HOUSTON — The Baker Institute Center for Energy Studies last week hosted its third annual energy summit, “The Energy Transition: Legacy, Scale and Technology.” The event provided a forum for market players and decision-makers to share insights into the energy industry’s future.
Speakers and panels addressed energy transitions and how economics, policy and technology are driving change across the industry.
Mark Finley, a fellow with the institute, set the table by saying that carbon dioxide emissions continue to increase globally, despite the growth of renewable energy. “Transitions take time,” he said.
As an example, Finley said it took oil 40 years to gain 10% of the energy market, faster than any other fuel.
“Fossil fuels will contribute the majority of energy [production] in 2040,” he said.
“I think the energy system is always in transition,” said Tristan Abbey, a staffer for the U.S. Senate Energy and Natural Resources Committee. “When oil was discovered 150 years ago in Pennsylvania, coal didn’t suddenly go away. When people starting driving, we were still using coal. When nuclear power was harnessed, we didn’t stop using oil. I think we’ll see that continue. We’re always in a transition.”
Finley noted that the world’s largest economies, which make up the Organisation for Economic Co-operation and Development (OECD), only consume 40% of the world’s energy.
“The expectation is growth will be in the rapidly growing emerging economies,” he said. “The bottom line is what happens here means less and less in the global context.”
Hap Ellis, a general partner with RockPort Capital Partners, said that while there is a need to bring renewable energy to the developing world, OECD countries should be cognizant of developing countries’ need for cheap baseload power. He said Bangladeshi Prime Minister Sheikh Hasina stood before the World Economic Forum earlier this year and defended a “state-of-the-art” coal facility.
“We need this power,” Ellis recounted Hasina saying. “We need this cheap baseload power. We need a lot of it to get our economy going.”
Finley said that while the data are clear on the decreasing cost of renewable energy (“It’s not a game for rich countries anymore.”), the OECD countries should refrain from imposing their environmental priorities on emerging economies.
“Climate considerations are one on a list of priorities in countries around the world. We can’t say, ‘You can’t do that.’ It’s an equally important consideration we have to honor as well.”
Shell, Oxy Committed to Paris Agreement
Representatives from two of the world’s largest petroleum companies, Royal Dutch Shell and Occidental Petroleum, flashed their green bona fides in encouraging other corporations to follow their lead and support the Paris Agreement.
Jason Klein, Shell’s vice president of energy transitions, explained the company’s Sky scenario, which provides a “challenging pathway” to reach the agreement’s goals of limiting global warming to less than 2 degrees Celsius. The Dutch company’s scenario relies on seven key elements, ranging from tripling the rate of electrification and increasing renewables “50 fold” to pricing carbon and capturing it on a “massive scale.”
“It will take massive collaboration between societies, business and governments,” among others, Klein said, “and a rewiring of the global economy in just 15 years.”
“We’re going to need every single technology at our disposal if we’re going to meet [the Paris Agreement’s] objectives,” Occidental’s William Swetra said, underscoring the sense of urgency exhibited by the world’s youth. “It’s time for large companies to come to the table to see how they can be a part of the solution. It will take time, but there’s urgency in the matter.”
Even so, natural gas will still remain a major part of Shell’s business, albeit in some forms previously unimaginable.
“Clearly, there’s a role for oil and gas in a net-zero-carbon world. You need some negative emissions to get to a net-zero world,” Klein said, pointing to carbon capture and sequestration. He said CCS requires “government support and collaboration to get to scale,” but it also needs high concentrations of CO2 and a friendly regulatory regime that allows pipeline construction.
“If we can’t find that in Houston, Texas, I don’t know where we’ll make that work,” Klein said.
Alluding to natural gas emission rates being half those of coal, Klein said, “We see natural gas as a key transition fuel, both domestically and with LNG. We see the ability to provide natural gas and LNG to offset coal and the intermittency of renewables. We want to ensure the environmental story around natural gas is credible.”
Asked how Shell will track progress against the Sky scenario, Klein said the company has set a net carbon-emission footprint, with the goal of cutting that in half by 2050. Executive compensation will be tied to the reduction targets, which include the customer emissions that account for 80% of Shell’s total. In Europe, he said, customers who buy regular unleaded at the pump are also buying a “nature-based offset” to fund forestation activities.
“The CO2 that comes out of your tailpipe is included in our carbon footprint,” Klein said. “We have a 3% net carbon reduction target by the end of 2019. Every year, we’ll set a new target on a three-year rolling basis to hold ourselves accountable.”
Swetra said Oxy’s Low Carbon Ventures subsidiary, which is developing carbon-capture projects, is helping the company support the Paris Agreement’s objectives and working to “prove carbon capture is ready for primetime.” The company has partnered with Canada-based Carbon Engineering to design what they say is the world’s largest direct-air CCS facility in West Texas’ Permian Basin.
Oxy considers CO2 a commodity, Swetra said, alluding to its “enhanced oil recovery” process. The company uses the process to “flood” oil fields and bring the remaining product to the surface; it injects 2.6 Bcfd of CO2 into the Permian Basin, making it one of the global leaders in the field.
“We’ve been injecting it into the ground for [40] years. Over time, the CO2 becomes stable and permanently stored,” Swetra said. “Our aim is to sequester more CO2 in oil and gas reservoirs than we produce.”
Baker: Partisanship Poisons ‘Almost Every Policy’
The institute’s namesake, James Baker III, a partner at Houston’s Baker Botts law firm, made a late-afternoon appearance at the summit to warn that growing political polarization in the U.S. is making it difficult to address the nation’s issues.
“I know politics is a contact sport and it’s a blood sport. I have the bruises to show for it,” said Baker, a former cabinet secretary and chief of staff under two Republican presidents. “But we’ve moved into a new, rather insidious atmosphere, where partisanship has poisoned almost every policy. This destructive cycle is going to prevent us from addressing the critical issues we face.”
Central among those issues is the outsized influence of the Middle East and other energy-rich regions around the world. As Baker described the U.S.’ own shift from coal-fired to renewable generation and its reduction in the growth of greenhouse gas emissions, he said, “Note I said ‘reduced,’ not ‘ended’ or ‘limited.’ We remain vulnerable to disruptions in the major hydrocarbon regions of the world.
“To walk away from the Middle East is the stuff of fantasy. That should be obvious by now,” he said. “The Middle East is going to challenge our ability to balance ends and means for a quarter of a century. We ought to abandon any illusion of our ability to remake that region of the world.”
‘Balkanized, Regional’ Grids Lead to a ‘Mess’
Sunnova Energy CEO John Berger bemoaned the nation’s regulatory structure, saying “balkanized, regional grids” have meant more power to the states than the federal government. That has helped hinder renewable developers like his company, which in July became the first U.S. residential solar company to go public in four years.
“We are uniquely screwed up,” Berger said. “There are about 5,000 utilities with different regulatory structures … investor-owned utilities, co-ops, municipalities, federally owned entities … we don’t have a consistent policy. There is no [national] grid. We’re basically a bunch of balkanized, regional grids, and those are becoming more balkanized and regional in nature, not less.
“All that leads to … a mess. Everybody agrees the system is broken, and everybody has a different view on how to fix it,” he said.
“It sounds like there’s a cost to [a national grid],” Ellis told Berger. “What’s the prize to be gained from a great, nationwide integration of the grid?”
“The idea that there’s a lot of [transmission] buildout out there is not true,” Berger said, noting that facilities built to accommodate nuclear energy in the 1960s and 1970s were not fully subscribed until the late 1990s.
“That’s been some benefit for wind [energy],” he said. “[Building] a power line crossing someone’s ranch that’s been in the family for 100 years is a problem. It has a true cost to it. It’s not just people not wanting development.”
And while that may offer opportunities to solar power and other distributed energy forms, Berger called for a balance between centralized and decentralized regulation.
“I don’t think it makes sense to build transmission lines for solar,” he said. “What you’ve been doing for the last 100 years doesn’t make sense, because technology is changing, as it is everywhere.”
– Tom Kleckner
