From the Editor: A fine mess [Gas in Transition]

You really can teach an old dog new tricks. Less than a month ago, in these very pages, I decried the lack of cohesive, trans-national policies to address climate change. The biggest problem the world had with climate change policy was that there was no climate change policy – none, at least, that made any sense.

A mish-mash of policies since the Paris Agreement of 2015 that targeted the elimination of fossil fuels as the sure path to decarbonisation have only succeeded in landing us in the fine mess we now find ourselves in.

Now, as was in evidence at CERAWeek, arguably the world’s third most important energy/environment/economics/policy gathering behind successive COP gatherings and the World Economic Forum in Davos, a global climate policy framework that might actually work seems to be emerging.

The surprising thing, however, is that it isn’t built on tearing down the existing fossil fuel framework and replacing coal, oil and natural gas with renewable energy. Rather, a new realisation – one that has apparently escaped policy-makers until now – is taking hold that suggests any new structure must combine all forms of energy and, more importantly to many, that it must be secure.

New imperatives

US Energy Secretary Jennifer Granholm, who has long favoured renewable energy investments over continued spending in oil and gas, recognised the new imperative in her CERAWeek speech and acknowledged that oil and gas will be around for decades to come, even as demand for cleaner energy continues to grow.

“We know that oil and gas will remain part of our energy mix for years to come,” she said. “And we know that even the boldest projections for clean energy deployment suggest that, in the middle of this century, we’ll be using abated fossil fuels. We need both traditional and new energy.”

Granholm chose CERAWeek to announce a new $6bn funding opportunity from the Department of Energy to accelerate industrial decarbonisation technologies.

But other conversations heard round the Hilton Americas Houston resort suggested that spending on conventional oil and gas – which slowed dramatically during the pandemic – ramped higher in 2022 and will do so again this year.

Ahead of CERAWeek, the Canadian Association of Petroleum Producers (CAPP) forecast upstream oil and gas investment in Canada would reach C$40bn (US$29bn) this year, surpassing pre-COVID investment levels.

“A secure energy transition requires investment into the current energy system concurrently with growing alternatives,” CAPP CEO Lisa Baiton said. “In this transition we should be investing in the best forms of energy to meet growing demand. That list includes Canadian oil and natural gas which is produced with some of the highest environmental, human rights and emissions standards anywhere in the world.”

At the Houston gathering, Spain’s Repsol said it would spend nearly US$1.5bn on exploration and production in North America this year, on top of the US$1bn it would direct to the US renewable sector.

And after CERAWeek, RBN Energy, a Houston-based energy research platform, said its tally of investment plans by 42 producers (excluding major integrated companies like ExxonMobil) showed capital investment this year of US$71.3bn, a 17% increased from 2022.

Security top of mind

Russia’s invasion of Ukraine has pushed security concerns to top of mind for many inside and outside the energy industry, and the prevailing consensus at CERAWeek was that while business as usual is off the table, there will be an increased focus on old energy ahead of new – a realisation that policies in the past that have put emerging technologies ahead of the tried and true in part contributed to the energy crisis sharpened by Russia’s invasion.

Maintaining secure and affordable energy supplies while managing the evolution to a lower-carbon economy was, in the words of Chevron CEO Mike Wirth, “one of the greatest challenges of all time.” A disorderly transition, he said, could be “painful and chaotic.”

“We have to be very careful about turning system A off prematurely and depending on a system that doesn’t yet exist and hasn’t been proven.”

Europe has learned object lessons the hard way about turning things “off” before other things are ready to be turned “on”. Germany was quick to go off coal and bank on renewables; in the past 18 months, it has learned the hard way that renewables couldn’t just be turned “on” after coal was turned “off” and are now re-firing some coal facilities and putting LNG import infrastructure on fast tracks to completion.

The rest of Europe sniggered behind Germany’s back as its off-coal aspirations evaporated, but the rest of Europe – although it got lucky this winter because of unusually warm weather – should not expect that luck to continue, Shell’s new CEO warned his CERAWeek audience.

“We need to move away from depending on luck as a strategy for our energy needs in Europe,” Wael Sawan said. “I’m concerned we haven’t yet structurally resolved that.”

Also not resolved is the role hydrogen – in all its glorious colours – might play in the energy evolution.

At CERAWeek, the only colour associated with hydrogen anyone wanted to talk about was “green” – not the green of hydrogen from electrolysis but green like “cash”.

Hydrogen in all its cleaner forms is still pretty expensive, and while incentives under the US Inflation Reduction Act and provisions in European legislation have taken the edge off some of those costs, but those measures require clarification, and key industries targeted by hydrogen, like steel and shipping, may yet need either carrot or stick from governments to make the leap.

“The market for hydrogen and people’s willingness to pay a premium for low-emissions fuels I think hasn’t quite taken off yet,” ExxonMobil CEO Darren Woods said.

And that brings into focus the over-arching theme of CERAWeek discussions: the energy transition, or evolution, will be decided on the demand side, and the focus moving forward must be on how that demand will be met. The focus since Paris on discouraging demand for all fossil fuels, including natural gas, while ignoring the demand implications, was what got us into this fine mess to begin with.