The best-case outlook for the future of
world energy looks highly positive for
the oil and gas industry.
In that outlook, energy demand returns
to pre-pandemic levels and production
increases as the world’s economies recover,
giving the industry an opportunity for a strong
rebound and years of attractive growth.
But other scenarios could put
roadblocks in the way of exploration and
production, some of them potentially
coming from the energy industry itself.
OPEC+ definitely holds one key to the
future, and the global energy transition
appears to have picked up a considerable
amount of momentum over the past year
and a half.
“There’s been a lot of water under the
bridge since 2019. A lot of things changed
during the pandemic,” said Jim Krane,
fellow for energy studies in the Baker
Institute for Public Policy at Rice University.
“Here in Houston, it seems like there’s
more acceptance of the need to take
climate action,” Krane noted.
Many large companies, including
oil majors, have put energy transition
programs into operation. A majority of
those are medium- to long-term, with target
dates ranging from 2030 to 2050.
In April, Shell published its Energy
Transition Strategy, a plan that will go to its
shareholders for an advisory vote in May.
The strategy commits Shell to reducing
carbon dioxide emissions from 1.7
gigatonnes per year to net zero by 2050.
Earlier this year, General Motors Corp.
announced “an aspiration to eliminate
tailpipe emissions from new light-duty
vehicles by 2035.”
“To address emissions from its own
operations, GM will source 100-percent
renewable energy to power its U.S. sites
by 2030 and global sites by 2035, which
represents a five-year acceleration of the
company’s previously announced global
goal,” the company stated in a release.
For national and local governments,
“resolve around cleaning up energy
production strengthened during the
pandemic. It seems that governments
around the world have gotten a taste for
dramatic and expensive policy maneuvers,
and it seems like their citizens are okay
with that,” Krane observed.
“A lot of these (new government
policies) include a green aspect. There just
seems to be pressure coming from all over.
The Chinese are at least starting to push
coal out of their energy mix,” he said.
Industry bench-marker S&P Global
defines the energy transition as the “energy
sector’s shift from fossil-based systems
of energy production and consumption
– including oil, natural gas and coal – to
renewable energy sources like wind and
solar, as well as lithium-ion batteries.”
In general, the transition is expected
to produce a smaller percentage share
for coal and crude oil in the global energy
mix, and a substantially larger share for
renewables. Expectations for other energy
sources like natural gas and nuclear aren’t
as well defined.
Shell’s new transition strategy includes
a plan to shift the company toward gas
production by increasing its natural gas
share of total hydrocarbon output to 55
percent, with up to a 2-percent annual
decline in its crude oil production.
Climate change efforts and the energy
transition have “gotten well beyond
policy-making. It’s become embedded in
commercial activity and social mindsets,”
“The energy system is so enormous,
even if government policy-making is all on
board, it’s a huge life. But it doesn’t seem
like a mountain anymore,” he said.
Shifting Geopolitical Landscape
“How much that affects energy demand
in the short term is – not much,” he added.
In the near term, OPEC+ most likely will
continue to limit production and prop up
world oil prices as needed, Krane said.
“They’ll probably move back and forth
between these bids for market share, then
backing off to let prices rise,” he predicted.
In the longer term, how extensive
climate change efforts become and how
Saudi Arabia and OPEC+ respond to that
could be hugely consequential.
Krane is author of the book “Energy
Kingdoms: Oil and Political Survival in the
Persian Gulf.” His research themes and
special interests include U.S. relations
with Middle East oil and gas exporters and
global energy geopolitics.
With OPEC+, “I’m always stunned that
so many countries can get together and
agree on self-sacrifice. There aren’t that
many coalitions of countries that can get
together and take that kind of collective
action,” he said.
An imminent reduction in future oil
demand could induce OPEC+ to speed up
monetization of its in-ground crude assets.
What if Saudi Arabia eventually decides
that selling its oil at a much lower per-barrel
price is better than never being able to sell
those barrels at all?
“If Saudi Arabia decides to monetize
and oil prices go down, that makes
things difficult for the smaller producing
companies,” Krane noted.
He sees the possibility of a more
virtuous approach and a less virtuous
approach for OPEC+ in the future.
“Some of the OPEC players have held
a big share of the market and that hasn’t
changed much. A lot depends on their
response to the energy transition,” Krane
It would be a major change “if OPEC
added climate to its rationale for action,
instead of handing out quotas based on
countries’ productive capacity. They could
do it around other criteria,” he noted.
Krane said “there’s also a dark way, a
negative effect” and “a race to the bottom”
possible for Saudi Arabia and OPEC+.
That could include extensive market
manipulation, attempts at coercion, placing
sanctions on rival producers and other
“The geopolitics of energy as we go
through this transition is changing. It’s
changing a lot,” Krane said. “Right now,
everyone is talking about Iran coming back
(as an oil producer and exporter) and what
that means. And Iran is already coming
Also, “the rise of China is a pretty big
challenge for the United States,” Krane said.
He noted that China’s autocratic approach
to government appeals to many other
“There is this whole outbreak of
nationalism in the world. Democracy has
been in retreat for a few years. A lot of that
is happening through grassroots support of
illiberal ideas, and a lot of that seems to be
percolating up through the Internet,” he said.
Advantages for Renewables
At present, and for the foreseeable
future, the outlook for global energy
security is still positive, according to Krane.
“Energy markets are still really open and
free. Fossil fuels are 5 to 10 percent of all
global trade by value, depending on the
price,” he noted. “It’s pretty hard to find fault
with the way fossil fuels are traded right
“As demand for oil levels off, oil
availability will get more secure. Climate
change has been great for oil security. It’s
an irony,” he said.
He pointed out several reasons for the
world’s current oil and gas supply security:
- Demand growth isn’t challenging oil
companies right now.
- Lots of governments are sitting on
large oil reserves.
- Oil and gas production has become
Krane expressed more concern about
the risks to the energy industry and the
world from interruptions to exports of
vital raw materials and capital goods. For
example, he said, what if the Democratic
Republic of Congo stops exporting
cobalt, used in lithium-ion batteries, heatresistant
and hard alloys, and many other
“If the price of materials and minerals
suddenly spikes, that’s going to make the
price of equipment go up,” he noted.
Energy sources like solar, wind and
hydroelectric are primarily local sources,
and Krane said that gives renewables the
advantage for the global energy system of
“In the system we have now, you have
to bring in combustible fuels all the time.
If that supply line is broken it’s a disaster.
With renewables, that doesn’t happen,” he
“You don‘t have to have a constant
supply of energy (inputs) to keep things
going. If the intermittency problem
goes away, you’re going to see a huge
advantage” for renewables, he said.
The global coronavirus pandemic hasn’t
ended, and exactly how post-pandemic
energy demand will evolve isn’t yet clear,
Krane said. Will there be fewer business
travelers and less air travel? A reluctance
to use mass transit and increased private
At the moment, “nobody knows how all
that will turn out,” he said.
Shipping and other global transportation
re-emerged as an energy issue during the
past year and a half. In the United States,
the Biden administration revoked the permit
for the Keystone XL Pipeline’s Phase 4
extension by executive order in January. In
March, a container ship mishap interrupted
oil tanker and other maritime transport
through the Suez Canal.
It reminded the oil and gas industry
and the world that getting energy from
Point A to Point B can’t always be taken
for granted. Krane cited the interruption
of electricity and natural gas deliveries in
Texas during a severe February cold snap.
“Getting gas from one side of the state
to the other turned out to be impossible in
cold weather,” he said. “Who knew?”