Houston making a losing bet on fossil fuels

Leaders of the oil and gas industry are in Houston for CERAWeek, grappling with the inevitable decline of the industry. While the spotlight is on the historic energy transition, we Houstonians should reflect on the stakes: Big Oil’s decline is an existential crisis for our region. Even worse, our economic development leaders at the Greater Houston Partnership are doubling down on this declining industry.

The GHP’s risky strategy, called the “Energy Transition Initiative,” is focused on two technologies: hydrogen and carbon capture. Both are bets on fading fossil fuels. Today, 95% of hydrogen in the U.S. is made from natural gas processing. If an industry ever develops for hydrogen, it would sell as a commodity in an intensely competitive market. Commodity profit margins are notoriously ultra-slim, so hydrogen isn’t a likely platform for robust prosperity or high-paying employment growth.

Carbon capture is disguised as a climate solution, promoted as a way to produce “low carbon” oil and gas. It’s a failing technology and unfit as a prospect for regional growth. There is little evidence to show any project has demonstrated meaningful effectiveness. A typical example is the world’s largest carbon capture system, Chevron’s Gorgon LNG Project in Western Australia. Designed to deploy one of the most familiar technologies of stripping carbon dioxide from a well’s gas flow and injecting it underground, the system has not managed to operate above a third of its design capacity in seven years, according to leading Western Australia news source, WAToday .

The GHP’s strategy isn’t a transition in the way most economic developers think. It’s more of a civic reengineering keeping Houston stuck in fossil fuels. It’s a gamble to prop up local fossil fuel assets while the industry faces a long-term predicted decline as a whole. There is no strategy for a robust growth industry in energy. At the GHP, they should know that new bases for vibrant growth are essential for regional prosperity. Take Detroit. Their leaders also stuck with their industry of origin, and the city went bankrupt.

GHP’s regressive strategy could cause Houston to mirror the fate of deteriorating cities who clung to another fossil fuel industry. Big Coal collapsed along with employment in their host cities, a collapse that was inconceivable to leaders of a mighty enterprise once hailed as “King Coal.” Between 2012 and 2022, at least 60 American coal companies went bankrupt, according to ProPublica.

To hang on, Big Oil and Big Coal have resorted to related unsuccessful technologies. Carbon capture and “clean coal” are both promotions of futile emission schemes. Both are wasting billions for add-on processing which makes both industries even more uncompetitive. Clean coal didn’t slow the collapse of the coal industry, and carbon capture won’t slow the descent of the oil industry.

The collapse of the American coal industry — and coal cities — was rooted in business fundamentals. Coal became uncompetitive when natural gas got cheaper for electric power generation, mainly from the shale gas transition.

Today, oil and gas are trapped in the same crosshairs of uncompetitiveness. Most oil is used in transportation, including gasoline. Electric vehicle global car sales will put “at risk nearly half of oil demand” by 2030, according to The Rocky Mountain Institute, which participated in a GHP transition event. As for natural gas, most is used for electrical power generation, about 40%. Gas is also in a losing position; onshore wind and solar are now “the cheapest newbuild technologies to produce electricity in countries covering 82% of global electricity generation,” according to BloombergNEF — and getting cheaper.

Clean energy also has a vibrant job base, employing “over 50% of total energy workers,” according to an International Energy Agency report on World Energy Employment.

Big Oil is on a temporary sugar high thanks to rising prices from the Russian war on Ukraine. Inevitably, Big Oil will face the fundamentals of a competitive market as cheaper clean energy gains deeper footholds.

Historic energy transitions generate a pattern in financial markets; they drive losses for investors (and host cities) in the old energy during the “peaking phase.” Think tank Carbon Tracker published a report as “a warning to investors,” entitled “2020 Vision: Why You Should See the Fossil Fuel Peak Coming.” Investors lose money at peaks, they explain, because that’s when the money is flowing to where all the growth is: the new energy technology. The report says investors in the old energy are vulnerable early on when the market share of the challenging technology is minuscule. This is a typical dynamic for historic transitions going back to the shift from horses to cars after 1900.”

When will we see the peak? This decade, according to the IEA World Energy Outlook. The report predicts “10 times as many electric cars on the road, with renewables nearing half of the global mix” by 2030.

Those of us living in Houston in 1986 won’t forget the searing experience of an oil depression when prices plummeted. Houston lost more than 225,000 jobs, unemployment skyrocketed above 9% and more than 200,000 homes went vacant, according to the Houston Chronicle.

If the GHP can’t see the sunlight through the oil rigs, it’s time for a more imaginative group to create a real transition. For example, the city of Pittsburgh also lost its founding industry of steel. But their leaders created an authentic transition. The city is now a tech center coined the “Robotics Capital of the World” and regularly makes lists of the best places to live in the U.S.

GHP’s parochial petro-strategy is diverting our attention from spectacular opportunities at our feet. Our state is a world leader in solar, wind and grid-scale batteries for storing energy during intermittencies. Still in their infancy, renewable services and manufacturing are industries growing at exponential rates. In Texas in the last decade, wind nearly tripled, solar expanded more than 260 times and batteries increased by a factor of almost 800, according to Bloomberg Green.

It’s time to move Houston beyond dependence on a commodity price. It’s time for a vision beyond fossil fuels, a vision towards robust growth, a vision towards a New Energy Capital.

Randall R. Morton is the founder of two Houston lectures series, The Progressive Forum and the Oilfield Breakfast Forum. Randall Morton International was a marketing firm serving leading oil equipment companies in the U.S., Europe, and Japan. He is a member of a working group at Rice University’s Baker Institute, the Center for Energy Studies.