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by Maureen McCall for EnergyNow
Disruption in the Fossil Fuel Industry
Rapid transition away from Oil and Gas?
Sounds interesting but globally it’s more hype than reality.
Peter Tertzakian thinks renewables aren’t enough and that “fossil fuels need to be part of the solution”.
In 2017, Prime Minister Justin Trudeau commented in a town hall “We can’t shut down the oilsands tomorrow. We need to phase them out.” and with those words he helped foster a popular but unrealistic impression that transition away from fossil fuels was imminent.
The transition away from fossil fuels is not yet upon us, according to Peter Tertzakian, economist, investment strategist, author and Executive Director, ARC Energy Institute in a keynote address to a Calgary conference this week.
“The world now drains an Olympic sized pool of Oil every 14 seconds. I don’t really know how to contextualize the ridiculous amount of this commodity that is consumed. We are now at 100 million barrels a day. There is hardly any transition going on”
“I’m not moralizing, I’m just pointing out the way the world works. We’ve been trying to put Coal out of business for 700 years. Oil and Gas continues to grow. Why are we surprised? The price of Oil in 2014 as we know collapsed from over $100+ down to $35 and levelled out at $50. Any economist will tell you, you cut the price of something in half and people will buy more.”
Speaking at the 2018 CPA Oil and Gas Conference, Tertzakian stated that with price as the first barrier to entry of renewables, we are in the midst of a price war – one big market share battle between Renewables, Coal, Natural Gas and Oil. Added to this price war is the upward trend of Oil and Gas consumption that is predicted to last at least into the 2030’s.
However, there seems to be a disconnect with those who have expectations that Oil and Gas consumption will trend down quickly.
It seems the expectation is that Disruption- technological change, environmental pressures, social activism, geopolitics and other forces will disrupt not only the energy industry at large but also impact global Oil and Gas consumption.
In an analysis of current industry disruption, Peter Tertzakian asserted that there are three types of acute disruption to the Oil and Gas Industry itself and Industry disruption is not simply from renewables taking over from Oil and Gas.
The scale of these disruptions is creating a monumental challenge with the three types of disruption identified asType One: Disruptive forces within an Industry – Innovation- fracking, digital tech, etc., Type Two: External Forces that attack Incumbents/Establishment- typically accompanied by Social or Environmental Concerns (assault of status quo with moral obligation to change) and Type Three: Collateral Disruption- Changes in the Transactional model from outside the industry which affect business –change in the investment paradigm in Capital Markets- EFTs & Robo- trading affecting cost of capital- changing the way we do business.
It’s not as if disruption of Industry is unique. It’s everywhere and the retail sector is a prime example. Our whole transactional model of buying and selling has been disrupted according to Tertzakian.
However, he believes the Oil and Gas Industry is particularly vulnerable to Type Two Disruptions in particular: External Forces that attack Incumbents/Establishment- typically accompanied by Social or Environmental Concerns. He asserted that the Industry is slow to recognize socially or environmentally based criticisms and is equally slow to respond to them.
To illustrate the challenges facing the Industry, Tertzakian discussed a history of the changing narratives related to Energy and environmental concerns.
Up to 2012, he identified “Climate Change” narratives that predominated- promoting efforts to “ Keep temperature changes less than 2 degrees C”.
By 2015, the narrative changed to become “Put the Fossil Fuel business out of business” advocating the elimination of Fossil Fuels and taking Society away from the original objective of carbon limits.
In 2017, the narrative became “Tech is ending Fossil Fuel”. As news of electric cars like the Tesla predominated so did the idea that profound changes, like wide spread electric vehicle adoption – were occurring. Extreme polarization of views occurred with social disassociation and susceptibility. The ability to achieve the original objective seemed to be lost.
Tertzakian elaborated on social disassociation and related susceptibility:
“Somebody who turns on their gas stove or furnace has no idea where the gas comes from. We don’t know where the gas is coming from as a consumer, but the disruptions that occur in the background are profound. And we don’t understand that as a consumer because we are disassociated, and we’ll believe anything anybody tells us about it in this world of very rapidly travelling news.”
By not questioning the “tech is ending fossil fuel narratives” perhaps we started to believe that electric cars are being adopted world wide in significant numbers- that real change is happening.
In a more reality-based approach, by examining electric car sales vs. all vehicle sales in 2017 – out of 100 million vehicles sold worldwide- 98 million are combustion engine vehicles with only 2 million electric vehicles sold.
It counters the narrative that electric cars are being widely adopted and “Tech is ending Fossil Fuel” and the idea that rapid worldwide change is occurring.
As he concluded his examination of disruption and changing narratives, Tertzakian stressed the importance of industry public engagement and called for more Industry participation in social dialogues and more visibility.
He believes the industry should work to participate in discussion and help shape the next narrative to be “Fossil Fuels need to be part of the Solution”
Sounds like a plan.
Maureen McCall is a freelance writer and contributor to EnergyNow and has over 14 years’ experience in the oil and gas industry from operations to land and joint ventures
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