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New S&P podcast: Energy futurist sees major hurdles to renewables dominance

Population growth and mineral resource scarcity will slow the global energy sector's transition from hydrocarbons to renewables even as activist investors push many oil and gas companies to pivot toward more sustainable electricity sources, financial forecaster and futurist Jason Schenker said in a new S&P Global Market Intelligence podcast.

"I think we are still going to see a relative abundance of hydrocarbons" thirty years from now once the planet adds 2.1 billion people, Schenker, the president of Prestige Economics, said in the inaugural episode of Energy Evolution, which will focus on how the energy industry and its subsectors are changing. "The demographic piece is really important; that means we're going to need a lot more energy infrastructure."

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Jason Schenker, president of Prestige Economics
Source: Jason Schenker

The availability of cobalt, a critical ingredient in lithium-ion batteries and a core enabling material in electric cars and energy storage systems, could ultimately preclude a complete shift to renewables despite technologies such as smart grids and artificial intelligence, Schenker added. "A much scarcer resource than crude oil is cobalt, and ... some of it is essentially conflict mineral," he said. "If we think about converting entire vehicle fleets or creating massive external battery storage, is there enough cobalt to do that? Probably not."

Click here to listen to the first episode of "Energy Evolution." Soon available on iTunes and Spotify.

Supply chain risks and child labor problems plague cobalt mined in the Democratic Republic of Congo, which accounted for 58% of global production in 2017 and 49% of world reserves, according to the U.S. Geological Survey. Tight global supplies have also sent prices soaring. Schenker worked as a risk specialist at McKinsey before founding Prestige Economics in 2009 and is the author of The Future of Energy, a book detailing the technology and trends disrupting the sector.

On top of a dim outlook for cobalt, growth in the renewable energy industry flattened in 2018 for the first time in nearly two decades, according to a May report from the International Energy Agency, even though solar and wind power are the cheapest power sources in many locations and markets.

Still, oil and gas companies are under significant pressure to add renewable energy sources to their portfolios as activist investors push for more environmentally sustainable strategies and shareholders in general flee the energy sector for more lucrative assets such as big tech companies.

"Energy companies really need to rebrand themselves as being clean. They need to rebrand themselves as doing renewables even if it's a small part of what they're doing ... in order to head off activist investors, and they need to really tap into the 'hype locusts'" swarming around emerging technologies, Schenker said. "This is the hype, and the hype leads to the dollars, and so if I was building an energy company today, you'd probably want to frame it as a tech company that provides transportation resources as opposed to framing it as an oil and gas company."

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Some of the world's biggest integrated oil and gas companies are already heading in that direction, including Royal Dutch Shell PLC, which plans to invest $1 billion to $2 billion per year into new energies starting in 2020 to become the largest power company in the world by 2035, and Norway's Equinor ASA, which changed its name in 2018 from Statoil ASA to reflect its growing expansion into the global power and renewable energy sector. North American oil pipeline giant Enbridge Inc., meanwhile, has one of the largest wind farms on the continent.

When it comes to making the oil and gas production sector more efficient through automation, that technology will more likely be used to help with physical storage in warehouses as opposed to drilling because "automated vehicles, for the most part, operate really well in two-dimensional space" that is flat, according to Schenker. He said automation will also be helpful where gravity is not an issue, pointing to unmanned aerial vehicles' ability to monitor pipelines.

The utilities sector is also ramping up efforts to deploy more unmanned aerial vehicles, or drones, particularly during natural disasters such as wildfires.

When it comes to predicting the energy sector's trajectory in general, however, Schenker said the gap between technology that is nearly ready for deployment and technology that could materialize in the future is key to understanding what the future may look like.

"There's a big distinction between the almost-now and the maybe-someday, and those are kind of two windows in which we see technologies emerging, and that's really the difference between ... making reasonable plans and making plans that may be less reasonable," Schenker said.