Upstream industry 'too optimistic' on how long energy transition will take: Aramco CEO

Even as climate change initiatives are developing rapidly, they are in the early stages and industry is still too optimistic on how long the ongoing energy transition will take, Saudi Aramco President and CEO Amin Nasser said at a major global petroleum conference Dec. 6.

Alternative energies are "no way near ready to carry a big enough load," Nasser said during the World Petroleum Congress in Houston.

And, there are still viable alternative fuels to complete in aviation, shipping and even trucking, he said. Even in chemical feedstocks and lubricants, even the most aggressive transition plans offer still few alternatives.

"Right now, the world is facing a ever more chaotic, highly unrealistic scenarios about the energy transition that are clouding the future," Nasser said. "It's increasingly assumed the entire world can run on alternative fuels, and the vast energy system can be transformed virtually overnight, that investment requiring $115 trillion dollars can be made in 30 years" -- or by 2050, the target date for achievement of most of the current Scope 3 emissions reduction goals.

"It's also assumed that the right transition strategy is in place," he said. "It is not, it's deeply flawed."

While alternative fuels and technologies are making progress, they will take "a lot longer than is being assumed," said Nasser. "It doesn't help when the pressure is mounting to stop all new investment in oil and gas."

Lower upstream budgets

He noted that upstream oil and gas capital budgets fell more than 50% from 2014 to last year, from $700 billion to $300 billion. And although the consequences weren't immediate, supply has "started to lag," and that is occurring against a backdrop of healthy demand growth.

Capex plummeted in early 2020 because of low demand and concurrently, low oil prices brought about by the coronavirus pandemic. To conserve cash, E&P companies slashed their spending and reined in activity.

But even before that, oil price volatility that drastically affected industry most recently began in 2014, in part because of massive volumes of US shale oil were added to global supply in a relatively short period of time. The rapid rise in global production outpaced demand and caused oil to fall from over $100/b in mid-2014 to about half that level by the end of that year – and has not yet returned to 2014 peak levels.

Otherwise, CEOs in Nasser's panel and one preceding it featuring Chevron, ExxonMobil and giant oil services provider Halliburton, were very optimistic about the advantages and opportunities offered by alternative fuels and new technologies needed to produce them.

"We expect returns equal to or better than our traditional oil business," Halliburton CEO Jeff Miller said.

Underfunded value chain

"When we look at the value chain for climate technology, we don't see a shortage of ideas, but they're stranded on an underfunded value chain," he said. "We don't want to or plan to take rifle shots into the unknown with capital; we do see a fantastic opportunity to participate in how that value chain needs to be."

Panelists agreed that climate change initiatives span a wide diversity of technologies, fuels and initiatives, all of which will contribute to the globe's need to reduce earth's temperature less than 2% .

BP Americas President and Chairman Dave Lawler said the company is funding its energy transition goals, which include an ambition to become a net-zero emissions company by 2050. It will continue developing oil and gas selectively and also continue refining in the same manner, reducing its refinery emissions and doubling the amount of diesel it produces in Washington state.

"We'll spend about $1 billion on similar projects in refineries around the world," Lawler said.

Recently the company brought in a new Gulf of Mexico development, Argos, which will help fund its climate change goals aspirations. The Gulf of Mexico has one of the world's lowest carbon intensity profiles.

In addition, BP has invested over $300 million in the Permian Basin in electric drilling rigs, Lawler said.

"At some point there will be zero Scope 1 and Scope 2 emissions in the Permian going forward," he said. "We'll spend about $1 billion to make sure" that happens.