Investors Start To Realize The Energy Transition Will Take Decades

Everyone in the oil and gas industry is now talking about decarbonization and net-zero emissions

Energy security and affordability have made their way to the top of the agenda.

There is a broader understanding among the public and governments that until a clean energy system is ready, oil and gas will continue to play a prominent role in global energy.

The issue of how to reconcile the energy transition with energy security is taking center stage at one of the world’s biggest annual energy conferences this week. At the CERAWeek in Houston, the top oil and gas executives share the industry’s view of the current state of the global energy system—the world needs oil and gas and will need fossil fuels for decades to come.  

After the Russian invasion of Ukraine scared the world into what a lack of oil and gas could bring about to economies and society, it seems that many investors and industry observers have come to acknowledge that the energy transition cannot replace fossil fuels overnight. Oil and gas will be necessary to advance the transition – by helping the manufacturing of wind turbines or solar panels for example, or by generating for major energy companies cash needed for increased investments in low-carbon technologies and solutions.   

“Energy Trilemma”

Unlike a few years ago, everyone in the oil and gas industry is now talking about decarbonization and net-zero emissions. But unlike in 2021, ESG considerations are not top of the agenda—2022, with the Russian invasion of Ukraine and the price spikes in gasoline and power prices, upended the debate. The energy transition narrative, from the industry’s point of view, became part of the ‘energy trilemma’ as BP’s chief executive Bernard Looney has put it—delivering secure and affordable energy when and where it’s needed while raising investments in renewables and other low-carbon energy solutions. 

According to analysts, there is a broader understanding among the public and governments that until a clean energy system is ready, oil and gas will continue to play a prominent role in global energy supply and, like it or not, we are stuck with fossil fuels for our current energy needs. Right now, fossil fuels account for just over 80% of global energy supply. 

“There’s a much broader push for decarbonization globally, and there’s also a much broader realization that we are ‘stuck’ with hydrocarbons until we can achieve that decarbonization,” Dan Pickering, founder and chief investment officer at Houston-based Pickering Energy Partners, told The Wall Street Journal.

“A bunch more people are saying it’s going to take time,” Pickering added. 

Supermajors Warn Of Price Spikes In A Disorderly Transition

Saudi Arabia, the world’s top crude oil exporter, has been warning for years that the rush to ditch fossil fuels and the reluctance to invest in new supply would create shortages in oil and gas while the world still needs them. 

Now the top executives of the biggest international oil and gas firms are joining Saudi state oil giant Aramco in calling for an “orderly” transition in which people should get secure and affordable energy supply they currently need and they currently get from fossil fuels. 

Environmental, Social, and Governance (ESG) investment, if outright biased against the oil and gas industry, is a threat to energy affordability and energy security, Amin Nasser, the chief executive of the world’s largest oil firm, Saudi Aramco, said last month.  

“If ESG-driven policies are implemented with an automatic bias against any and all conventional energy projects, the resulting underinvestment will have serious implications. For the global economy. For energy affordability. And for energy security,” Nasser said at the Saudi Capital Markets Forum 2023. 

Just a week before Nasser’s speech, UK-based supermajor BP said it would be producing more oil and gas for longer and increase investment into oil and gas projects by an average of up to $1 billion a year, or up to a cumulative $8 billion by 2030. BP’s latest strategy update to produce more oil and gas in the short term was welcomed by the market, in a sign that investors appreciate the shorter-term gains for shareholder value more than the ESG trend. 

“We need to invest in today’s energy system – which is predominantly an oil and gas system,” Looney said at International Energy Week in London last week. 

“As the events of last year demonstrated, the sudden loss of even a small part of the world’s oil and gas can have severe economic and social costs,” Looney noted. 

“And to be clear – we should be clear – orderly is not another word for slow. What it does mean is keeping affordable energy flowing where and when it’s needed. Investing in the transition AND investing in energy security,” BP’s top executive added. 

“Both things – at the same time. AND not OR.” 

This week in Houston, Chevron’s CEO Mike Wirth said that “one of the greatest challenges of all time” was to keep secure and affordable supplies flowing while managing the energy transition. 

“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.” 

If it’s disorderly, such transition could become “painful and chaotic,” Chevron’s chief executive said.