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By David Yager
December 14, 2021
The World Petroleum Congress in Houston wrapped up on December 10. For the first time in a long time, the tall foreheads of the world’s oil and gas industry screwed up their courage and started telling the truth about the future of petroleum in the years and decades ahead.
Selecting words from the slogans invented to obfuscate the impact of rapid decarbonization, let’s call it a Just Reset. Because events of the past year have materially changed the channel on the pace of the so-called energy transition.
The big ice storm in Texas early this year demonstrated the fragility and consequences of insecure and unreliable energy supplies when they are needed the most.
Europe has been plagued by months of lower than required levels of renewable electricity, leading to massive price spikes. The region is going into winter with below-normal levels of natural gas storage. Gas supplies from Russia are threatened by a new level of geopolitical uncertainly including the possible Russian military invasion of Ukraine.
Because of high gas prices, European fertilizer plants are shutting down as uneconomic. Global food costs are already rising. A fertilizer shortage next year could make things much worse. UK utilities are going broke because the government has capped prices lower than their natural gas supply costs.
Low energy costs and ample supplies since oil prices collapsed in late 2014 have lulled the world and its political leaders into a false sense of security. These conditions enabled those making aspirational claims about the bright future of low carbon energy alternatives to have a significant influence on public opinion.
This translated into political support and policies in Canada, the US and most European and OECD countries.
But this is changing fast, giving fossil fuel providers another opportunity to state the obvious.
Because no matter what we’ve been repeatedly told, there are no large-scale replacements for petroleum, natural gas and coal at the present time.
In fact, energy shortages are making things much worse than proponents of decarbonization had predicted or even imagined.
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For years there have been two conflicting narratives about the future of oil.
The first narrative is that petroleum can and must go as soon as possible. Every tool imaginable (and previously unimaginable) has been employed. Terms like “stranded assets” and “sunset industry” are commonplace. As are accusations that oil executives are “climate criminals.”
If you’re in the oil business, this onslaught eventually wears you down. Combined with the collapse of cash flow from low oil and gas prices since 2014 and its complete disappearance because of 2020’s pandemic lockdown, many industry executives gave up and began repeating what the opponents of fossil fuels want to hear.
“Net zero by 2050.” That’s us. We don’t know how, we don’t know when, but we sure know why. So if we say this a lot, will you please leave us alone and let us do our business?
The other narrative is consumer demand and economic reality. Whatever the people of the world are supposed to do, they refuse to quit buying fossil fuels. That’s because they are essential, cheap, dependable and readily available. You cannot make plastic or jet fuel from solar power. Apparently, a lot of people don’t know that.
So as the world began to recover and reopen from the pandemic, everyone is learning the hard way that narrative one – oil is a sunset industry – has helped increase commodity prices and created supply issues for narrative two – continued fossil fuel consumption because of a lack of practical alternatives.
Only recently, the people who keep the world functioning have been sticking their heads out of their climate-fear created foxholes and publicly declaring in a tone we have not heard for years that rumors of oil’s demise are greatly exaggerated.
Many of them showed up at the WPC in Houston in early December. This was scheduled for 2020 but postponed because of the pandemic. This created a platform for long overdue and powerful public statements from the biggest players in the business. Here are several.
- OPEC Secretary General Mohammad Barkindo called obstructing development of new oil supplies “misguided,” warning that this will hurt poor and developing countries. He said in the next four years the world must invest almost US$12 trillion in new supplies or there will be “long term scars on energy security, affecting not only producers but consumers.”
- Saudi Aramco CEO Amin Nassar called the relentless push to quickly eliminate fossil fuels “deeply flawed.” He continued, “I understand that publicly admitting that oil and gas will play an essential and significant role during the transition and beyond will be hard for some…but admitting this reality will be far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high, and seeing net-zero commitments by countries start to unravel.” Nassar said the world must face the three main realities that renewables aren’t ready, that the developing world cannot transition at the same pace as the developed world, and oil and gas will be essential for decades.
- ExxonMobil CEO Darren Woods told the WPC that focusing on oil and gas supply alone won’t move the needle on climate change. “Narrowly focusing and taking action on one aspect of the challenge could potentially lead to significant unintended consequences. The best intentions poorly executed can do more harm than good.”
- Suncor Energy CEO Mark Little agreed with Woods, stating, “This is a massive, massive challenge. And everybody’s trying to solve that on the supply side and the demonization of the producers, but at what point are we going to have a real conversation?”
- Supply was on the mind of US President Joe Biden when he pleaded with OPEC to produce more oil to keep American gasoline prices down. On Biden, Chevron CEO Mike Wirth commented that his request “…reveals a fundamental truth that should inform any rational conversation about the future of energy. Oil and gas continue to play a central role in meeting the world’s energy needs and we play an essential role in delivering them in a lower carbon way.” He added, “Our products make the world run.”
- On oil supply, Pioneer CEO Scott Sheffield told an interviewer, “…we’ll be back by the end of 22, to 100 to 101 million barrels a day. You heard Amin Nassar’s (Aramco CEO) speech yesterday…OPEC and OPEC+ will be out of supply, they’ll be out of extra capacity. So things are going to be very tight, end of 22 going into 23.”
- Responding to calls from the White House for American producers to increase production because of high gasoline prices and record profits, ConocoPhillips CEO Ryan Lance in a TV interview responded, “So it’s a tone thing. And when you get all these letters from Senators and these efforts and talking about cancelling exports of oil and gas, and you talk about permitting delays and regulatory overprint. When you get all these things thrown at you…it just creates enough uncertainty that the investment is not going to be there…and when the investment does come, which I think it will over time, it’s still going to 6 to 9 months before that volume starts to show up in any material way in the global market.”
- US pipeline executive Jim Teague of Enterprise Product Partners said, “people want a better quality of life, and they don’t really give a damn about climate change.” American Petroleum Institute official Frank J. Macchiarola added, “For consumers, its ultimately about choice.”
- Famous oil author and expert Daniel Yergin of IHS Markit said, “Underinvesting in oil and gas before renewables and other low-carbon technologies that are ready to scale up to meet energy demand could create recurrent energy crises of the kind we saw in Asia and Europe over the last few months.” He added this could create severe economic consequences and social unrest.
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Regrettably, the events and commentary from the WPC were confined to the business press.
But globally, the right questions are finally being asked as aspirational climate goals and objectives collide with the wants and needs of 7.9 billion people trying to survive and stay alive.
The UN climate conference COP 26 in Glasgow should have signalled that all is not well in the grand plan to retool the global energy complex at any cost.
Two of the most populated countries in the world – India and China – were criticized for insisting that coal be “phased down” not “phased out.” Host country spokesperson Alok Sharma told BBC News, “China and India are going to have to explain themselves to the most climate vulnerable countries in the world.”
The hypocrisy is palpable. China and India are emerging economies trying to feed, cloth and house 2.8 billion people. Isn’t this the definition of vulnerable? Is the UK not quietly firing up its mothballed coal-fired electricity generation to prevent electricity shortages?
While Japan publicly agreed to everything at COP 26, the Japanese government told its energy providers to do the exact opposite.
A Bloomberg News story reported, “Government officials have been quietly urging trading houses, refiners and utilities to slow down their move away from fossil fuels, and even encouraging new investments in oil-and-gas projects, according to people within the Japanese government and industry, who requested anonymity…The officials are concerned about the long-term supply of traditional fuels as the world doubles down on renewable energy.”
Bloomberg wrote that Japan believes, “…no compromise is acceptable to ensure energy security, and it is the obligation of a nation to continue securing necessary resources.”
The clearly “dynamic” positions of Biden administration are impossible to understand. After winning the election last year on an aggressive anti-fossil fuel platform, the President now wants more oil from OPEC to keep prices down and has ordered oil to be released from the Strategic Petroleum Reserve to dampen rising gasoline prices
Democrats are publicly seeking help from the industry they campaigned against. They accuse gas producers of profiteering and want the industry to drill more after introducing multiple policies making such investments prohibitive or less attractive.
The Democrats’ Future Generations Protection Act of 2021 reappeared in Congress last week. It aims to ban fracking, stop new fossil fuel power plants, end oil and gas exports, and cut emissions by 50% in the next nine years. It has the support of multiple climate change lobby groups. Sponsors claim it would “help ensure a rapid shift away from fossil fuel to clean renewable energy.”
So would US$6 a gallon gasoline.
The situation in Europe is approaching scary. Spot prices for gas and electricity are ten times higher than in western Canada and the worst may be yet to come depending on Russian gas supplies and how cold it gets between now and spring.
The big new gas pipeline, Nord Stream 2, is blocked because of a multi-country regulatory dispute that includes the US. Nord Stream 1 was completed in 2012. These pipelines are laid under the Baltic Sea and land in Germany to avoid passing through countries like Ukraine. This has created transit, tolling and security issues. Most of the legacy Russian gas export pipelines pass through that country.
Russia is unhappy with Ukraine for multiple reasons including getting too friendly with NATO. So it is amassing troops on the border, threatening to invade, and playing high stakes politics with gas supplies. It has done this before. The potential for chaos should be disturbing to the whole world.
Back in Canada, Environment Minister and former activist Steven Guilbeault’s most recent policy utterance is Electric Vehicle quotas for new cars by the end of 2022.
The problems of the world are not top agenda items in Ottawa.
But by now most people in business and finance understand that the Justin Trudeau Liberal administration lives in a parallel universe where woke politics and economics actually work.
There has been an element of unreality with climate change and energy policy for many years. If its too good to be true, it always is. As climate change has become increasingly politicized, industry voices urging common sense have been ignored, shouted down, or both.
Years of cheap and plentiful energy supplies have convinced too many that the western world can interfere with global energy sources, supplies and distribution without negative consequences.
Ordinary people don’t pay much attention to energy issues unless the price goes up or there isn’t any. Both are happening in the winter of 2021/22.
So common sense and energy reality have returned. For now.
David Yager is an oil service executive, energy policy analyst, oil writer and author of From Miracle to Menace – Alberta, A Carbon Story. More at www.miracletomenace.ca
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