What's Truly 'Clean'? Energy Industry Weighs Costs of Transition

Editorial by Geoffrey Lakings for Industrial Info Resources (Sugar Land, Texas)--In our last energy transition article, we spoke on Big Oil's Enviable Problem: What to Do With All this Money? "Big Oil is flush with cash, thanks to price and volatility trends that have been unfolding across global energy markets for more than a year." We concluded, "As the Middle East Institute says, 'We can't tackle climate change in the Middle East without ESG investing.'" As we can see from the following illustration from Acuity Knowledge Partners (New York, New York), an awareness is emerging of what will be required:



However, from a broader perspective in this week's IIR Market Scorecard, there were some alarm bells being rung by analyst Cyril Widdershoven on how ESG-focused investing in renewables and alternative resources--rather than a more moderate "everything energy" approach incorporating hydrocarbons--could bring about another energy crunch.

Furthermore, Deloitte (London, England) notes that ESG-mandated assets will make up half, if not more, of all professionally managed assets by 2024:



But there's still a definite need to invest in upstream exploration and production (E&P), as Saudi Arabia and other major producers seem to recognize the threats noted by Widdershoven:

• Bloomberg: Saudi Aramco Says ESG Investing Threatens Energy Security - Saudi Aramco's top official warned ... that an increased focus on climate was undermining investment in oil and gas to the point where it now posed a threat to the world's energy security.

Hydrocarbon majors like Shell plc (NYSE:SHEL) (London), Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and, more recently, TotalEnergies (NYSE:TTE) (Courbevoie, France) have found themselves wrangling with activist investors in the court of public opinion (and, in some cases, actual court) on how they should approach the energy transition and ESG policies. Even individual board members at Big Oil companies are finding themself in court over their climate strategies:

• EHS Daily Advisor: Shell Board Members Personally Sued Over Claims of Mismanaged Climate Strategy - ClientEarth filed suit in February 2023 in the Court of England and Wales against the board members of Shell plc for failing to manage the material and foreseeable risks posed to the company by climate change.

So, the more pragmatic "everything energy" approach actually is fraught with plenty of challenges and risks for Big Oil and its executives. But as the Manhattan Institute opined last August, we should remain pragmatic from a global perspective:

• Manhattan Institute: The 'Energy Transition' Delusion a Reality Reset - Global economies are facing a potential energy shock--the third such shock of the past half century. Energy costs and security have returned to center stage, as has the realization that the world remains deeply dependent on reliable supplies of petroleum, natural gas and coal. And all this has arrived during an inflation itself partially the result of higher energy prices that are raising production and transportation costs across industries.

Those topics, and more, will be touched on leading into UAE's COP28:

• Aljazeera: We need decisive climate action, can COP28 deliver? - On March 20, the Intergovernmental Panel on Climate Change (IPCC) released its synthesis report, a summary of seven years of climate science, that once again emphasized the grave threat humanity faces from climate change.
  The report concludes that even with the most ambitious greenhouse gas emission reductions, global warming is expected to overshoot the 1.5 degrees Celsius limit set by the Paris Agreement as early as 2030.

Fortunately, while these greening/decarbonization debates rage, Industrial Info is providing invaluable on-the-ground research and insights:

• IIR News: How Safe Is Carbon Storage Underground? - With billions of dollars in government funding allocated to testing and expanding carbon capture and sequestration (CCS) projects nationwide, there are mixed reactions to the prospect of such entities coming soon to a community near you. Business leaders, especially in oil-producing communities, laud the idea as both creating new jobs and preserving existing fossil fuel jobs. But environmentalists are wary of the process for the latter reason. And in some locations slotted for CCS destinations, there are protests based on safety worries.

CCS can enable oil and gas majors, and those in the Chemical Processing Industry, to decarbonize in a manner which aligns with their core competencies. Also, CCS will be necessary for the hydrogen economy, if it is to exist:

• ExxonMobil to Offtake, Store CO2 from Linde Blue Hydrogen Facility - Linde plc (NYSE:LIN) (Woking, England) has signed a long-term agreement with Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) for the offtake of carbon dioxide (CO2) from Linde's planned blue hydrogen facility in Beaumont, Texas, the industrial gasses producer said Tuesday.
  ExxonMobil will transport and permanently store up to 2.2 million metric tons of carbon dioxide per year from Linde's hydrogen production facility, Linde said in a press release.
  "ExxonMobil's agreement with Linde underscores our growing momentum in providing industrial customers with large-scale solutions to sequester carbon dioxide emissions," said Dan Ammann, president of ExxonMobil Low Carbon Solutions. According to an investor presentation on Tuesday, ExxonMobil could see hundreds of billions of dollars in revenue from its Low Carbon Solutions business in 10 years as companies ramp up decarbonization.

And that they should explore geothermal opportunities which again align with their core business:

• IIR News: Geothermal Energy is Heating Up - Not only for Colorado, which could see its debut installation, but for the world, geothermal energy may be the missing part of the energy transition puzzle, a developer said.
  Geothermal Technologies Incorporate (GTI) (Baltimore, Maryland) said it secured the necessary permits from the Division of Water Resources in Colorado to drill wells to test the potential for geothermal energy in the Denver-Julesburg Basin.
  Research from the University of Michigan finds most of the western U.S. states are ripe for geothermal energy. California, Nevada and Utah have the most installed capacity, though Colorado boasts geothermal temperatures as high as 300 degrees Fahrenheit at six feet below the surface, showing the potential is there.

Still, oil and gas majors also realize they need to provide alternatives to transportation in the form of alternative fuels:

• IIR News: Transportation is Getting Greener - U.S. pipeline and energy infrastructure company Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas) said its renewable diesel facilities were now in commercial operation in California, a state that's setting the bar in clean transportation.
  Kinder operates northern and southern California renewable diesel hubs that combine for a total throughput of 41,000 barrels per day.

While from a transportation perspective one remains aware of the supposed rush to electric vehicles (EVs), many other electrification initiatives will boost the demand for sustainable lithium mining:

• IIR News: Lithium Expert Calls for More Mines to Meet Expected Surge in EV Demand - Decarbonizing an economy looks to be a lengthy and arduous process, particularly when it comes to transportation, where vehicles powered by internal combustion engines burning hydrocarbons must be replaced by vehicles powered by electricity.
  While automakers have gotten religion about electric transportation, there remains doubt about whether the lithium supply chain can be built out fast enough to meet the expected surge in demand for lithium-ion batteries that are being relied upon to power next-generation cars and trucks.
  A recent conference in Denver, sponsored by the Society for Mining, Metallurgy & Exploration (SME) (Englewood, Colorado), devoted several panels to exploring various aspects of the lithium supply chain, including: raw material mining; lithium compound refining; precursor manufacturing; component and cell manufacturing; and EV manufacturing.

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