Scale of investment needed for energy transition makes no single mode inevitable

The energy sources that dominate in 2050 and whether they deliver crucial decarbonization reductions depends on policy and investment decisions being made today and potentially on consumers' willingness to withstand price disruptions along the way, a Bipartisan Policy Center panel said Feb. 9.

Asked to predict how the energy transition will play out over the next three decades, the panelists predicted current oil and gas producers might still play a key role, whether from continuing to pump the lowest-carbon streams in their portfolios or from using existing skills to pivot to new areas.

Kevin Book, managing director of ClearView Energy Partners, said "uncomfortable price premiums" like those seen in the current oil market may stand in the way of governments' greenest ambitions.

"I suspect that we're probably not going to be as green, as soon as [some] would hope," he said, which could lead to higher oil and gas output and less hydrogen than called for in net-zero models.

Book said the upstream industry's skills including managing large infrastructure projects and mastering subsurface technologies will likely keep the sector "very relevant in a very big part of the story in three decades."

Opposing scenarios

John Larsen, a partner at the Rhodium Group, sees a potentially "multitrillion-dollar enterprise that could be quite profitable" for the oil and gas sector under slow and fast energy transition scenarios.

"Let's say the world actually solves this problem and actually gets there," he said. "In that world, you've got most end-uses electrified. You've got most electricity coming from zero-emitting sources like wind and solar and nuclear, and you've got the remaining fuels that are mostly sustainable drop-in hydrocarbons, but not from petroleum."

"In that world, if the oil and gas industry or the companies are playing their cards right, they are the purveyors of those low-carbon liquid fuels that aren't from petroleum anymore but still require refining capacity and other production capacity that they're good at," Larsen continued. "They are the carbon management industry of the world that is capturing CO2 from industrial sources and are other point sources and managing that underground as well as a multi-gigaton carbon dioxide removal operation around the world is pulling CO2 out of the air."

If the world does not electrify quickly enough to make that energy transition, Larsen said, petroleum would continue to play a major role in 2050. It will also need even more carbon management and CO2 removal to reach net-zero targets and restore a stable climate.

"Guess what? That's the same industrial players providing that carbon dioxide removal service, just at a bigger scale," Larsen said. "These companies are operating and playing a role in that global energy system. Maybe a very different one that we've talked about today, but still one that is quite substantial and influential and important to making sure that we get to a stable climate."

Nobody is inevitable

Sarah Ladislaw, managing director of RMI's US program, said the amount of capital needed to "fundamentally transform the energy system as we know it today" in order to address the climate crisis by 2050 is the "most catalytic part" of the energy transition discussion happening today.

She said investors' demands for more attention to climate risks in the potential absence of government policy will push companies to start taking the public good into consideration, "which gives governments fundamentally far less control over the decisions that they make."

"The environment for rewarding positive green behavior and being able to illustrate good returns on those types of investments is going to be given a premium, and that's a different place for us to be with that much capital focused on that kind of behavior, we could be in a real transformational stage for, quite frankly, anybody who can prove that they've cracked that code," she added. "What it means is that nobody involved in today's energy system is inevitable."