Executives in the oil and gas industry clashed over the future of fossil fuels when IHS Markit kicked off CERAWeek on Monday, a major energy conference in Houston – which is taking place virtually for the first time this year – which attracts thousands of leaders and energy professionals from around the world.
The CEOs of London-based BP and Netherlands-based Royal Dutch Shell have touted their efforts to transform their century-old oil and gas businesses into clean energy leaders, while CEOs of Hess Corp. and Repsol, based in Madrid, said they remained convinced that the demand for fossil fuels 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 time when we need to reinvent the business,” said Bernard Looney, CEO of BP. “We have decided to really embrace this energy transition, rather as a huge opportunity and not to see it as some kind of threat to our core business.”
In contrast, executives at oil company Hess Corp., oil services firm Baker Hughes and Carlyle International Energy Partners said they saw demand for oil and natural gas increase over the next decade. The International Energy Agency estimates that oil and gas companies will need to invest between $ 500 billion and $ 600 billion annually in new oil and gas projects to meet global demand.
“Hydrocarbons will always be essential for providing energy to the world, especially in the short term,” said Baker Hughes CEO Lorenzo Simonelli.
This debate on the future of fossil fuels is played out during the first fully online CERAWeek due to the global pandemic caused by the coronavirus. The conference is chaired by Daniel Yergin, 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 the cancellation of CERAWeek last year, has dealt a severe blow to oil and gas companies as the global pandemic reduced demand for crude oil and transportation fuels. Although travel is picking up and economies reopening with the rollout of coronavirus vaccines, demand for gasoline and diesel is down 14% and demand for jet fuel is halved. In response to the economic fallout, oil and gas companies have reduced their capital budgets, reduced shareholder dividends and laid off thousands of employees.
“We are in a V-shaped recovery in demand,” said Hess CEO John Hess. “Once the stocks run out and we get rid of the glut, the challenge will be the investment, and we will need higher prices to encourage that investment.”
Even if the immediate demand for crude recovers quickly from the pandemic, that demand is expected to be short-lived as more governments and businesses take action to mitigate climate change. Amazon has announced that it will deploy 100,000 electric delivery vans by 2030, while General Motors announced last month that it will phase out gasoline vehicles by 2035.
Jim Burkhard, vice president of petroleum markets, energy and mobility at IHS Markit, said the rise in electric vehicles has displaced around 400,000 barrels per day of global oil demand in 2020, less than 1% of total world demand. In five years, however, electric vehicles and mass transit could more than triple that figure to around 1.5 million barrels of oil per day.
“Even though these levels are low right now, that’s the trend the world is heading for,” Burkhard said.
European oil majors, in particular, have acted aggressively to prepare for a low-carbon future. BP and Shell said they plan to cut crude production and invest heavily in solar and wind projects, hydrogen charging networks and electric vehicles to meet their net-zero emissions targets by 2050. Shell said last month that its oil production peaked in 2019 and will continue. decline in the decades to come, as it continues to produce natural gas.
“We think our oil production has peaked, not because we think it has peaked in the world,” said Shell CEO Ben van Beurden. “We will invest more time, money and investment in what we call the energy system of the future, and the net effect will be that we have a much more concentrated portfolio of oil assets.”
The US oil giants are also 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 eliminate greenhouse gases from the air.
“Everyone has a religion, I think, on both sides of the Atlantic,” said Maynard Holt, CEO of Houston-based energy investment firm Tudor, Pickering, Holt & Co. “I think it’s fine. surprise us how old dogs can learn new tricks. over the next five years.
Yet business leaders have recognized that the energy transition will be difficult and costly, especially for overhauling energy supply chains and power grids. Bill Gates, Microsoft co-founder and leading philanthropist who invested in green energy, said the global electricity grid needs to be three times the size to meet the demand for electricity in a greener world.
“This model will show that we need a lot more transmission,” Gates said. “(The power companies) should be very excited. These guys should say “Hallelujah”. “
However, some industries, such as commercial aviation, steel and cement, will find it difficult to move away from fossil fuels, which provide a lot of energy in a small package. United Airlines CEO Scott Kirby said the company is considering biofuels to replace jet fuel in the future, but in the meantime it is looking for more efficient routes to reduce fuel costs and flight times. .
“While we may be able to electrify airplanes or even use hydrogen for small, short-haul aircraft services, these power sources simply don’t have enough energy density to fly most of the world. what we do, fly big planes long distances, ”Kirby said. “Nothing, even on the drawing board, will ultimately replace jet fuel.”
At the end of the day, oil companies can’t fight society’s transition to renewables amid growing concerns about climate change, said Andy Jassy, CEO of Amazon Web Services. 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 take it on,” said Jassy, who is set to replace Jeff Bezos as the head of the e-commerce giant. “You had better cannibalize yourself and help shape this change than wanting to. Leaders must be willing to reinvent themselves and avoid fighting gravity. “
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