Reflections from my recent travels

In the past five weeks, I’ve been in New York, Tokyo, Frankfurt and of course my home town of London.  I’ve attended conferences, workshops, clients’ offices and client parties.  I’ve talked endlessly and listened relentlessly on the subject of the global energy industry.  To go some way towards justifying this excessive carbon footprint and the amount of hot air I have generated, I thought I would share my key reflections from these various discussions.    

1. At a global level, the “energy transition” has not really started yet.  Demand for energy continues to be insatiable, fueled by rising population, rising prosperity and the tech / AI revolution.  While renewables are increasing exponentially, this is from a small base and is not yet displacing fossil fuels.  As we add more renewable energy supply to our grids, we satisfy a bit more of the latent demand for energy, but the intermittency means we have to back it up with “on demand” energy supplies (ie, batteries or gas-fired power).  We are actually in an age of “energy addition” and are likely to be in this phase for an indefinite period.  We’ll need to update our narratives accordingly.  The policy imperative needs to shift towards "energy system decarbonization" rather than "fossil fuels out, renewables in". This will all be more complex than we had imagined but the opportunities will be endless.
2. Companies around the world are keen to help decarbonize our global economy, but they need clearer signals on what investments will be supported.  They need clearer rules on how to comply and what funding will be available.  The Inflation Reduction Act in the US is popular because it is easy to see how an investment in decarbonization or clean tech will be directly supported.  This is attracting a lot of attention from companies around the world, who are starting to prefer investments in the US over other countries.  The EU rules are particularly complex and difficult to understand from afar, particularly around how the fledgling hydrogen industry will be supported.
3. Most companies, funds and banks (and the people who work for them) around the world are no longer interested in backing oil & gas developments.  Even though these developments are still completely legal and profitable, and that this source of energy makes up more than 80% of primary energy demand globally, they are seriously “out of fashion” and no single company sees it as their responsibility to provide this essential source of energy.  The new Labour Government in the UK has (in line with this sentiment) just banned new oil & gas licenses in the North Sea.  New Zealand has just reversed their ban.  It is all very confusing for investors and for the general public and distressing for those whose livelihoods are tied up with the industry. Frankly, we need more leadership (and more honesty) from the industry and from Governments.  Even if it is out of fashion, the world will continue to need this source of energy for decades to come and those of us with the professional skills to develop these resources will need to maintain these skills and ensure they are passed on. The narrative is starting to shift in the US and capital is slowly starting to return.  The major oil & gas companies are also starting to pull back in this direction.
4. The actions of the major oil & gas companies really matter.  When they change tack and pull out of projects, this makes it easier for other companies to do the same.  They are leaders in every sense of the word and are watched closely by other companies around the world.  Governments should watch their actions carefully, listen to them and be more supportive.  Or we all take the consequences.  If these companies don’t lead then who will? Without leadership, we start to lose our rudder and we drift.  Decarbonization of our economy will not happen by itself.  
5. An intentional focus on decarbonization should not lead to the unintentional consequence of de-industrialization.  This is the situation facing Germany where rising energy costs and reduced security / reliability of supply is threatening the viability of many parts of the manufacturing sector of this great exporting nation.  Reliability, affordability and sustainability are all required.  Dare I say it, in that order.  Energy and climate policies need to support overall system stability and the promotion of cheap energy, as well as sustainability.  Without a functioning energy system and a viable economy, everything else is moot.  In the end, voters care most about cost of living and having a job.
6. The world is watching the UK, and how the first industrial decarbonization carbon capture projects will work.  As with offshore wind, the UK has a chance to show the world how to create the regulatory instruments necessary to enable bankable projects for this new technology.  The UK is fortunate, in that it has the full capture, transportation and storage value chain within its own borders.  In Japan, they can capture the CO2, but then must liquify and ship the CO2 to countries like Malaysia, Indonesia and Australia to store the CO2.  Still, a similar regulatory and contractual model can be built for international CCUS from Japan, based on the evolving UK model.  We eagerly await the FIDs on the UK Track One projects later this year… 
7. If we are really interested in climate change, the quickest win is in methane emission reduction.  Methane is far more potent than carbon dioxide (84 times) and only lasts a short time in the atmosphere (12 years versus hundreds of years for carbon dioxide).  The oil & gas industry can lead here and take action that will really make a difference to the pace at which the global temperature rises.  It may even be noticeable within a human lifetime.  This action may create additional hope around solving the major issue of reducing carbon dioxide emissions.  There are significant developments in methane emission regulation in the US  and the EU that are worth taking note of.  A tonne of methane released into the atmosphere will soon cost as much as $1500.  
8. In a world of change and disruption, some things stay the same.  You still can’t beat the sushi in Tokyo, the steak in New York, the sausages in Frankfurt or the roast beef in London.