The New Energy Reality
There’s no question of where demand for energy is headed in the 21st century. There is a question of whether supply can meet the demand.
The 20th century was shaped by the rise of the Industrial Complex, which reordered society and enabled an unprecedented period of economic growth and prosperity.
The 21st century will be shaped by the Technology Complex, the application of big data, AI and quantum computing to all aspects of our lives, from manufacturing to finance, from data management to medicine, from the board room to the classroom.
A massive potential for exponential growth in productivity, innovation and prosperity in the 21st century will be driven by this new Tech Complex, as well as by a surge of 25 percent in the world’s population, and a commensurate growth of the global middle class at a rate of 100 million people per year.
All of this requires energy. A lot of it.
Author Dan Yergin once remarked about his history of fossil fuels, “The Prize,” that despite his book’s historical frame of 100-plus years and its attendant cast of characters, from presidents and kings to wildcatters and scientists, there were really only two main characters — supply and demand.
There’s no question of where demand for energy is headed in the 21st century. There is a question of whether supply can meet the demand. Particularly, supply that is reliable, affordable, and low carbon.
The 20th century saw the rise of “Big Oil” to meet demand. The wildcatters of the early 1900s evolved into the large integrated energy manufacturers we know today as BP, Chevron, ExxonMobil, Shell, and others that helped fuel the greatest rise in prosperity and living standards the world had ever seen.
Today’s modern energy complex is known as Big Oil because it is exactly that. Meeting energy demand today requires massive scale to manage risk along the E&P supply chain, manufacture resources into finished products and deliver that energy to end-users, reliably and efficiently.
But in the later half of the 20th century, scientists discovered that the energy needed for human development carried an unintended consequence. The release of greenhouse gas emissions such as carbon dioxide and methane were contributing to a rise in global temperatures and amplifying a phenomenon we now recognize as climate change.
So, the imperative today for Big Oil is two-fold: deliver larger supplies of energy to meet growing demand while reducing carbon all through the supply chain, from manufacturing to use.
Welcome to the energy transition.
Oil and gas companies today are rebuilding their engines while still flying 500 mph at 30,000 feet. They are delivering reliable supplies of energy from new and legacy operations at relatively affordable prices, while managing an array of geologic, operating, price and political risk. At the same time, they are bridging to a 21st-century energy model defined by lower carbon, energy efficiency and climate adaptation.
Chevron, for instance, produced more than 3 million barrels of oil a day in 2023, the highest production volume in the company’s 144-year history. At the same time, it launched a new investment fund of a half-billion dollars that will target the next generation of energy, including renewables and emerging innovations like distributed energy and circular carbon.
Big Oil is able to do this because scale matters. Large companies have the capacity to make big investments and take big risks. And both are required to make the transition from the fossil-fuel economy of the 20th century to the low-carbon economy of the 21st.
At the same time, we’re witnessing a new wave of emerging companies focused on developing alternative forms of renewable or zero-carbon energy sources — wind and solar, batteries, geothermal, advanced nuclear, hydrogen and other sources. Global investment in the low-carbon energy transition surged 17% in 2023, reaching $1.77 trillion, according to BloombergNEF.
We believe these two pathways — Big Oil and low-carbon innovation — aren’t running in parallel or even competing. They are in fact, over the long term, converging.
This convergence is already happening. Over time it will only accelerate. In fact, this convergence — the aggregation of experience, pragmatism, capital, ingenuity, imagination and risk-taking that Big Oil and the low-carbon complex bring to the table — is the most effective way that we can accelerate the energy transition without significant economic disruption.
Cost parity in this transition is essential. If legacy sources are priced too high through regulatory fiat, the economic consequence for consumers could be painful; on the other hand, if emerging sources are supported through excessive levels of government incentives it could be a burden on the public fisc. Balance, pace and recognition of market realities are vital to a successful energy transition.
The pathway to this convergence is inclusive. Energy is not an on/off or an either/or. We can’t simply switch off fossil fuels while we transition to solar or wind. Nor should we. Energy is a spectrum. Humanity’s first energy source was biomass. The discovery of fossil fuels changed history because they are plentiful, dense, and affordable. Now that we fully understand the externalities of fossil fuels, we’re expanding the energy spectrum, adding sources that are lighter, lower-carbon and in some cases, self-replenishing.
This pathway crosses boundaries — business boundaries, operating boundaries, and technology boundaries — in a quest for affordable, reliable, cleaner energy.
It creates new alliances: public and private, incumbent and start-ups, old and new.
In Germany, for instance, steel manufacturer ThyssenKrupp is transitioning a large steel plant — which alone is responsible for 2.5 percent of Germany’s total carbon emissions — from coal to hydrogen through a blend of private capital and public investment.
In addition to the capital discipline that Big Oil brings to the energy transition, it offers another valuable component: deep experience in managing risk at scale.
Big Oil understands big risk. In 2023, capex across oil, gas and power markets was nearly a quarter-trillion dollars. Spending on that level, with commensurate expectations of returns, requires superior risk management capabilities. This has bred an element of pragmatism in the industry that will be valuable in the high-risk, slow-returns environment of emerging energy sources.
A quarter of the way into the 21st century, we stand on the precipice of a fundamental transformation of the global economy, driven by technology, advanced manufacturing, artificial intelligence, infrastructure and other catalysts. Sustainable pathways toward a new ecosystem that will produce reliable, affordable, low-carbon energy supplies will be the foundation of this transformation.
DrivePath operates with a vision of this future — the convergence of old and new into something completely different. We understand the value exchange between old and new. We understand the time scale that it requires. And we understand that equal parts of pragmatism and ingenuity are needed to get there.
We bring a deep experience of market dynamics, market players, analysis, and foresight to help clients position themselves in this dynamic environment and navigate the pathways toward a new energy future.
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