The CERAWeek conference by S&P Global convened in Houston in March with a central focus on the energy transition. Discussions among oil industry leaders highlighted their apprehensions regarding a swift departure from fossil fuels.
“People are now beginning to understand that the energy transition is a very complex issue that will require a lot of different variables to be managed effectively,” said ExxonMobil Corp. chief executive officer Darren Woods.
It is worth pausing to consider fundamental questions that are often overlooked. What exactly does “energy transition” entail? What are we transitioning to, and from what are we transitioning? These seemingly simple questions carry significant implications for addressing one of the most daunting problems of our era.
Over the past two centuries, modern civilization has heavily relied on various energy sources, and for the past 100 years these have predominantly been fossil fuels such as oil, natural gas, and coal, alongside nuclear power and renewable energy. Fossil fuels have long dominated the global energy landscape, driving economic prosperity since the 19th century’s industrial revolution. Even today, hydrocarbons remain pivotal, comprising roughly 80% of the global primary energy mix due to their unmatched energy density, availability, reliability, and transportability.
Yet, this reliance on fossil fuels is juxtaposed with a need to decarbonize our energy systems. The escalating carbon dioxide emissions pose risks to the climate, necessitating a transition to cleaner energy sources. Consequently, we face a critical juncture where we require the energy supplied by fossil fuels while urgently needing to curb emissions.
Looking ahead, the imperative is to transition towards a global energy system capable of meeting the burgeoning demands of a growing population while substantially slashing emissions. The International Energy Agency’s (IEA) target of achieving net-zero emissions by 2050 serves as a guiding beacon, albeit demanding concerted effort and commitment.
The transition to a zero-carbon future is poised to reshape the world’s political and economic landscape. Coal and fossil fuels resources are unevenly distributed around the world. But if we think about it from a zero-carbon perspective, wind energy, solar energy, and biomass energy are relatively evenly distributed around the world. The global development pattern will transform from resource-dependent to technology-dependent.
It is crucial to acknowledge that nearly a billion people worldwide still grapple with severe energy and electricity shortages. Additionally, the notion of wind and solar energy being ‘free’ is misleading, as transitioning to renewable energy on a larger scale entails substantial costs. Infrastructure construction, even with mature technology, cannot be expedited overnight and necessitates a significant increase in capital investment, ultimately passed on to consumers. The supply of raw materials for sustainable energy systems is also a thorny issue.
Navigating the energy transition demands a nuanced approach, unfolding over time and requiring meticulous management. In this endeavor, technology and scale are critical. Enterprises need to continuously innovate clean energy technologies and explore new models for clean energy development and trading. Some critics advocate for the exclusion of energy companies from decision-making processes related to energy transition. They forget that oil companies are already contributing to the energy transition. Applying their expertise in engineering, energy systems, and global markets, they are pioneering innovative solutions to facilitate the transition to a low-emission future through initiatives such as carbon capture and storage, hydrogen technology, and low-emission fuels.
In this complex environment, there is a collective responsibility to address fundamental questions and chart a course for a sustainable energy future. A swift departure from fossil fuels is not justified at this moment.
Conglin Xu | Managing Editor-Economics
Conglin Xu, Managing Editor-Economics, covers worldwide oil and gas market developments and macroeconomic factors, conducts analytical economic and financial research, generates estimates and forecasts, and compiles production and reserves statistics for Oil & Gas Journal. She joined OGJ in 2012 as Senior Economics Editor.
Xu holds a PhD in International Economics from the University of California at Santa Cruz. She was a Short-term Consultant at the World Bank and Summer Intern at the International Monetary Fund.
