It seems like many in the media are prognosticating the death knell of oil and gas' role in the energy market. Oil majors, like most businesses, took it on the chin this past year. ExxonMobil, BP and Shell each reported 2020 losses in the $20.3-$22.4 billion range. Even though the price of WTI crude recently approached pre-COVID-19 levels, the stock prices of the majors are still down around 20 percent.
And still more headwind. General Motors, the largest U.S. automaker, announced a goal of fully converting its fleet to electric vehicles (EVs) by 2035, the same year California's ban on the sale of new gasoline-powered vehicles takes full effect.
Helping mitigate panic is that there is a good chance a forced technological shift might not happen as quickly as experts predict. It might even result in economic disaster. I hope taxpayers won't have to pay a direct bailout to automotive companies (again) for making or not making corporate goals.
As a candidate, President Biden pledged to install 500,000 chargers along U.S. roads and highways. Replacing the nation's more than 160,000 gas stations won't be cheap or easy. Fast chargers can cost up to $100,000 each; you also have to upgrade the power grid to handle the increase in demand from EVs. There's also the precious metals challenge for long-term battery manufacturing. And what if you're relying on a solar energy grid to charge all these vehicles at night?
If I seem doubtful about the demise of oil and gas, it might be because I remember all the wild predictions around the promise of biofuels a decade ago. Still, I don't doubt that a conversion to EVs will happen slowly, and it will sting the oil business. The oil industry currently provides 90 percent of the U.S. transportation sector's energy needs - roughly 25 percent of all U.S. oil demand. The potential of losing a quarter of the demand for my product over the next 30 years (according to these aggressive predictions) isn't a good thing, but there is a lot of time to adjust.
Further mitigating panic, even with 100-percent conversion to EVs over time, the world will continue to need plenty of natural gas, oil for some fuels and petrochemical feedstock for growing global chemicals and plastics demand.
The governmental outlook provides challenges. Only weeks into his administration, Biden signed several sweeping executive orders targeting climate change that ranged from ceasing federal oil and gas leasing to eliminating fossil fuel incentives and, most infamously, ceasing work on the Keystone XL pipeline and rejoining the Paris Agreement.
President Biden has blown all his predecessors out of the water when it comes to executive actions, orders, proclamations and memorandums. Comparing the executive actions of the last four presidents, Biden issued an entire term's worth of executive actions in only weeks.
Whether it's the oilfield, pipelines, refineries or petrochemical, our energy industries are already the most regulated in the world. With a Biden administration, more regulation will keep coming, but take hope.
The tasks of making these moves permanent to help achieve a zero-emissions economy by 2050 will be tough work, requiring big battles with Congress and industry. As I write this, the Senate is working on Biden's $1.9 billion stimulus plan. During the many rollcall votes in the Senate, seven Democrats voted with Republicans to oppose any ban on fracking, and two voted in favor of the Keystone XL oil pipeline weeks after Biden revoked its presidential permit. These procedural votes show that achieving lasting change may be difficult.
As I wrote previously, the macro trends in energy haven't changed. With projected population growth, even factoring in significant growth of wind and solar power, it is expected the world will need 30-percent more Btu equivalents from traditional oil and gas over three decades than we do now. The International Energy Agency predicts that fossil fuel (as a percentage of total global energy demand) will be down a mere 2.7 percent from 2020 to 2030. The summary is that oil and gas will be a slightly smaller percentage of a much larger pie. We will assuredly use more plastics and chemicals as well. The most prudent and efficient policy will be an "all-of-the-above" approach to energy that many majors have been shifting to for years.
Where does that leave us in the energy business?
We're going to have to be smarter. Capital markets will be tighter. Over the past few years, America has become the globe's energy leader. I believe in the short term, the upstream side of energy will be the hardest hit. There is a significant amount of oil and gas already drilled but uncompleted (DUC) and ready to produce. As crude and natural gas prices rise, it will be easier for many companies to take a conservative approach and produce the DUCs and not invest to replace the reserves. This makes midstream and downstream the more attractive markets for investors and business growth opportunity. This is why I think the smartest plays are midstream, natural gas and petrochemicals. Short- and midterm spends in maintenance and turnarounds are going to have to happen after so many projects have been delayed.
Abundant, affordable and reliable energy from natural gas and oil is critical for our country today and in the future. We need to develop natural gas and oil here at home to keep the U.S. strong and free. It's up to us to provide this essential service to our fellow man.
I hope the information and insight in this issue helps you continue to provide your essential services. In this issue, we hear from Western States Petroleum Association's President Catherine Reheis-Boyd; Braskem Marcus Hook's Site Leader Stephanie Whitesell; Covestro Baytown's Vice President of HSEQ Matt O'Neil; ARC Services President Mike Miller; Chemex Global's COO Cooper Cleveland; and Industrial Tent Systems' Director of Business Development James "Trey" Allphin. We also feature Koch's plans for the "plant of the future" and a roundtable discussion of the 2021 market.
So keep heart, and we shall chuckle in our victories like the words of author Mark Twain, "The reports of my death are greatly exaggerated."
Blessings,
Want to get rid of the blues? Get out of your box and serve others. We were programmed by God to do so. You've heard "it's better to give than receive," right? "The Bacon Boys" is a group of like-minded men in our industry who serve breakfast regularly at The Bridge Over Troubled Waters, which has been offering support, providing safety, and preventing domestic and sexual violence for more than 40 years. It's a terrific mental reset.
Pictured are Chad Burke, Jim Griffin, Thomas Brinsko, John Collins, James Rhame and Daniel Swafford. We always get so much from helping those in this wonderful ministry.
Click here to find out how you can support The Bridge Over Troubled Waters.
