CERAWeek: Global Energy Transition Needs a Bridge

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Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Delegates arrived in droves in Houston on Monday for the start of the first CERAWeek energy conference to convene without concerns about COVID-19. Conference organizers said this year's meeting deals with the twin challenges of addressing lingering supply-side concerns, while continuing the pursuit of a net-zero economy.

"Designing the world's energy systems for a lower-carbon future remains paramount," organizers said.

The COVID-19 pandemic rattled the energy market in profound ways. Pre-vaccine social restrictions limited consumer demand to the point that crude oil prices traded in negative territory, albeit briefly.

That artificial decline in demand, meanwhile, gave room to efforts to pivot away from fossil fuels, with niche technologies such as green hydrogen and direct-air carbon capture emerging during the pandemic.

Fast-forward to 2023 and the world still needs fossil fuels and it will continue to do so for decades, said Olivier Le Puech, the head of upstream services company Schlumberger (NYSE:SLB) (Houston, Texas).

Striking a theme similar to BP plc's (NYSE:BP) (London, England) CEO, who said the world needs to embrace the energy of today for the sake of stability, upstream rival Baker Hughes (NASDAQ:BKR) (Houston, Texas) pointed to natural gas as the bridge to a cleaner future.

Holding a panel discussion at CERAWeek, Lorenzo Simonelli, the head of Baker Hughes, said natural gas should remain part of the equation.

"Natural gas is going to be part of the energy mix, and it's a shame if we don't allow it to be there, because what's going to happen [is that] we're going to use more coal," he said in the Houston Business Journal.

In the U.S.--the world's leading economy and a top oil and natural gas producer in its own right--federal estimates show coal accounted for 20% of all electricity generation in 2022, while natural gas accounted for 39%.

This year, natural gas is forecast to fade slightly to 37% of the U.S. energy mix, while coal is expected to decline to 17%. The share for renewables is forecast to jump to 26% in 2023, from 22% last year.

Perhaps more troubling is the global aspect: U.S. coal exports are expected to increase from about 88 million metric tons to 96 million metric tons in 2024.

An increase in renewables on the grid, meanwhile, does little to address global supply-side issues, and it's here that natural gas shines. Federal forecasts show U.S. natural gas production is outpacing demand, leaving room to fill the Russian void.

Like crude oil during the 1970s, natural gas is a factor in shaping foreign policy. During the decade before the Russian invasion of Ukraine, the European economy was forced to choose between new supplies from Azerbaijan by way of the massive Shah Deniz field, or double down on Russia by embracing the Nord Stream and TurkStream natural gas arteries.

Russia, long accused of using its vast natural resources for political gain, made a strategic error in its February 2022 invasion of Ukraine, as Western powers have now moved in earnest to find alternative supplies.

Those new supplies are coming by ship, rather than pipeline. This year, the U.S. is expected to become the world leader in liquefied natural gas (LNG) exports, and economies such as Germany are moving swiftly to build up the infrastructure necessary to adapt to new forms of energy.

Many of those new forms of energy, meanwhile, are in the niche stage of development. Hydrogen, for example, started making headlines as developers searched for cleaner ways to process the most abundant element in the universe.

Green hydrogen--a darling of the energy transition--in theory takes renewables off the grid, using them instead to power the electric current needed to split water into the elemental components of hydrogen and oxygen.

Hydrogen is also expensive--about 200% more expensive than natural gas. Taking the cue from former President John F. Kennedy's moon mission, the U.S. Energy Department adopted a "Hydrogen Shot" program that aims to bring the cost down to $1 per kilogram in 10 years.

Bernard Looney, the chief executive officer at British energy giant BP, said in announcing fourth-quarter earnings that the world needs to continue its pursuit of a net-zero economy, but it also needs secure and affordable forms of energy.

"And that's what governments and society around the world are asking for," he said.

It should be no surprise that oil and gas companies are touting oil and gas, but energy is also a political issue.

In January, U.S. President Joe Biden veered off script during his annual address to Congress by saying the energy transition is accelerating and prices--particularly for some key minerals--are coming down. But for some technologies, that might not be enough.

"We're still going to need oil and gas for a while," he said.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).