Acceleration Ahead: Why the Energy Transition Will Speed Up

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Energy Transition Winners, Losers Start to Take Shape

The energy transition is set to accelerate, with little doubt. What's less clear is which factors will impact that pace and how volatile the road ahead will be. Those have been consistent themes at the Energy Intelligence Forum this week. “It seems we're going for a more volatile transition,” said Fahad Alajlan, president of the King Abdullah Petroleum Studies and Research Center. And many experts agreed — warning that ups, downs and curveballs could affect the trajectory for emissions cuts. These range from price spikes and fluctuations in demand to global crises.

Much of the world is underestimating the challenges of decarbonization “by virtue of the fact that this is such a massive undertaking, in such a short time frame,” TJ Conway, director of Energy Intelligence's Energy Transition Research, told the Forum. “A lot of these actions really have to step up by 2030.” In any case, Energy Intelligence sees the transition accelerating, with renewable power costs continuing to fall and falling battery costs providing keys for decarbonization in both power and transportation, Conway adds. “We have rising societal demands, rising investor pressures, and also rising climate-related risks and climate-related events — and a growing connection between what’s happening and these longer-term trends.”

Without rapid action before 2030 “the pace of reductions between 2030 and 2050 becomes too steep,” warned Jules Kortenhorst, CEO of the Rocky Mountain Institute. “We have to move extremely fast. 2050 goals are not good enough. We need to transfer those goals into immediate implementation.”

Technological Keys

The International Energy Agency's (IEA) Executive Director Fatih Birol called for a massive expansion of low-carbon technologies in the run-up to 2030. This should include well-advanced technologies like solar, electric vehicles, and nuclear, plus vital technologies that are available but not yet commercial, including hydrogen, carbon capture and direct air capture.

A constant emphasis during the Forum was the potential role of two technologies in particular — carbon capture and hydrogen — in speeding up and strengthening the transition. Former Sinopec Chairman Fu Chengyu said renewables like solar and wind "will develop a lot faster than before" going forward and "hydrogen will have a good opportunity to develop" as well. Likewise, Equinor CEO Anders Opedal said “rapid” and “industrial-scale” efforts are needed to ramp up hydrogen and carbon capture. Without these two technologies, there is “no viable path to net-zero and realizing the goals of Paris,” he stressed.

Experts with Energy Intelligence’s Energy Transition Service said waiting on technological breakthroughs to accelerate the transition would be misguided, since many of the tools to achieve deep emissions cuts are already available. Yet they agreed that improvements — including big breakthroughs and incremental innovations — would help immensely with the cost equation for emerging technologies. Breakthroughs would also be needed to replace existing energy systems with new infrastructure and processes.

Crisis Proves Illuminating

The current energy crisis in Europe and elsewhere brings the need for an accelerated transition into “renewed focus,” said Mark Lewis, head of climate research at Andurand Capital Management. One issue in particular has come to light: “There has been perhaps too much focus on choking off the supply of fossil fuels and not enough focus at the policy level on changing demand patterns,” he said, stressing the need for demand incentives to change consumer behavior. “Because there has perhaps been an imbalance in the approach and too much of a focus on getting supply down,” he said. “As we are seeing at the moment, when supply falls and there’s not enough investment in supply, you get very high prices, and that’s not politically helpful to the transition story.”

Glasgow ‘Crucial Milestone’

The COP26 talks in November will mark a “crucial milestone” in accelerating climate ambition around the world, Equinor’s Opedal told the Forum. Yet he issued a warning against complacency. “It is easy to look at the success of the past and expect this to shape the future. But our success is dependent on hard work, every day, from our employees, partners and suppliers,” he said when accepting the 2021 Energy Innovation Award on behalf of his company.

“If we lose perspective or slow down, we will not be able to transform at the pace needed,” Opedal added. “Many are impatient. Many say the energy transition is moving too slowly. And those who know me also know I can be an impatient man.”

So what would make COP26 a success rather than a failure? Seeing more major emitting countries set more ambitious pledges, known as nationally determined contributions, would be essential, said Andurand’s Lewis. “It remains to be seen whether we will get that. We need a breakthrough on climate finance more than anything else for the developing world to commit more strongly ... that's been a thorn in the side of COP negotiations for over 10 years now.”

Disagreement on Demand

Despite widespread agreement on the energy transition revving up, opinions are miles apart on how that would affect fossil fuels. Warnings about underinvestment in fossil fuels prevailed at this year’s Forum. Saudi Aramco CEO Amin Nasser, emphasizing his company’s projections of continued growth in global oil demand, argued that the existing price crisis in energy markets will get worse if investments don’t continue into new supply sources. Similarly, on the gas side, Petronas CEO Tengku Muhammad Taufik said LNG will still play an enormous role in the energy mix going forward. He added that Petronas’ ambitions in ammonia and hydrogen "is not meant to displace LNG.” On the contrary, the IEA’s Birol said it’s “very simple math” that fossil fuel usage should be slashed to reach net-zero by 2050. “We don’t need to invest beyond existing oil and gas fields.”

Corporate Strategy , Low-Carbon Policy, ESG, Policy and Regulation, Oil Demand, Gas Demand, ENERGY INTELLIGENCE FORUM 2021
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