The call to cut the carbon from natural gas and oil, versus eliminating fossil fuels from the energy mix, is gaining supporters, as top energy executives in Houston this week pushed for stakeholders to acknowledge that global demand is growing, while a renewables-only future is unattainable in the near term.
In the unofficial energy capital of the world, executives at CERAWeek by S&P Global were joined by a cadre of technology leaders, each pushing similar visions to achieve net-zero greenhouse gas ambitions.
CEO Amin Nasser of Saudi Arabian Oil Co., better known as Aramco, jolted the audience on the first day of the week-long conference with a rallying cry to accept reality.
“In the real world,” he said, “the current transition strategy is visibly failing on most fronts” as it collides with “hard realities. The first is that, despite the world investing more than $9.5 trillion on energy transition over the past two decades, alternatives have been unable to displace hydrocarbons at scale.”
For example, natural gas “remains a mainstay of global energy, growing by about almost 70% since the start of the century. Even coal is at record highs. This is hardly the future picture some have been painting.”
Fossil Fuel Phase-Out ‘Fantasy’
Let’s “reset” the energy transition ambitions, Nasser urged the audience.
“We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions. We should ramp up our efforts to reduce carbon emissions, aggressively improve efficiency, and introduce lower carbon solutions.”
Aramco has set a strategy to boost its natural gas network, including overseas exports.
Phase in “energy sources and technologies when they are genuinely ready, economically competitive, and with the right infrastructure, adjusting all of the above as needed, as we go,” he said.
ExxonMobil CEO Darren Woods agreed. “Everyone wants to reduce emissions, but nobody wants to pay for it,” he said. The Biden administration’s landmark Inflation Reduction Act (IRA), which unlocked tax incentives to increase low-carbon investments, was welcome, he said. The government “showed a willingness to find solution sets” to work toward net-zero carbon beyond “only renewable energy.”
Still, the government cannot pick winners, Woods warned. He told the audience that ExxonMobil would not advance one of the world’s largest low-carbon hydrogen projects if the administration were to withhold tax incentives for natural gas-fired facilities.
Adios, Blue Hydrogen?
IRA incentives are earmarked for a variety of projects including green hydrogen, which is manufactured using water and renewable energy. A blue hydrogen facility planned by ExxonMobil in the Houston area, which would manufacture hydrogen using natural gas, also should qualify for IRA tax benefits, Woods said. The company captured a bevy of carbon capture projects, including for blue hydrogen, with its purchase last year of Denbury Inc.
Don’t favor one low-emission technology over another, he warned.
“If we find the regulation gets heavily influenced by the lobbying, and what I would say is people trying to pick winners and losers, then we won’t move forward with it,” Woods said of the blue hydrogen project. “That would violate one of the fundamental principles which is just to focus on reducing emissions and let the market and the companies figure out how best to do that.”
Woods noted that he was “very supportive of the IRA,” as it focuses on carbon intensity.
However, in theory, the government should “not try to pick a particular technology.” Focusing on “carbon intensity and incentives” to achieve those goals is welcome.
“The support for carbon capture, biofuels and hydrogen solutions opens the door for us as a company to start trying to contribute solutions.”
Those opposed to fossil fuel use, though, may not comprehend the “downside” of zeroing in only lower emissions rather than the cost of emerging countries that may lose access to affordable and reliable energy.
“You can’t give up the benefits that quickly,” Woods said. “Society can’t tolerate that,” which is “the hardships that come with the lack of those benefits.”
And it’s going to take time, according to private investment firms. During a Private Capital discussion, Carlyle Group managing director Bob Maguire said the transition has up to now been driven by policies.
“Usually transitions are driven by the market or technology,” Maguire said. “Now technologies are trying to catch up with policy.”
It may take several years for some emission-killing technologies to become affordable and broadly used, according to General Atlantic managing director Gabriel Caillaux.
“As growth investors, we feed off of venture and it’s not clear from venture which technologies will succeed.”
