The US administration’s withdrawal from the Paris Agreement on climate change does not eliminate the urgency of addressing existential issues for the oil and gas industry, both in the US or globally. At the center lie two questions: 1) Should the industry take a pro or con position regarding the Paris Accord or remain neutral? 2) What strategies are critical to maintain the oil and gas industry’s preeminence in the global energy markets? There is a brave new world of energy with three defining attributes: unitization, environmentalization, and extreme efficiency. Understanding these three will help answer both questions.
Unitization is the emergence of a common energy language—kilowatts, BTUs, or calories—to shop among different brands/sources of energy such as oil, gas, wind, solar, or others. To consumers worldwide, it matters little whether the cars they are driving or the planes they are flying in are fueled by shale oil or hydrogen so long as the economics are right and the fuel of choice meets prevailing public norms of “environmental wellness.” The latter is an imperative, not an option, in this new age.
Integration of environmental wellness into corporate and government actions constitutes the essence of “environmentalization.” It is not meant to be synonymous with global warming. It is the sum total of influences on all aspects of the environment. The air quality of Chengdu, China, or fracturing-induced tremors in Oklahoma must be part of this conversation. What ties everything together for consumers worldwide is the ability to choose the most efficiently delivered kilowatts—environmentally and economically—hence the imperative for “extreme efficiency.”
Extreme efficiency is the new paradigm of energy markets for fossil fuels and renewables alike. A closer look at seemingly unrelated fronts is worth noting. In the Permian Basin of Texas, the bedrock of the US oil production’s resurgence, crude output levels reached 2.6 million B/D in October 2017 despite a 50% drop in crude prices over the past 3 years. During the same period, US solar energy power generation more than tripled while unit costs dropped 33%. Similar trends in efficiency are evident in wind and unconventional gas. More importantly, CO2 emissions in the US and European Union have come down 20% during the past decade accompanied by comparable drops in energy intensity (consumption per GDP) while China started a downturn trend in CO2 emissions in 2013. More is on the way.
Read the full column here.
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