Scaling the Energy Transition
When it comes to energy, scale matters.
In 1966, a social entrepreneur named Stewart Brand asked himself a question: “Why haven’t we seen a picture of the whole earth yet?” A year later, NASA fulfilled his request when it released a photo of the whole earth taken from the satellite ATS-3, an image soon named “Blue Marble.” In 1968, NASA astronaut William Anders took an equally iconic photo of the Earth while orbiting around the moon.
Both photos gave us a perspective of the planet that we’d never had before, impressing on us not just the scale of Earth, but the scale of the universe that surrounds us.
Here’s another way to appreciate scale: Hop in a car in New York and head toward San Diego. Driving the 2,762 miles between those two points is one of the best ways to experience the true scale of the North American continent. It’s immense.
Understanding scale is essential to human activity. Without a grasp of scale, our efforts to plan, measure and manage growth are handicapped, like navigating the dark with a flashlight instead of a floodlight.
So it is with the energy transition. Without appreciating the scale of the task — substituting zero-carbon sources of energy for fossil fuels — we face a wide range of risk, from economic to technological. Understanding the scale of the challenge helps shape decision-making, from capital allocation to regulatory regimes.
The largest industry in the world is energy. This sector encompasses the exploration, extraction, refining, production, transportation, and marketing of primarily oil and natural gas products, but also an increasing volume of renewable and other non-carbon alternatives. In 2024, the global oil and gas industry generated $5.25 trillion in revenue. If we add coal (the world’s ninth largest industry by revenue), total revenue generated by fossil fuels is more than $10 trillion. The second largest industry by revenue globally is life and health insurance carriers, at $4.6 trillion.
There are several reasons behind the massive scale of the oil and gas industry.
Fit-For-Purpose. Hydrocarbons — from oil to natural gas — are plentiful, and thanks to continuing technological advances, affordable. There are few other forms of energy besides nuclear that offer the same density (output per weight) as fossil fuels. They are easy to store and transport. And the uses of fossil fuels, in addition to power and transportation, are manifold. Fossil fuels are critical components in the production of materials that are essential for civilization, including ammonia (fertilizer), plastics, steel and concrete. If not for environmental externalities, which are significant when not offset, we would be hard-pressed to devise more effective modes of energy than fossil fuels.
Demographics. The world’s population is scaling up exponentially. In 1950, the world’s population was about 2.5 billion people; today it is nearly 8 billion. All those people want many of the same things: transportation, refrigeration, heating and cooling, light, and material comforts, all of which are made possible by energy, primarily fossil fuels. Simply put, energy is life, which is why energy use and human population have increased in nearly identical lines over the past century. Given this demographic trend, the future demand growth of fossil fuels is mixed, but significant. According to projections by the Rhodium Group, for example, while global demand for coal in the power sector is expected to fall by up to 55 percent, demand for natural gas is expected to grow by as much as 126 percent by 2100.
Human Progress. The foundation of human progress is economic activity, which requires energy. Each step-change in human progress, from the Agricultural Revolution to the Industrial Revolution, demanded more energy. Human enterprise is an infinitely renewable source of energy but requires measurable joules and watts to realize its ambitions. The next step-change in economic activity, for instance, promises to be the rise of artificial intelligence, which depends on massive amounts of data. Silicon Valley is entertaining the notion of trillion-dollar data centers to power AI. “Behind the scenes there’s a fierce scramble to secure every power contract still available for the rest of the decade, every voltage transformer than can possibly be procured,” wrote Leopold Aschenbrenner, a former senior executive at OpenAI. Goldman Sachs expects global data center power demand to growth 160 percent by 2030.
This is the kind of scale that faces the energy transition. It’s as if we must do several things at once: meet the voracious energy demands of demographics and human progress but do it with proven technology and sources that are clean, reliable and affordable — and do it as quickly as possible.
Weaning the world off fossil fuels is a good thing. So is investing in the future production of fossil fuels. This is not a paradox. Because of the size of the world’s energy infrastructure — and the importance of reliable, affordable energy to human progress — the rub is how well we manage the transition. If we stop investing in fossil fuels now, and substitutes don’t meet thresholds for reliability and affordability, it could lead to energy chaos. On the other hand, if a white swan rises up among alternative energy sources and fossil fuel demand collapses, the stranded investments could lead to financial chaos.
So, oil companies, by and large, are choosing the middle ground. They’re making smart, measured investments in alternatives, as well as adaptation technologies like carbon capture. They are exercising more discipline around capital allocation and project management. And they’re creating more flexibility through technologies such as fracking and enhanced oil recovery. Managing change at scale isn’t just about speed but also balance and efficacy.
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