Clean energy eclipsing oil and gas in Texas
BIG SPRING — Driving through the Permian Basin while on vacation, I couldn’t help but notice an industrial landscape that presages the future of the oil and gas industry.
New drilling rigs were few and far between, while most of the pumpjacks were idle, their horsehead noses no longer dipping down to pull crude from the ground. Towering above them, stretching into the distance, wind turbines spun by the hundreds, generating electricity for Texas’ big cities.
Then I stopped in Lamesa, where Southern Power maintains 410,000 photovoltaic cells generating enough power for 26,000 homes. That’s when it struck me: Texas’ premier oil field may have a lot of oil, but it has limitless wind and sunlight. Where would you place your bet?
Young people see the writing on the wall, turning their backs on oil and gas during its current bust to find more stable careers, my colleague Sergio Chapa reports. Corporate executives are following suit.
British oil giant BP’s decision to sell its petrochemical units is perhaps the most revelatory. For years, BP and other oil and gas boosters have claimed the future of the industry rests in selling chemicals, coatings and plastic in a world that no longer wants to burn fossil fuels.
For just as many years, though, environmentalists have complained about pollution from chemicals and plastic. Consumers from America to Zimbabwe want more reusable and sustainable packaging. Plastics manufacturers promise to recycle more and consume less oil and natural gas.
If BP CEO Bernard Looney believed that selling petrochemicals would sustain his huge corporation’s profit margins, he would not have sold those businesses for $5 billion. Neither would his board of directors write off $17.5 billion in oil and gas assets due to temporarily low prices.
The most telling indication of BP’s loss of faith in oil and gas is found in the corporation’s annual Statistical Review of Energy. This year, the company’s analysts stopped measuring energy demand in millions of metric tons of “oil equivalent” and started using exajoules, a unit of measurement for energy of any kind.
Looney is keeping his promise that BP will supply the energy his customers need from sources they support. The current collapse in demand due to the coronavirus offers him a chance to move more quickly, said David Elmes, head of the Global Energy Research Network at Warwick Business School in the United Kingdom.
“The COVID-19 pandemic has accelerated how oil and gas companies see the future,” he said. “Some nationally owned oil and gas companies have the money to change, like Norway’s Equinor. Other European firms like Shell, Total and Repsol have declared similar ambitions to BP, but low prices mean many are struggling.”
Private companies, he added, must keep investors on board with
dividend payments and cannot afford to begin the transition to clean energy. Many don’t stand a chance.
Chesapeake Energy, a company credited with driving the American energy renaissance, finally filed for bankruptcy after years of failing to deliver on shale oil’s promises. Shale companies have taken billions of investors’ dollars, drilled millions of wells and produced billions of barrels of oil.
The only problem is that rarely does that oil generate enough profit to deliver a decent return.
With oil prices expected to hover around $40 a barrel for the rest of the year, shale oil companies that need $50 a barrel to break even are suffering.
More than 100 oil companies could follow Chesapeake into bankruptcy if prices do not rise soon.
There is no reason for them to rise, though. Politicians ignored public health authorities, and COVID-19 cases and deaths continue to increase. Commuters are not returning to the office, vacationers are staying away from tourist attractions and demand is unlikely to return to normal before 2023.
The U.S. Energy Information Administration reports the nation has set a record for commercial oil stockpiles with 541 million barrels. The world is awash in oil.
Houston’s business community is finally waking up to this reality. The Greater Houston Partnership is encouraging companies to lead the transition away from fossil fuels and managed to land Greentown Labs, the nation’s largest clean energy incubator.
Even in the Permian, where oil and gas are a way of life, residents know the future is not underground, in terms of either mailbox money from selling energy rights or finding good-paying jobs that last. A wind project or a solar array may not offer as many jobs, but they guarantee 20 years of regular work.
The energy industry is changing faster than anyone could have imagined and is only speeding up.