Washington — Climate concerns reached a fever pitch last year as teen activist Greta Thunberg warned a "change is coming, whether you like it or not."
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Change has certainly happened when it comes to the public's desire for sustainability — awareness of the impact of carbon emissions on health and the environment, willingness to adopt new technologies that use energy more efficiently, and ambition to find radical new solutions to fuel the modern economy.
Change has also happened in boardrooms, as socially conscious investors increasingly demand to know that company profits are not coming at the expense of the environment, workers' well-being or the overall health of society.
The latest sign of this push came Tuesday in BP's exit from three US oil industry trade groups — the American Fuel & Petrochemical Manufacturers, the Western States Petroleum Association and the Western Energy Alliance — over disagreement with their climate policies.
But these growing ambitions have not changed the trajectory of global energy demand or the desire of developing countries to improve living standards.
If the world is, in fact, set to make the massive shift that Thunberg warns about, it will not be the oil sector's burden to bear alone. The reverberations will be felt in every sector of the global economy, as overall demand for energy shows no signs of slowing in the coming decades, and petrochemical products become further embedded into everyday life.
"Oil is unique because it's both a source of energy — it embodies a huge amount of energy — and increasingly it's a building block," said Madhav Acharya, technology-to-market adviser for the US Department of Energy's independent Advanced Research Projects Agency-Energy. "All of the molecules in oil end up in products all around us."
"The challenge for the industry going forward is to find a way to recognize what might happen if you no longer need oil as a fuel, but you increasingly need it as a building block," said Acharya, a chemical engineer who spent 17 years at ExxonMobil. "How oil is perceived has to change. The industry has to come to terms with that shift as well."
TURNING THE SUPERTANKER
Oil companies have started responding to calls for more sustainability with measures such as tying executive pay to emissions reductions, writing off long-cycle assets and setting targets for reaching carbon neutrality.
BP and Spain's Repsol have pledged to reach that goal by 2050, while Shell aims to cut its net carbon emissions in half by the same year. US independent driller Occidental Petroleum is striving for carbon neutrality through its extensive work on carbon capture and sequestration technology, although it has not set a deadline.
While global coal use has peaked, oil and natural gas will remain central to the energy sector for the foreseeable future, said Roman Kramarchuk, S&P Global Platts Analytics' head of energy scenarios, policy and technology.
Despite a relatively rapid shift in rhetoric and ambition surrounding environment and sustainability, peak oil demand is not expected anytime soon.
"To get there, they have to start turning the supertanker," Kramarchuk said. "It's going to take a while for the momentum to shift."
THE FUTURE OF OIL REFINING
Huge uncertainties loom if an energy transition is to be carried out. Refiners will have one of the hardest puzzles to solve: how to produce more jet fuel and petrochemical feedstocks to meet rising demand for those products while curtailing gasoline and diesel output, as demand for those mainstay fuels is on track to slow with the rise of electric vehicles, biofuels and other alternative transportation fuels.
"When you're converting oil, you're producing all these other products," Acharya said. "The main challenge the industry needs to confront is: how do I continue to make some of these other products that I would argue are equally important — maybe even more valuable than gasoline and diesel — but do it in such a way that I'm not left behind with all of this product that I can no longer sell?"
Tighter fuel specifications around the world have already forced the refining sector to evolve, with many smaller, simple refineries being forced to close while more complex plants tailor their output to the new standards. Further consolidation is inevitable as governments tighten regulations and demand patterns shift.
"If there's not as much fuel needed to come from refineries, then it becomes more of a low-cost provider, survival-of-the-fittest analysis," said Jacques Rousseau, managing director of ClearView Energy Partners in Washington. "You're going to see a number of refineries end up closing down because they won't be profitable."
ARPA-E's Acharya said transforming the energy economy would also disrupt how markets price commodities.
"Right now, everything relies on crude pricing and the pricing of fuels," he said. "All of those prices get set in the marketplace. If you have a very different ecosystem where you have a smaller number of products, but they have very different end-uses, how the market prices those to enable them to be made will also be part of this shift."
Demand for energy may continue to rise, but demand for oil may not, said Andrew Logan, senior director for oil and gas at Ceres Investor Network, whose 170 institutional investors manage more than $26 trillion.
"While nobody has a crystal ball, and every forecast about this sector has no doubt been wrong, it is a real shift for the industry to move from 125 years of more or less being able to bet with some certainty that demand will grow over time — to now it being much more of a mixed picture," Logan said. "If you're doing strategic planning as an oil and gas company, you have to at least consider the idea that demand for your product may peak in the mid to longer term."
Logan said that possibility has all sorts of implications for how companies invest capital.
"It argues against long-lived resources like the oil sands or some offshore projects," he said, adding "it makes shorter-lived assets a bit more attractive. It maybe makes you less likely in general to invest more money in growing production, and that's been a trend that's been encouraged by other factors as well," including the recent Wall Street pressure on US shale drillers to return capital to shareholders rather than increasing production at any cost.
OPTIONALITY OF US SHALE
In a sense, the shale boom gives the US more optionality during a potential energy transition, Logan said.
"If you're investing in a shale well, you're not making a bet on oil demand in 2040, which is very different from if you're investing in an Arctic drilling platform or the oil sands," he said.
"There's a way in which shale becoming the swing producer, or at least the marginal producer, is helpful. It gives the US and the broader global economy the ability to ramp down demand if need be."
New technologies will be critical to an eventual energy transition, but those that can operate within the existing liquid fuel supply chain stand the best chance in the medium term. In the power sector, batteries have succeeded because they operate on the existing electricity grid.
"We tend to overlook the fact that getting oil from all across the world is an enormous business in its own right," said ARPA-E's Acharya. "If you can find a way to produce the same kind of fuel with the same properties that we're using right now, it will allow you to use the same infrastructure and not have to worry about building all of that out."
ROLE FOR BIOFUELS
This challenge of infrastructure gave biofuels early potential, as it is a liquid fuel that can, to some extent, be shipped, stored and used like conventional fuels. While the sector continues to confront questions of land use and lifecycle carbon emissions, researchers are pressing on to find next-generation biofuels and innovative new feedstocks.
The Mariner project at ARPA-E, for example, is examining the potential to grow algae in the open ocean as a feedstock for biofuels. "If you were going to scale biofuels and do it on a scale of 100 million b/d, you would need a game changer like that where you would harvest biomass in enormous quantities, because you're out essentially in free space," Acharya said.
Biofuels' future in the energy mix may depend on demand from aviation, shipping and long-haul trucking.
"Those are areas that are going to be very challenging to either electrify or switch over to hydrogen and fuel cells," said John Field, a Colorado State University engineer who collaborates with ecologists to study the lifecycle sustainability of different biofuels.
'WADDLING' INTO THE FUTURE
Acharya predicts that something bigger and more intangible will be needed than new technologies: willingness and readiness by a wider swath of society.
"It's up to societies as a whole around the world to accept that that kind of a shift is both necessary and possible," he said. "The possibility will not simply be a magical technology that gets dropped from above. It will require adjustments along the way. There will be a shift, then there will be a response, then another shift.
"You'll be waddling your way into this future. It's not going to be a sprint. It's certainly not going to be without challenges. But eventually it's something where you decide on the most likely path to success, and then focus on taking the best technologies with the best deployment pathway to putting those investments in place," Acharya said.