An oil pumpjack is seen near a field of wind turbines on Oct. 4 in Nolan, Texas. The U.S. oil industry is headed towards a record-breaking year as analysts expect the crude market to continue climbing despite minor slowing. Credit - Brandon Bell—Getty Images
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There’s a mantra that gets tossed around in North American climate circles: skate to where the puck is going, not where it is today. The phrase, an adaptation of a saying from hockey legend Wayne Gretzky, is meant to suggest the need for forward thinking to grapple with the climate challenge, and I’ve heard it uttered by everyone from Al Gore to Catherine McKenna to Jay Inslee.
I’ve been thinking about the phrase a lot in the last couple of weeks amid major energy news. Recent mergers in the oil-and-gas sector show that the industry is still betting on a bright future for fossil fuels. This month, ExxonMobil and Chevron each bought a smaller independent oil company at a cost of more than $50 billion a piece. Shell, for its part, announced that it would lay off workers in its low-carbon solutions business in order to focus on its more profitable segments. The broader geopolitical context, with two years of energy crises around the globe and the subsequent spike in prices, also suggests some potential longevity for big financial returns from fossil fuels.
But the truth is much more complicated. While oil and gas may be experiencing some momentum today, there is good evidence that the boom might be momentary. Moreover, despite some short-term headwinds, there is little dispute that renewable energy—particularly solar—is set to grow rapidly. In short, the puck is definitely moving toward clean energy.
While not every business will feel directly affected by the race between clean energy and fossil fuels, the transition does have implications for a range of companies, including those outside the energy sector. A perception that this transition is moving slowly—and might slow even more if it hits further hiccups—might, for example, make a business question whether to invest in switching to an electric fleet or in installing solar panels on a warehouse.
For those who might feel uncertain about the pace of the transition, I would point to the International Energy Agency’s annual energy outlook released this week. The report offers reassurance that things are actually moving quickly—and that fossil fuels are not, in fact, the future. The top line: demand for all fossil fuels will peak by 2030 even without new climate policies.
The list of reasons explaining that imminent peak is long. The IEA explains that the rate at which new fossil-fuel-powered products are being sold has slowed, which doesn’t bode well for future oil demand. For example, the sale of new gas-powered cars has peaked while electric vehicle sales continue to grow. Meanwhile, in China, the world’s largest energy consumer, construction-driven economic growth may be slowing, meaning reduced future fossil fuel demand. And the tight natural gas market could give way to a glut as new liquified natural gas infrastructure built in response to the last few years of crisis comes online, making it easier to move gas around the world.
And then there are the clean energy highlights. The IEA report says solar and wind power will “dominate'' new electricity generation projects even without further policies or a dramatic change in the investment climate. This point isn’t really disputed. Even OPEC said in recent weeks that wind and solar electricity will be the area of greatest growth in the energy sector in coming decades.
So why are energy giants still doubling down on oil and gas? More than anything else, it boils down to dollars: so long as there’s demand—and high prices—they want to capitalize on it. And, right now, prices are high and so are profits. The industry argues that demand for fossil fuels will continue to grow—particularly in the Global South—even as renewable energy expands. And, moreover, industry executives say that places like the U.S. haven’t really adequately prepared for the transition, and that a robust fossil fuel supply will be needed when clean energy hits roadblocks. Energy companies are essentially betting that we won’t collectively get our act together to address those roadblocks.
It is definitely true that the world faces some steep collective challenges to address climate change in the coming years, many of which need to be addressed at a policy level. Nonetheless, it’s hard to come away from the IEA report without the impression that the puck is gliding away from fossil fuels to clean technology. The question is how fast.
Write to Justin Worland at firstname.lastname@example.org.