The start of a new year is often a time of reflection, quiet, and goal setting. Minus 30 temperatures and pants that no longer fit do make a person contemplative, and we look back to learn from the year past, calibrate where we are at, and put ourselves vigorously on a new path, to the extent that there is not a new year’s bonanza on Netflix.
The hydrocarbon sector is more aptly described as shell-shocked rather than reflective. Despite rebounding commodity prices, the ground-shift beneath over the past two years has been monumental. The sector is supposed to be dying like a stabbed Shakespearean character. It is supposed to be the seventh mass extinction. That was the plan – divest fossil fuels, starve the industry of capital, retrain the workforce, “strand some assets.”
Mark Carney, former investment banker and head of the Bank of England, announced in November that he had aligned financial institutions with $130 trillion of capital towards net-zero pledges, aligning that monetary firepower with the International Energy Agency’s roadmap to net-zero by 2050. That roadmap stated quite clearly that there could be no new hydrocarbon investments, period.
That storyline was firmly entrenched in the media. Six months ago, leading up to COP26, pretty much the whole world could see the planned roadmap. Build Back Better, European Green New Deal, Trudeau’s new Greenpeace-trained economic termite in place…all the pieces were coming together. Armchair energy quarterbacks declared oil consumption had peaked in 2019, and that stranded assets should be the hydrocarbon industry’s most pressing concern.
Yet here we find ourselves in the new year sitting under desks, nuclear-fright style, wearing helmets, scouring the web for supplies, watching the world bid to unfathomable prices every hydrocarbon molecule, watching the greenest of nations introduce ‘fossil fuel subsidies’ to prevent civil unrest, and watching one country literally dissolve into anarchy for not doing so (Kazakhstan – though the anarchy appears to be part of a much deeper story). The only thing keeping Europe from following suit is newly introduced fossil fuel subsidies.
That’s right, the world is now upside down, at least compared to the view from a year ago. Not only is oil consumption heading for record heights, but so is coal, and natural gas. Coal, in particular, had a noose placed around its neck at COP26, but it broke free and is running wild – a scant few months after its planned global demise, we see major exporters like Indonesia halting exports to preserve critical supplies, and consumption in Europe and North America increasing substantially over prior years.
Renewed interest in coal is just the tip of the iceberg. Europe and Asia are outbidding each other for scarce LNG cargoes. Rising energy costs have decreased production of a vast array of industrial products from textiles to aluminum to fertilizer. These shortages and price hikes are destabilizing supply chains for everything, including renewable energy and EV components that were the lynchpin of reducing hydrocarbon demand in the first place.
Even if the supply chains were functioning properly, Europe has shown with savage proof that the idea of reducing emissions by abandoning hydrocarbons and embracing renewables is a recipe for disaster.
On that note, here is some fairly significant irony. Despite the ‘bring out your dead’ hydrocarbon sector diagnosis, the sector is adapting rapidly – making massive strides towards global emissions reductions by developing new technology. The irony comes from the fact that renewable-heavy jurisdictions are heading in the opposite direction. Consider the two trajectories.
Setting the stage for hydrocarbon sector emissions reduction initiatives, it should be perfectly clear by now that meaningful emissions reduction will come from emissions mitigation techniques and technologies as opposed to supply strangulation. (First and foremost, countries should switch from coal to natural gas, the biggest bang for the emissions reduction buck, as the US has shown, but that’s another story.)
To proceed meaningfully, we must do something about emissions that are part of the system that cannot be wished away. Developments on that front are happening at remarkable speed.
Alberta’s carbon trunk line is operational, and plans have been drafted to capture/sequester CO2 from mega-production sites like the oil sands in a proposed huge CO2 transportation system. New emissions reduction technology is being developed hand over fist; Carbon Engineering, co-founded by oil sands titan Murray Edwards, is currently building its first commercial direct air carbon capture facility in Texas that will sequester 1 million tonnes/year of CO2.
Entropy Inc., a subsidiary of Canadian producer Advantage Energy, is commercializing point-source modular carbon capture/storage equipment that will be economic for relatively small emitters across many industries; Entropy’s geological expertise is pairing new technology with the ability to economically dispose of captured CO2 in underground reservoirs. The company recently announced that they have nine scoped projects that could reduce CO2 by 1.8 million tonnes/year. Entropy’s growth rate is rapid indeed, and the company recently raised $300 million.
Out of the University of Calgary comes something with far more potential. In conjunction with “the gas separation industry”, scientists have developed a new material, a metal-organic framework, that, in one test, captured 95 percent of the emissions from a Vancouver cement plant. If this material really works, and is scalable, we might have the holy grail – the ability to capture emissions without destroying the trillions in infrastructure that currently get the job done.
Compare that progress with the goat rodeo that is the central planning committees of western governments. Renewable energy development – including the at-gunpoint transition to EVs – is going to require, per the IEA’s net-zero 2050 roadmap, four times as many mines as are now in existence to extract the minerals needed for renewable technology. The very idea is absurd; ask anyone involved in permitting a new mine anywhere.
The IEA report itself mentions a historical average of 16.5 years to get a new mine into production, a number that will only increase as regulations tighten against habitat destruction. As but one very current example, Chile’s new leader slammed the brakes on development of a new copper mine, and copper is absolutely critical to renewable transition. At the same time, the IEA report, the one that is becoming the bedrock of nations’ net-zero-2050 plans, notes also that “Today’s supply and investment plans are geared to a world of more gradual, insufficient action on climate change…They are not ready to support accelerated energy transitions.”
The report points out that resource quality is declining, meaning mines will have to be bigger and more environmentally intrusive to get similar yields (“For example, the average copper ore grade in Chile declined by 30% over the past 15 years.”). To cap it all off, China has been playing mineral chess for years and now controls much of the world’s mineral processing capabilities (“China’s share of refining is around 35% for nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements.”).
In other words, if the west wants to pursue a net-zero-2050 pathway by abandoning hydrocarbons and embracing renewables and renewables’ mineral requirements, it will have to not just transition energy systems but create a new mineral production/processing industry – or risk being held captive by Chinese strategic pursuits (In an article entitled “China May Ban Rare Earth Tech Exports on Security Concerns” it is noted that “The Chinese government is currently conducting a review of its rare-earths policy. Officials view the technology needed to refine and purify the raw materials as a more powerful weapon in protecting state interests than the actual minerals.”).
Here’s the energy transition options in a nutshell: should a transition utilize fully $ trillions of existing infrastructure and leverages the knowledge that comes with it? Or should it rip up the world with new mines, build a vast array of new processing facilities, rewire hundreds of thousands of miles/facilities for EVs/wind/solar, pay much higher prices, and pretend that intermittent power is not so bad?
Yeah yeah, I can hear it already – the choice need not be binary. Well, that’s the rational view, and it’s correct, but that doesn’t mean the world is acting that way. COP26 “excluded polluters from the summit”, though hydrocarbon companies sent delegates anyway to hear what their fate would be.
Germany just shut down three nuclear reactors at the start of 2022 in their drive to go all renewable, which is irrational on any plane, never mind when the continent is in the midst of an energy crisis. That very European energy crisis is leading for improbably loony calls to accelerate the rush to renewables, despite the fact that there are no minerals to make that possible. Prime Minister Trudeau unilaterally pledged to reduce Canadian emissions by 40-45 percent by 2030, one-upping the lunacy of the IEA’s projections, and at the same time put green-energy exec Jonathan Wilkinson in charge of the natural resources portfolio and the aforementioned Greenpeace-addled Steven Guilbeault in charge of the environment/climate change file, which is the same thing as granting Kim Jong Il authority-levels over the economy.
The truth will indeed be in the middle, though governments will run the world to the ragged edge of meltdown before admitting it (see Europe for proof – after demonizing oil/gas to the point of a catastrophe, leaders in mittens are now starting to see the value of natural gas). New-energy architects have convinced leaders that hydrocarbons are no longer relevant, and the divest-fossil-fuels campaign grew unchecked with the encouragement of the likes of Mark Carney. So the binary aspect was, at a minimum, implicit.
The hydrocarbon industry’s solutions then will be the building blocks of the path forward, once reality sweeps aside the false prophets. So hats off to everyone that is putting the wheels of progress in motion.
Come 2050, the hydrocarbon industry will be sequestering carbon all over, will have developed new emissions reduction technology, will coexist with a reasonable level of wind and solar, and will still be fuelling the world.
Read more insightful analysis from Terry Etam here, or email Terry here. PS: Dear email correspondents, the email flow is wonderful and welcome, but am having trouble keeping up. Apologies if comments/questions go unanswered; they are not ignored.