REFRAMING GOALS IS KEY IN ENERGY TRANSITION

Complexities need reliable policies amid risk of profound economic fallout

If there was one theme that encompassed this year's CERAWEEK energy conference, which wrapped up in Houston on Friday, it was carbon management. Unlike last year's event, where the importance of the Inflation Reduction

Act to kick-starting massive decarbonization investments dominated panels and conversations without exception, it was hard to miss the sense of reckoning that has taken place in the last year, evidenced by a visible shift away from net-zero language.

Yes, the IRA has resulted in the investment of more than US$100 billion, created 142 companies and 80,000 jobs and sucked investment out of Canada into the U.S., yet progress on decarbonization technologies has not happened as fast as initially expected. Some speakers, notably Amin Nasser — the CEO of Saudi Aramco — went as far as suggesting the world should `abandon the fantasy of phasing out oil and gas.'

It might not be quite like that — we haven't gone back in time on the need to reduce emissions — but we live in a hydrocarbon economy, and that reality is not about to change. The key is how to manage the carbon associated with running the global economy, alongside the issues of energy security, the imperative of affordability, and the growth in AI, which will significantly add to the global carbon budget, not diminish it, and find the talent to do all of this.

We are in the midst, as

S&P Global billed the annual conference, of a multi-dimensional energy transition — markets, climate, technology and geopolitics — none of which can be solved in isolation, but each having an impact. It's made more complicated by the importance of affordability in an inflationary environment, alongside the lack of policy and regulatory certainty preventing the progress of initiatives and the deployment of capital, even in the U.S. Indeed, it was a surprise to hear Canada's energy sector has plenty of company in that department and was a conference-wide issue mentioned in many sidebar conversations.

The good news is Canada — and more importantly, Alberta sits in a unique spot in the global energy matrix. But in true Canadian fashion, it's not advertised and thus taken for granted. There was no mention by non-canadian CEOS — even those with operations in Canada — about the importance of Canadian crude filling U.S. refineries and providing a slate of products or the fact that Canadian natural gas effectively backfills U.S. domestic consumption, enabling the export of LNG off the Gulf Coast. In the context of the multi-dimensional energy transition — including during a panel on Carbon Capture Utilization and Sequestration (CCUS) — the Alberta Carbon Trunk Line, Pathways Alliance, and the Quest Carbon Capture Project were not mentioned, even after an Alberta-specific question was raised.

No wonder Premier Smith said, during her Spotlight conversation with S&P'S Kevin Birn on Tuesday, that she wants the world to know what's going on in Alberta's energy sector — and why we are important. “I want people to know we are here,” she said, rhyming off a number of facts, including the reserves for both oil and natural gas, as well as the fact Alberta's pore space is world-class for carbon capture and storage. But think about this: In 2023, the U.S. reached record oil production. When combined with natural gas production and added to Canada's oil and natural gas output, it means North American oil and natural gas production exceeded that of the Middle East — 41 million barrels of oil equivalent per day versus 38 million BOE/D. This is very significant not only from an energy security standpoint and what it means in the European context, but because it provides stability to oil prices at a time of conflict in the Middle East, which is also important in the context of affordability.

And affordability matters in the context of the energy transition. Whether it's the estimated $200/BOE for blue hydrogen or $400/BOE for green hydrogen as mentioned by Nasser in his remarks, the price tag is out of reach; no one has the balance sheet, neither country nor company, to indefinitely support that price, let alone have consumers foot the bill.

The simple truth is that market signals need to be stronger for governments to ease off subsidies — which was an often-mentioned fact throughout the conference. Governments can and must play a role in derisking nascent technologies or processes to the point where they can be seen as viable solutions that can be scaled and deployed, underpinned by market signals and the appropriate policy and regulatory environment.

As much as there was talk about collaboration among companies and industries to find solutions to decrease emissions, the same holds true concerning government working with industry ensuring policy supports the risking of long-cycle capital to meet emissions targets. That means technology agnostic and not picking winners and losers. The fact the Pathways Alliance filed for regulatory approval on Friday suggests we are closer to this important intersection as it relates to government policy supporting the deployment of capital, but it's taken almost three years to get to this point and the clarity required on the investment tax credits remains outstanding.

It used to be that the conversations at CERAWEEK were more focused on commodity prices, production, reserves, pipelines — with a sprinkling of innovation and energy security thrown in. No longer. This is a long and complex game that risks profound economic dislocation if not done right. While there was a wide range of panels and conversations at this year's event, the overwhelming sentiment was that the goals for transforming the world's energy systems need to be reframed in a more practical context, taking into account all the elements needed to achieve the end goal of decreasing carbon emissions. This means talent, capital, supply chain inputs, infrastructure gaps, permitting, the impact of AI and the need for stable, coherent and reliable government policy. It points to more collaboration — across industry, government, academia and countries — so that we can go far, together and achieve the long-term goal of decreasing emissions.

We live in a hydrocarbon economy, and that reality is not about to change. The key is how to manage the carbon.