Calls Expand for More Balance in Transition

Oil and gas leaders may have had their “told you so” moment last year as economies tasted the risks of moving away from hydrocarbons before sufficient low-carbon alternatives are in place. But balance is increasingly the operative word, both for the industry and more policymakers, as the Ukraine crisis prompts a search for a more orderly approach to the low-carbon transition. Just as some governments and financiers are trying to combine all three pillars of energy security, affordability and sustainability to ensure a smooth transition, oil and gas companies are pitching their alignment by tackling decarbonized operations in a holistic, ambitious way.  Industry executives at this week's CERAWeek by S&P Global conference in Houston emphasized a commitment to balance their efforts to keep the world amply supplied while also reducing emissions. “We can do both," Exxon Mobil CEO Darren Woods said of reliably providing affordable energy while quickly reducing emissions. But the industry has substantial work to do. "Alongside all industries, the oil and gas sector needs to up its game, do more and do it faster," said Sultan al-Jaber, setting the tone for how he’ll preside over the COP28 climate conference in Dubai later this year. Only half the industry currently has Scope 1 and 2 net-zero targets, he noted.

To be sure, the energy crisis is ongoing, even if immediate pressures have eased. Europe could still face several volatile winters as it displaces Russian gas, while experts warn of a more fragile oil market due to government-created dislocations in response to Russia’s invasion of Ukraine. But the halls in Houston were filled more with conversations around carbon capture, hydrogen, synthetic fuels and the policies that are critical to advancing an “all-of-the-above” decarbonized energy system than calls for a reversion to unbridled oil and gas growth. “We need to move away from depending on luck as a strategy for our energy needs in Europe, and I'm concerned we haven't yet structurally resolved that,” Shell CEO Wael Sawan warned, echoing others. At the same time, oil market experts raised concerns that tight spare capacity and numerous limitations around Russian oil flows have stunted the market’s ability to adapt to geopolitical disruptions. On the other side of the equation, the “Innovation Agora” conference-within-a-conference focused on energy transition technology solutions was no longer the equivalent of “sitting at the little kids’ table,” as one delegate put it. Instead, sessions were repeatedly overflowing as attendees seemingly couldn’t get enough insights into viable carbon management.

Conference attendees from around the world were unequivocal in flagging the US as a fast-rising transition leader and likely global technology incubator of industry-friendly solutions for emissions abatement. That’s because, for all the head-butting between the Biden administration and US oil and gas industry, the recently passed Inflation Reduction Act offers simplified, multi-pronged “carrots” expected to jumpstart both emerging and more established clean energy technologies. The $370 billion up for grabs include tax incentives for carbon capture, lower-carbon hydrogen and synthetic fuels, alongside electric vehicle infrastructure and renewable electricity deployment. “This is the most impactful, large investment ever made in renewable energy in the history of our country — to say it’s a big deal is an understatement,” said Meghan Nutting of solar firm Sunnova. US Energy Secretary Jennifer Granholm struck a friendly and inspiring tone in characterizing the administration’s efforts as “growing the pie” of available energy technologies, focusing on points of mutual interest. Government policy aside, the US is expected to be an epicenter for industry-adjacent emissions solutions due to inherent advantage: the US Gulf Coast overlaps big emitters with favorable sequestration geology, while domestic production can support integrated emissions-reduction value chains.

Palpably, the overall mood at CERAWeek was its most optimistic in years. Capital for oil and gas reinvestment remains scarcer than before the pandemic. Protests calling for an immediate end to fossil fuels still find a way into the conversation. And heightened government intervention threatens to set the course for a more disjointed transition. Yet industry leaders seemed to take their first collective sigh of relief after a dizzying three years. Still, the gap between climate-minded political agendas and industry wish lists remains significant — and fraught with risks. Oil and gas companies are clearly becoming more comfortable talking up conventional energy, with exploration, final investment decisions and future development phases all featuring prominently. At the same time, new cross-industry partnerships and ventures between the conventional and emerging energy guard focused around decarbonization were steeped in even greater enthusiasm. “Put simply, we are not shying away from the energy transition, we are running towards it," Al-Jaber said. But while there may be newfound alignment between governments and industry around areas to invest in decarbonization, crucial tensions remain. First and foremost: this week also saw the gas industry push for language at the G7 allowing for natural gas project financing. Sideline conversations suggest tepid response outside of Japan.