As we all know, the invasion of Ukraine, beyond its tragic human and geopolitical consequences, delivered an unexpected boost to the otherwise retreating fossil fuel industry. While some governments are summoning the industry to increase production to reduce prices in the short term, I see the age-old pattern of shifting capital around and maintaining another type of ambiguous and toxic status quo rather than leveraging the windfall cash to accelerate investments into renewables and their related infrastructure.
I am no oil and gas expert, but in contrast to the disposition of most in the climate community, I have been holding space for an industry that understands its important role in the energy transition, and is capable of identifying its critical contribution to the stability of our planet as the basis of its business continuity. But that is not what I see today. I hear the narrative about climate change, but I don’t see the decisive actions.
When the frenzy of substituting Russian gas is over, a few stark realities will raise their ugly heads.
There is no doubt that we are in the climate emergency scientists have been warning us about for years. And there is no doubt that this industry has an outsized responsibility to not only stop stoking the emergency, but to leverage its current profitability to actively contribute to the solution now more than ever.
You don’t need to be clairvoyant to see that if the industry doesn’t turn a significant part of its net profits into long-term remedies, social tolerance (already on the decrease) will sink even lower the day after tomorrow, if not tomorrow, followed by a cascade of litigations, increasing challenges to attract talent in the younger generations, difficulties purchasing insurance, reduced access to debt markets, and an increase in the cost of capital.
Despite current high prices, business continuity of the oil and gas industry will depend on a clear shift in business model. The case for a global energy transition is more solid now than before the invasion of Ukraine. Fossil fuel-importing countries have confirmed that their political and economic independence rests on their own energy independence. And once we are on the other side of the current Russian blackmail, no one will want to be hostage again to such autocratic governments, or to a handful of oil and gas exporting countries who control pricing.
The new Inflation Reduction Act in the USA will incentivize renewables. Europe is moving decisively away from all fossils. High prices are destroying the desire of Asian countries to build out new gas demand. Demand destruction or at least reduction is already underway due to high prices, and will continue due to loss of competitiveness.
The positive tipping point on electric vehicle sales has just been crossed in the U.S. and car manufacturers are adapting to follow suit. Gas generation can no longer compete with the constant innovation of renewable energy, including decreasing offshore wind costs, repowering onshore wind farms with mega turbines, nascent submarine turbine technology, and floating PV first inland and then at sea. Gas power station capacity has peaked. There is a silent but giant investment into batteries, including those with industrial capacity and bidirectional household storage, both of which will allow renewables to be managed beyond intermittency. Gas for heating is beginning to collapse because heat pumps are quickly becoming more attractive. Green hydrogen production and alkaline electrolysers are improving in capacity and dropping in price, as they seek to service the hard to abate sectors.
Bottom line: the future market of oil and gas may be smaller in size and shorter in timeframe than most in the gas industry - and beyond it - currently think.
Of course I recognize the shift away from gas is not that simple:
In the end everybody can and does make their own valid argument. We are therefore back to a simple assessment: how capable are we of courage and leadership when facing so much short term complacency, contradictions, and adversity … but still a clear undisputable long term vital global threat?
The current net profits of the oil and gas industry have only escalated the responsibility for oil and gas companies to contribute their share to social and economic regeneration. And social and economic regeneration are after all the very founding principles that propelled the industry’s growth one hundred years ago.
Despite the bonanza of the last nine months, the fossil fuel era is approaching its expiration date. The International Energy Agency has unequivocally translated the devastating science for the industry and its investors: there is no more room for any new fossil fuel exploration or exploitation.
The oil and gas industry stands at the most crucial crossroads of its history. It arguably has more financial muscle and agency to act than many governments. In fact, there is no industry that has as much capacity for harm or as much potential for good at this moment. I would rather know it to be doing the second, but the choice is now theirs, and humanity is watching.