Future of fossil fuels heats up CERAWEEK
Oil and gas executives clashed over the future of fossil fuels during Monday’s kickoff of CERAWEEK by IHS Markit, a major Houston energy conference — held virtually for the first time this year — that draws thousands of energy leaders and professionals from around the world.
The chief executives of Londonbased BP and Netherlands-based Royal Dutch Shell touted their efforts to transform their centuryold oil and gas businesses into clean energy leaders, while chief executives of New York-based Hess Corp. and Madrid-based Repsol said they remained confident that fossil fuel demand will continue to
grow with the world’s population.
“We’ve been an oil and gas company for 112 years, and I think this is a moment where we do have to reinvent the company,” BP CEO Bernard Looney said. “We decided to really embrace that energy transition, more as a massive opportunity and not look at it as some sort of threat to our core business.”
By contrast, the leaders of oil company Hess Corp., oil-field services firm Baker Hughes and the Carlyle International Energy Partners said they see oil and natural gas demand growing over the next decade. The International Energy Agency estimates oil and gas companies will need to invest $500 bil
lion to $600 billion a year in new oil and gas projects to keep up with global demand.
“Hydrocarbons are still going to be essential for providing energy to the world, especially in the near term,” Baker Hughes CEO Lorenzo Simonelli said.
This debate over the future of fossil fuels is playing out in the first CERAWEEK held entirely online because of the global pandemic caused by the coronavirus. The conference is led by Daniel Yergin, the Pulitzer Prize-winning author and co-founder of Cambridge Energy Research Associates, which is owned by IHS Markit, an information services company.
The pandemic, which led to CERAWEEK’S cancelation last year, delivered a brutal blow to oil and gas companies as the global pandemic slashed demand for crude and transportation fuels. Though travel is resuming and economies are reopening with the rollout of coronavirus vaccines, demand for gasoline and diesel is down by 14 percent and demand for jet fuel is off by half. In response to the economic fallout, oil and gas companies have slashed capital budgets, trimmed shareholder dividends and laid off thousands of employees.
“We’re in a V-shaped recovery for demand,” Hess CEO John Hess said. “Once inventories are drawn down and we get rid of the glut, the challenge will be investment, and we’re going to need stronger prices to encourage that investment.”
Short-lived demand
Even if immediate crude demand recovers quickly from the pandemic, that demand is expected to be short-lived as more governments and corporations take action to mitigate climate change. Amazon said it will roll out 100,000 electric delivery vans by 2030 while General Motors last month said it will phase out gasoline-powered vehicles by 2035.
Jim Burkhard, IHS Markit’s vice president of oil markets, energy and mobility, said the rise of electric vehicles displaced about 400,000 barrels per day of global oil demand in 2020, less than 1 percent of worldwide total demand. Five years from now, however, electric vehicles and public transportation could more than triple amount that to about 1.5 million barrels of oil per day.
“Even though these levels are small right now, that’s the trend that the world is headed,” Burkhard said.
European oil majors, in particular, have moved aggressively to prepare for a low-carbon future. BP and Shell said they plan to reduce crude production and invest heavily in solar and wind projects, hydrogen and electric-vehicle charging networks to meet their net-zero emissions targets by 2050. Shell last month said its oil output peaked in 2019 and will continue to decline in the coming decades, while it continues to produce natural gas.
“We believe our oil production has peaked, not because we believe it has peaked in the world,” Shell CEO Ben van Beurden said. “We will invest more time, money and capital costs in what we call the energy system of the future, and the net effect of that is that we will have a much more concentrated portfolio of oil-producing assets.”
U.S. oil giants also are starting to prepare for the energy transition. Exxon Mobil last month announced plans to invest $3 billion in low-carbon and carbon-capture projects, and Occidental Petroleum is building the world’s largest carbon capture facility in the Permian Basin to remove greenhouse gases from the air.
“Everybody has religion I think on both sides of the Atlantic,” said Maynard Holt, CEO of Houstonbased energy investment firm Tudor, Pickering, Holt & Co. “I think it’s going to surprise us how old dogs might learn some new tricks over the next five years.”
Yet, corporate leaders acknowledged the energy transition will be difficult and expensive, particularly to overhaul energy supply chains and electricity grids. Bill Gates, co-founder of Microsoft and a leading philanthropist who has invested in green energy, said the world’s electric grid needs to be three times larger to meet the demand of power in a greener world.
“This model will show we need a lot more transmission,” Gates said. “(Power companies) should be very excited. These guys should be going ‘Hallelujah.’”
However, some industries, such as commercial aviation, steel and cement, will find it challenging to give up fossil fuels, which provide a lot of energy in a small package. United Airlines CEO Scott Kirby said the company is looking at biofuels to replace jet fuel in the future, but in the meantime, is looking at more-efficient routes to reduce fuel costs and flying times.
Jet fuel is an example
“While we can perhaps electrify aircraft or even use hydrogen power for short haul, small aircraft services, those sources of energy simply don’t have enough energy density to fly most of what we do, flying big airplanes long distances,” Kirby said. “There’s nothing even on the drawing board that’s going to ultimately replace jet fuel.”
Ultimately, oil companies cannot fight society’s shift toward renewable energy amid growing concerns about climate change, Amazon Web Services CEO Andy Jassy said. Amazon has partnered with BP to power its data centers using wind power.
“You can howl at the wind, or you can realize it’s better for customers and embrace it,” said Jassy, who is set to replace Jeff Bezos at the helm of the e-commerce giant. “You are much better off cannibalizing yourself and helping shape that change than wishing it away. Leaders have to have the will to reinvent and avoid fighting gravity.”