Originally published on medium.com
How might the election of Joe Biden impact the oil and gas industry?
Although the oil and gas industry has been highly politicized in recent years, the fact remains that both Democrats and Republicans consume large volumes of oil and gas. Physics trumps politics is a phrase I prefer. You cannot beat physics with legislation. To be candid, the only scenario where oil and gas consumption declines in the world is if people accept a lower standard of living or the global population declines, which are both plausible, although unlikely. The modern human experience is one of massive energy consumption. Let’s presume for a moment that the entire world could run on solar power. The amount of energy required to mine silicon, copper, along with various other needed materials, has to come from oil and natural gas at some point in the system. The locations where these materials are sourced are off the power grid, and you burn diesel or natural gas to generate power at these locations. This does not even begin to factor in the large volume of oil subproducts that go into various aspects of power generation, transmission, and local consumption. Bottom line, without oil and gas, the world comes to a grinding halt. Period. Therefore, I do not see a Joe Biden presidency impacting the oil and gas industry over the long run outside of likely tax increases and increased regulation. You cannot continuously bite the hand that feeds you, as the old saying goes.
Can the world actually replace oil?
The short answer is maybe. If the people of the world wanted to go backwards in terms of living standards and remain local and not travel, then you certainly could make the argument for drastically reduced oil consumption. However, replacing it with solar or wind energy or some other unknown substance is just not plausible. For example, an airplane weighing 400 metric tons carrying passengers and cargo cannot take flight on electricity. Only Jet Fuel has the energy density to achieve the thrust required for lift in this scenario. You could continue to go down the list of oil and natural gas uses, and in some cases, there are alternatives, but even in those cases, they are all typically way more costly. Those who claim there are cheaper alternatives generally are playing with the numbers to promote a particular agenda that is not rooted in physics. The energy density of oil is thousands of times greater than solar or wind. This simply means the amount of physical space required to capture and use wind and solar are thousands of times greater than oil. Imagine the entire landmass of the United States covered in solar panels, and you start to get the picture. Bottom line, there is really no currently known viable replacement for oil and natural gas.
Why the demonization of carbon? Is carbon actually bad?
The politicization of oil and gas, in my view, is a huge negative. Oil and natural gas have lifted more people out of poverty worldwide than any other substance or government program. Humans are carbon-based life forms, and so are plants. We breathe in oxygen and release carbon dioxide to live. Plants consume carbon dioxide to live. Human activity is not creating carbon or destroying carbon. I think our focus in the world should be to provide power and running water to all people worldwide, and the demonization of carbon makes this more challenging to achieve. There are around one billion-plus people in the world without running water and power; to me, this is not acceptable. I will not dive into man-induced global warming due to industrial activity as this is just too politically charged to have rational debates these days. My view is that carbon is a huge net positive to the world.
Is green energy really green?
The short answer is no. Consumption of anything by definition is not green according to the standard definition of green. The human experience is one of consumption. We eat food, use electricity, purchase wooden furniture, etc. All of these activities require energy and consume materials. Solar and wind are often purported as being green, meaning without emissions or consumption of materials. Solar panels require a whole plethora of highly toxic chemicals in the manufacturing process and the mining of silicon to be constructed. Mining silicon is not remotely green and require massive diesel power earth movers and cranes. Also, solar panels do not last forever and need to be replaced over time, and the process repeats. The arguments for wind not being green are similar, although having some key differences, but the point remains that green energy is not really green. Somewhere in the process, there is consumption and emissions, and this fact seems to be totally ignored by renewable energy advocates. Even the name renewable is quite misleading.
What would all-electric cars mean for oil and gas?
The same comments I made above can be applied here. If 100% of passenger vehicle transportation switched to electric tomorrow, that would reduce oil consumption by around 10%, but natural gas consumption would likely increase quite a bit. Let’s dive a little deeper. Most of the electricity in the world is created by burning coal or natural gas. As power consumption increases worldwide, there is no scenario that natural gas consumption also does not increase. Natural gas is produced alongside oil in the majority of wells in the world. If everyone started driving electric vehicles tomorrow, the amount of additional electricity required would be quite large, and this would be filled by natural gas for the most part. Therefore, drilling for natural gas would continue and or increase, and natural gas prices would likely increase. This does not even account for all the extra materials required, such as copper and lithium and all the rubber and soft goods needed in the power transmission process. Once all of this is accounted for, oil consumption may not be reduced as much as one would think. The key takeaway here is that TESLA is not a zero-emissions experience no matter what they put on the license plate.
What are your thoughts on the viability of solar power?
I think the energy industry should explore all viable options to power the world and provide the greatest number of people with the most affordable energy options. That said, it is physically impossible to power the entire world with solar, and I think that fact needs to be front and center in this discussion. Therefore, the discussion should be driven by the free market in terms of what mix makes the most sense to provide the highest number of people with the most affordable power. This ultimately may lead to a quite large percentage of solar installations over time, especially if government subsidies continue for these particular projects. It is worth noting that a government subsidy is not free, though, and ultimately adds to the cost of these projects. The energy density of solar projects will never equal oil and natural gas, and this also needs to be pointed out. The companies best suited to tackle these issues seem to be doing more solar over the past ten years, so it appears the market is working as it should, but we cannot deny the physics when having this discussion.
Is offshore wind a viable option?
Recently BP jumped into the offshore wind business, which created quite the buzz in the oil and gas industry. It appears offshore wind is certainly a viable option in some cases, but I will reiterate the point made above. Offshore wind alone cannot power the entire world. First, when the wind is not blowing, the wind farm is not producing power. The wind does not always gust everywhere in the world at all times. Also, offshore wind is not physically close to population centers that are not coastal, of which there are many. There are no competing land uses for offshore wind, which is one very large plus vs. onshore wind. I go back to my earlier points; if it makes sense economically, companies will pursue these projects. It appears BP, along with other major Oil Companies are dipping into this space, so they must be charting a path to profitability. In summary, offshore wind appears to be a viable component to the world’s energy mix, although it will likely be a small one.