Oil and Gas Producers Need to Lead the Energy Transition

Blockbuster and Netflix Logos

We say: “Blockbuster” vs. “Netflix”, you say “Failed to evolve” vs. “Accepted the future and stepped up to lead it”. But this would only be a perfect analogy if we were just talking about corporate profits and growth. Most companies and industries just need to keep up with the demands of society to succeed. For the oil and gas industry it is much more critical than just the bottom line. The health of our planet and the continued viability of life on earth are at stake.

The tipping point for energy is coming. Since the industrial revolution of the 19th century, the world has depended on oil to fuel its growth, without seeing or acknowledging the terrible price we are now paying. This is not breaking news. But the clock is ticking toward a necessary global transition to renewable energy technologies. With research, determination and economies of scale (refer to Wright’s Law), renewables are becoming cheaper and cleaner. Imagine how much faster this progress would be if we had a truly collaborative, worldwide effort led by the very industry best positioned to do it.

Many models predict that renewables will dominate the energy market by 2030, but can it come even faster than that? Historical events which disrupted the demand for oil show us that when demand for oil drops by a small amount, oil price falls disproportionately. As the world moves towards net-zero by substituting for oil, only a 5% reduction in demand is required to drop the oil price by 50%. This reduction in demand will come from all kinds of substitutions for gasoline powered cars and trucks, including zero emission vehicles (ZEVs), improved public transportation, bicycles, and lifestyle changes that require less driving. This drop in demand for oil does not affect the fixed costs of production but will drive the profit margins down which is not sustainable for producers. And consider the additional pressures on the industry when proactive actions by investors and governments that increasingly support renewables and electrification are factored into the equation. The tipping point will occur sooner if the energy transition is encouraged from all quarters, reaching the inevitable consequences and benefits of moving from reliance on fossil fuels to utilizing clean, green renewables.

If oil and gas companies don’t innovate, they are doomed to be “Blockbuster”. Some of the major players, especially outside of the US, have seen the future and are working hard toward winning it. Other notable companies, with their future increasingly in question, need to reinvent themselves and do more than give lip service by calling themselves “energy” companies. The leaders (you know who you are…and who you are not!) are investing heavily in research and development and truly redefining themselves as energy companies.

If the management of the laggards do not make clear plans to transition quickly, their investors must push them to do so, or risk being stuck with losing investments and stranded assets. Investors who support a short-term ‘take the money and run’ attitude of producing and selling while the price is still high – before we reach the tipping point, we believe, is a losing approach. We are suggesting that long-term vision companies that successfully take the lead and make the transition (as well as their investors) will create abundant profits in renewable energy. And clean jobs. And more social justice. And better health. And so on. We are advocating for oil and gas companies to use their core competencies to do the right thing for the planet and humanity. Beyond profits, they will win hearts and minds.

  • Apply your innovative drilling advancements to hot dry rock geothermal systems which require drilling deep enough, cheap enough
  • Redeploy offshore rigs, fixed platforms and floating systems to offshore wind farms
  • Use your delivery infrastructure to deliver green hydrogen
  • Use your service station network, commodities, and marketing know-how toward EV recharging

We are faced with a new fight for the health of the planet, which will have critical consequences for human life. The threat is difficult to measure, but everyone sees extreme climate events happening at an ever-increasing rate. People of all political stripes can agree with Robert Baden-Powell, Founder and first chief scout of the world-wide Scout Movement on the “Leave the world better than we found it” mindset. What must investors, the government, and the oil and gas industry do?

  • Investors are core to the transition as they can pressure companies to swap outdated business models for newer, cleaner ones. Many major investors are moving in this direction. Major investors should form a coalition to drive investment by oil and gas companies to accelerate their transition to renewable technologies.
  • The government, as it did recently with the COVID-19 pandemic by initiating Operation Warp Speed to find the vaccine, needs to facilitate the collaboration of the best experts from the federal government with oil and gas and the rest of private industry to study the current process to bring renewables to market and help to identify key leverage points to accelerate tech delivery. The government’s role is to clear the path for rapid change, based on the specific needs identified by the energy coalition.
  • The true transformation of oil companies to energy companies will redefine who they are and set them on track to drive growth across the globe based on a growing demand for clean, affordable, and abundant energy.

There is no substitution for good leadership. And it must come from every single oil and gas company. We need Rapid Substitution to happen now. Not another study. Not more talk. Not feet dragging and green washing. In the words of a brand that has seen its share of PR crises and seems to be able to rise above, “Just do it!”

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