the October 2018 UN IPCC Global Warming report, a resolution for the Green New Deal in the United States, investor pressure, the Norway sovereign wealth fund’s decision to exit exploration and production equities and the student-led climate strikes held on the last day of CERAWeek.
In response, oil and gas corporate leaders presented strategies for near-term GHG reduction action; by deploying new technologies for reducing methane losses and flaring; by switching to greener sources of electricity; and by improving energy efficiency. Many producers are taking these actions voluntarily, as opposed to being required by government mandates.
The Norway sovereign wealth fund’s decision to sell upstream oil and gas companies was a frequent topic. The reason for divestment was “to make the government’s wealth less vulnerable to a permanent drop in oil prices.” Total’s President of E&P Arnaud Breuillac acknowledged that the energy transition to lower carbon energy sources could change oil market dynamics, since less demand could weaken price. To ensure resiliency, his company invests only in the lowest break-even oil price projects.
Big Oil is also diversifying into new types of energy. Across major producers, the industry is investing about five percent of their CAPEX into low carbon (see note 1). Investments vary widely, from riskier early-stage breakthrough technologies to more mature renewable power generation projects. Investments around the electrification trend are popular, everything from battery technology to electric vehicle charging networks.
Often the oil and gas industry is criticized for investing too little into new energy, but BP CEO Bob Dudley defended the quantum. BP is spending about a half billion dollars annually or three percent of CAPEX, Dudley said “if I had $10 billion to spend on low carbon businesses, I wouldn’t know what to invest it in…that’s not for any lack of commitment. It’s because low carbon has to compete for investors’ money.” Government subsidies can only go so far. Ultimately consumers demanding and paying for lower carbon will grow the market and investment will follow.
After being unfashionable for quite some time, Carbon Capture Use and Storage (CCUS) is back in vogue. These technologies capture the emissions from burning fossil fuels so they don’t enter the atmosphere. The use of “Nature Based Solutions” for sequestering carbon dioxide – otherwise known as planting trees – was another topic. Last week ENI announced they are planting 20 million acres of forest in Africa, an area bigger than New Brunswick. ENI plan to make their upstream oil and gas business net zero emission by 2030, from growing forests along with reducing methane leaks and flaring.
Proponents of tree planting argued the idea is not green washing. It captures carbon and it is a necessary action for combating the climate impacts from ongoing global deforestation. Longer term, other technologies could be deployed, including capturing carbon dioxide directly from the air or biological solutions.
Digital technology was also trending at the conference. Adoption of technologies like artificial intelligence, autonomous systems, machine learning, robotics, internet of things, blockchain and cloud computing is growing. Digital and robotics promise to change how people work, improve efficiencies, reduce costs and increase safety. While the potential is great, value creation from half-hearted data science is not likely. Successful companies must foster a culture of innovation to embrace change, not resist it.
US Energy Dominance
Growing US energy dominance and the implications for world order was a frequent theme. US oil and liquids production has grown almost 4 MMB/d in the last five years, and the International Energy Agency (IEA) expects that it will grow a similar amount in the next five. The US will soon become one of the world’s largest LNG exporters with almost 12 Bcf/d of capacity currently on-line or under development. US Sectary of State, Mike Pompeo, addressed the conference with the message that America’s growing energy exports can help America’s foreign policy objectives. Another query was if surging US production and growing market share would eventually break the OPEC-Russia oil market cartel. The possible US NOPEC legislation was also discussed, since it has the potential to split the cartel if passed.
Senior leaders of the male dominated energy industry acknowledged a need to get with the times and hire and promote more women. Chevron CEO Mike Wirth shared how the company is working to foster a culture so that all people can succeed, identifying women in his company that are in senior roles.
This year’s CERAWeek conference showed an industry that is starting a series of important transitions. The direction of travel is on course: Low cost, low carbon, digital and diverse. The pace of change is still open to debate. But the speed of change cannot be set by the supplier of energy alone, consumer pull for more efficient and cleaner energy sources is also a necessary ingredient.