Take a look at many of the major energy companies’ websites and you’re likely to see a “New Energies”-section with an outlined commitment for ultimately achieving “net zero” carbon emissions.
“As the world confronts an energy transformation, the global energy system is being reimagined and the role of oil and natural gas is not entirely clear,” explained Morgan Bazilian, professor and director of the Payne Institute for Public Policy at the Colorado School of Mines, which has helped lead the nation’s energy system for about 150 years.
The Payne Institute recently hosted a forum on the “Perspectives on the Future of Oil and Gas,” and welcomed executives from Equinor, Shell and BP to share scenarios of what the energy world might look like in 30 and 50 years as countries and companies strive to achieve net zero emissions.
“There is a lot of uncertainty in what the energy landscape will be,” Bazilian said. “It’s an important time to come to grips with this uncertainty as people are making business decisions about it every day.”
Shell, for example, has increased the number of employees in its New Energies sector from 60 to 800 in the past two years, said Wim Thomas, chief energy adviser for Shell. The hiring boom signifies “a very clear vision of where we want to go,” said Thomas, who is responsible for long-term global energy scenarios.
However, when looking at the world’s energy leaders, none have agreed on a clear path forward.
For net zero to be achieved by the second half of this century, many obstacles must be addressed, including the most pressing: a growing population and subsequent growing need for energy; the commitment to eliminate energy poverty currently experienced by approximately 1 billion people; a recent slowing in energy efficiency; and a lack of global consensus on how to collectively achieve net zero goals.
“We have a definite lack of leadership in this arena,” said Eirik Waerness, Equinor’s senior vice president and chief economist who is responsible for macroeconomics, energy and commodity market analysis, at the recent forum.
“Eighty percent of the world’s energy is fossil fuel,” he said. “We need to get out of that. We need everything we can think of and more.”
Looking 30 years into the future, Waerness sees three scenarios for achieving the milestones of the Paris Agreement, yet explained that only one is likely realistic. Published by Equinor in 2019, the first assumes global, benign competition in the world for technology development and sharing. The second assumes worldwide rivalry, a lack of trading and trust, an increase in the use of coal and no drive for reducing carbon emissions. Equinor’s “Renewal” scenario, however, is a rapid, yet realistic transition, Waerness said.
In response to a November 2019 International Energy Agency report, which stated that in 2018 energy efficiency improvement was at its lowest rate since 2010, Waerness said the energy efficiency rate must be tripled.
Other changes in the Renewal scenario that, according to Equinor, must swiftly be made include:
- A rapid change in carbon pricing and fuel efficiency standards
- Massive subsidized investments in renewable electricity
- More than half of cars being electric by 2030
- An 80-percent reduction in coal demand, despite growing populations in India and China
- A solid growth in biofuels and 80 percent more nuclear energy by 2050
- Putting into operation 1 million tonnes of CO2 storage capacity every week to get to 1.5 billion tonnes by 2050
Yet if these changes are made, the world will still need as much oil in 2050 as it did in the 1970s – about 50 million barrels a day, Waerness said.
“This means massive investments in new oil supplies,” he said. “If we want sustainable development, it’s an enormous challenge. It’s possible, but things have to change and they have to change very rapidly. Whether we succeed or not, it is not determined in Baltimore or Berlin or Brussels, but in Beijing and Bangalore.”
Thomas agreed that the “Renewal” scenario is doable.
He recommends that countries stop outsourcing their manufacturing to developing countries with large populations.
“When we outsource manufacturing, we push increased levels of CO2 to China and India,” he said, adding that it is unfair to transfer emissions and then not want to help those countries fund the reduction of their carbon footprints. “China and India need to leapfrog ahead with technology to reduce CO2 emissions and develop wind and solar energy sources,” he said.
Shell’s ‘Sky’ Scenario
In the “Sky” scenario published by Shell in 2018, carbon emissions would be halved by 2050 and reach net zero by 2070. Among other technology fixes, reforestation the size of Brazil would need to take place worldwide.
North Americans must halve their energy consumption per capita by 2050. There must be accelerated growth in electrical consumption, with homes and cars far less dependent on fossil fuels in the next 2.5 decades, Thomas said. “But we need the supply before the demand can follow,” he added.
“The footprint of renewables is bigger than the fossil fuel industry, and that certainly becomes an issue,” he said. “The Netherlands already has enough windmills and yet would need 20 times more than they have today.”
More changes that would need to occur include:
- Natural gas being replaced by biofuels
- Additional carbon capture and sequestration projects
- A global market consisting of solely electric cars by 2030
- 95 percent of buildings converting to electric power
- 40 to 50 percent of industry converting to electric power
- 25 percent of heavy transport converting to electric power in a best-case scenario
Thomas stated that Shell doesn’t want to wait for globally agreed legislation to provide a framework for moving forward.
“We think it’s time that the industry take the lead,” he said.
As the energy transformation takes place, Michael Cohen, head of oil analysis and chief U.S. economist for BP, emphasized that natural gas will be needed during the transition.
“How do we provide more energy while reducing carbon? Renewables will increase, but natural gas will remain an important part of the mix,” he said.
“We are not on a sustainable path,” he said. “Last year we saw some of the strongest growth in energy and emissions than we’ve seen in several years. CO2 is continuing to rise.”
On its way to becoming the third most populous country, Nigeria uses 7 gigajoules of energy per head. Cohen compared that amount with 95 gigajoules per head in China and 287 gigajoules per head in the United States.
While 80 percent of the population consumes less than 100 gigajoules per head, this number needs to drop to 60 percent, Cohen said.
An October 2018 report issued by The Intergovernmental Panel on Climate Change asserted that net anthropogenic CO2 emissions must decline by about 45 to 50 percent from 2010 levels by 2030. Yet, to effectively achieve that, much of the abatement must come from power stations, industry and buildings, Cohen said.
He estimates that oil demand in 2040 will be 80 million barrels a day. “We still need investments in new oilfields,” he said.
While scenarios for the energy transformation can be useful guides, the uncertainty of how the world will progress is what looms.
Cohen left his audience with a foreboding question:
“All of these climate models bring with them a great amount of uncertainty. It’s really not clear what oil demand will look like,” he said. “If we need to be resilient in all outcomes in terms of what the world is going to look like, what is the danger that we might misallocate capital in the future, and how do we keep attracting capital when investors want pure exposure?”
The answer, undoubtedly, will be ever-unfolding.