The Challenges for the Energy Industry
This week, more than 500 senior executives, policy makers, financiers, strategists and experts from the international oil and gas industry are meeting in London for the 38th annual Oil & Money Conference co-hosted by The New York Times and Energy Intelligence. Before the conference, The Times asked some of the participants to describe what they viewed as the biggest challenges facing the energy industry. Their answers have been edited and condensed.
Chief executive, European Climate Foundation, chairwoman of the Board of Governors at the French Development Agency
According to an analysis by the Carbon Tracker Initiative, from 60 to 80 percent of coal, oil and gas reserves of publicly listed companies could be classified unburnable in a 2-degree world. Citigroup in 2015 estimated the value of these potentially stranded assets at $30 trillion in the oil sector alone. There is, therefore, huge potential shareholder value destruction in oil companies pursuing business-as-usual strategies in a carbon-constrained world. The major challenge for the oil industry is to disclose and manage this risk through robust well-below-2-degree business plans that specifically avoid capital expenditure on projects that would take the world beyond the Paris Agreement goals.
Chief executive, Projects International, former assistant secretary of defense for International Security Affairs and former ambassador to Saudi Arabia
The major issue before the industry is the mounting uncertainty that complicates the financial viability of the major investments required for the development of large conventional and deep-sea oil and gas projects. These uncertainties come from the effects on the supply side of tight oil and shale gas production, as well as from factors that affect demand for oil and gas in major importing countries. Among the factors are growth of economic nationalism and protectionism, rising opposition to continued reliance on hydrocarbons for energy, the rapid fall in the price of energy from renewable sources and the shift toward electric vehicles. It has become very hard to predict future demand for energy and even harder for hydrocarbon-derived energy.
Lara Sidawi Moore
Chief strategy officer and director at the Energy Intelligence Group
The single greatest challenge is the uncertainty of the geopolitical landscape as an enabler for new sources of energy while not being taken by shortsighted trends. The shah of Iran in 1975 declared “Oil should be used for only good and noble purposes, if you want to heat your houses or make electricity with oil it is almost a sin you are committing against humanity,” indicating it should not be burned for electricity or transport but used for petrochemicals that do not harm the planet. To deal with the climate issues the energy source for transportation will need to be developed.
Managing director, European Utilities Research, Barclays Capital Investment Research
The global oil-and-gas industry is increasingly exposed to the same risks that have radically disrupted the power generation industry in Europe over the last decade. These risks can be divided into three main categories, but the crucial point to note about these risks is that they operate n a feedback loop, intensifying one another: policy risk, technology risk and investor risk.
The policy risk stems from increasing efforts globally to address climate change and resource dependency, technology risk from the rapidly improving economics and competitiveness of renewable energy and electric vehicles, and investor risk from the ever greater engagement on the part of institutional investors with regard to the impact these factors are having on the traditional business models of the major oil-and-gas companies. And as renewable-energy technologies and E.V.s become even more efficient, and as batteries and storage become more competitive, so too will policy ambition increase, intensifying investor concern over the sustainability of conventional energy companies’ business models.