The top themes from CERAWeek [Gas in Transition]
In a fragmented world in which everyone has a completely different view on how the energy transition will unfold, the mood through the first half of CERAWeek by S&P Global was upbeat, fuelled by a record number of delegates and high oil prices. Pragmatism, innovation, and the US were the speakers’ three buzz words.
IEA scenarios were mentioned but most speakers had a much more constructive view for primary energy demand and hence for oil and gas. It is now obvious that “energy transition will take a long time and will cost an awful lot of money” as the CEO of Hess clearly stated. There isn’t going to be a one-size fits all energy transition and each nation will have its own path and many decarbonisation pathways and innovations were presented at the conference. But Houston is definitively listening more to OPEC than to the IEA.
Artificial intelligence (AI) was the buzz world for innovation. Microsoft thinks this is the most profound technological change, including the Internet and smart phones. But in the last two decades, the energy landscape hasn’t been as much disrupted than the telecom one due to incremental innovation on one side versus disruptive innovation on the other. Could this time the AI revolution be a game changer also for energy? AI will foster more production, reduce costs and accelerated deliveries, but it cannot change the rules of physic. So, is “the energy needs to power AI going to be enormous,” as ConocoPhillips CEO Ryan Lance believes? and is he right that “the US will need more gas fired power plants to power this revolution?” Or, could AI help also implement more efficient/reduced energy consumption patterns for itself?
The consensus at CERAWeek was that electricity growth in Texas will grow exponentially because of population increase, the electrification of oil and gas facilities in the Permian and the development of data centres and AI. I would tend to agree with the first two, but would question the third, especially considering Schneider Electric CEO Peter Herweck’s comment that, thanks to automation, the company could reduce energy consumption in its clients’ buildings by up to 25%.
The astonishing oil and gas production growth in the US over the last two decades thanks to its domestic shale revolution helped the overall resilience of energy markets. The US is not only the top gas producer and LNG exporter, “but needs to do more for global security,” EQT CEO Toby Rice said. Without US LNG, Europe would have been in a very difficult spot in 2021 and 2022, or put more bluntly, “US LNG saved the EU,” as Freeport LNG CEO Michael Smith said. This helped fuel the upbeat mood at CERAWeek. But the January 2024 Biden LNG pause was a central subject in Houston. Was this a political twist, a normal regulatory pause that shouldn’t last long, or a freeze as Hess CEO called it? The Biden pause is “misguided,” Rice said, while Smith said it was disappointing. The answer should be evident well before the next CERAWeek conference in March 2025. Interestingly, record low US gas prices seemed not to be an issue in Houston. With the US being the first oil and gas producer and the biggest LNG exporter, the rest of the world becomes less relevant and even more so when sitting in Houston. Russia, which has become more assertive in Ukraine, was not so much discussed on the energy front due to the absence of representatives and the assumption that its oil and gas production could only go marginally down due to Ukrainian drone attacks and tougher Western sanctions.
But is the industry just patting itself on the back after many harsh dogmatic years when it had to retreat away from the spotlights to avoid confrontation with a minority of green activists? The world is not on track to reach the Paris Agreement’s net zero goals, and the IEA’s green scenarios have been proven wrong. But evolution is never linear; somewhere an inflexion point will be reached thanks to technology or social license to operate (if climate change is viewed as an existential threat by a majority) that will disrupt again the industry. Commodity cycles with booms and busts and policymakers’ flip-flops exacerbated with taxes and subsidies schemes are more permanent than a Houston mood! The inability of the industry to forecast even the oil price leaves many possible disruptive outcomes.
Dr Thierry Bros
Professor & Energy Expert
March 22, 2024