Last week I had the opportunity to talk with over 300 participants in an Australian Smart Energy Council webinar. It was organized to exploit my unusual timezone alignment with Oz as I spend a few weeks in New Zealand as a digital nomad. Over 600 signed up, expecting to listen to the recording later. That recording is under the link in the opening sentence, by the way.
The organizer Steve Blume, former President of the Council, and I thought it would be useful to answer most of the dozens of questions in articles and share with the registrants as well. This is the fourth of a few articles with responses, which will be aggregated and shared by the Council as well for participants. The first article was on aviation and maritime shipping questions, the second covered biofuels and HVDC and the third dealt with hydrogen.
The framing of my prepared remarks was the Radical Electrification of Transportation. I’ve published a lot on the subject as I’ve dug through most modes over the past 15 years.
Intro slide to Michael Barnard presentation to Australian Smart Energy Council webinar
To summarize my presentation, all ground transportation will electrify. That’s cars, trucks, buses, utility vehicles, trains, and mining vehicles. All inland shipping and two-thirds of short sea shipping will electrify, with only the longest routes requiring biofuels. Shipping and rail will also drop in tonnage due to removal of bulk fossil fuels from loads. Aviation will be disrupted by electric regional air mobility, autonomous flight, and digital air traffic control, and only trans-oceanic flights will require biofuels in 50 years.
That means the billions of tons of fossil fuels per year requirement for extraction, processing, refinement, and distribution are going away and being replaced by tens of millions of tons of technology metals such as lithium and cobalt, as well as a few hundred million tons of biofuels for aviation and maritime shipping. That’s all very doable.
The prepared remarks skimmed over all of that in 30 minutes or so, leaving far too little time for questions, and so I’ve chosen to respond to most of them in writing.
Fossil Fuels
Oil companies continue their quest for exploiting the seabeds for new fields of oil and the like. Given the scenario presented here, are they likely to become stranded assets?
Of course. Peak oil demand is looming this decade. When it occurs, the highest cost oil and gas will be first off the market. That includes Alberta and Venezuela’s heavy and sour crudes, which will become increasingly expensive to process and refine as hydrogen decarbonizes, a lot of unconventional oils like shale and CO2 EOR, and the more extreme condition fields. As time goes by, the lightest, sweetest crude that’s easiest to pump and closest to water will be almost the only oil left on the market.
A lot of oil and gas infrastructure will be stranded assets. The Canadian Trans Mountain pipeline expansion is likely to see only 50% utilization at peak and be bankrupt in 2040, in my opinion. The five million kilometers of oil and gas pipelines in the USA will be scrapped or simply rust underground.
The cost of establishing a working well offshore or in the Arctic will be prohibitive in that market. Lots of stranded fossil fuel assets and collapsing reserve values coming in the next 30 years.
There are many people who work for O&G Majors who are passionate about the energy transition but are frustrated by the lack of strategic direction and pace at which these businesses are transitioning. What guidance do you have for those of us on the inside to genuinely want to shift their strategic direction towards more sustainable energy forms?
Two or three things. If you are in an oil and gas major that isn’t named Orsted, it’s unlikely that they are going to change. Recent actions by the fossil fuel majors make it clear that they are paring all unnecessary expenses — obviously the lobbying and PR efforts like the fraction of 1% of revenues they spend on CCS to delay climate action are essential expenses — and extracting as much of their reserves as they can before the bitter end.
Find an adjacent market firm, possibly one named Orsted, where your skills are transferable. If you want to do something valuable and positive, and you have the privilege of being able to leave steady employment or an employment opportunity in hand. While there’s going to be a lot of work in oil, gas and coal as it declines, there are a lot of people who aren’t you who can do it. If you have talent and drive, apply it in areas which will actually move the climate change needle.
If you are in a gas utility, then apply Christenson and Raynor’s guidance from The Innovator’s Solution. First, convince your Board and regulatory body that they face an existential threat with utility death spiral, the situation where they have a declining number of customers but the same expenses to maintain the full service network.
Then pivot to the higher profit solution, where the utility turns off the gas grid one sub-isolation network at a time, starting with the highest cost to operate and maintain ones. As the grid shrinks, profit margins increase a bit. Provide clarity and assistance to your customers for the transition.
Look to Utrecht for the pattern.
At what level of $/MWHr generation cost (excluding transmission and distribution costs) will fossil gas not be able to compete with renewables, and what is the effect on the economies of countries rich in gas reserves?
Well, that’s already the case in much of the world. Power purchase agreements for wind and solar are well under those for coal, gas and nuclear plants. If it wasn’t for day ahead reserves, firming and peak electricity supply, gas plants wouldn’t have an economic leg to stand on.
It’s only coal’s hideous negative externalities of approaching 80 pollution-forced deaths per plant per year, mercury poisoning, acid rain, and massive CO2 emission that have led to so much demand for natural gas over the past 30 years. But that’s coming to a rapid end.
My projection for peak natural gas is in the mid-2030s. With continued massive build out of renewables and storage, and with solar+storage already being cheaper at providing peak electricity in a lot of places, natural gas demand for generation is going to be seriously challenged. LNG imports to some countries like Japan will continue long past rational end dates because Japanese energy policy is so irrational.
For countries with a high use of natural gas for heating, that’s going to collapse rapidly too. Building water and space heating is already much better with heat pumps 99% of the time. 45% of industrial heat is below 200° Celsius, and current heat pumps have no problem providing that. District heating systems are putting in 20 and 30 MW heat pumps to fulfill their heating needs with low-carbon electricity instead of natural gas.
For economies ‘rich’ in gas reserves, that means that they will see plummeting export and domestic sales unless they force propping up natural gas domestic consumption over rational economic and climate policy, and many countries will for a while.
But an economy running on renewables and electricity with electricity providing heat and power is a very high efficiency, low-energy cost economy that’s immune to carbon border adjustments. It’s a country without the negative health impacts of fossil fuels that are a drain on productivity.
An electrified economy will, all else being equal, out compete non-electrified economies. Gas reliant economies will wither.
And so, another few questions asked and answered from the Australian audience. Stayed tune for more on geopolitics, nuclear energy and adding value to Australian resources.
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