THE REAL TRUTH ABOUT ENERGY TRANSITION

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Through most of 2021, the decision makers' narrative was that energy transition can be achieved by simply switching off all fossil fuels. “The Green New Deal,” led by the Western World cannot fulfill this transition goal in the estimated 20 years. 

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Is this a reasonable time frame? Can we develop alternative technologies, infrastructure, and the changes in lifestyles required for transition to be achievable, affordable, and therefore acceptable?

           

Our country was built on fossil fuels, and we remain dependent upon them, as we have been for over 100 years. Without major technological breakthroughs, the answer is "no." Without fossil fuels, there may be an unfillable hole in global energy supply for both short and long term. The evidence is clear from an increasing number of respected and trusted intelligence sources. The graph below, released by RYSTAD Energy, clearly illustrates that there are simply insufficient existing hydrocarbon resources for the world to transition, without additional sources of oil, and most particularly natural gas. From all the evidence we have seen throughout the world, no matter how fast the world builds wind and solar farms, it simply cannot replace hydrocarbons in the near term, if not medium, or perhaps even the long term. 

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Sometimes the wind doesn’t blow, and the sun doesn’t always shine, and especially at night. 

 

These facts were recently witnessed firsthand with the blackouts in California in the summer of 2020, and even more recently in Texas this past February 2021 during the winter deep freeze. These are just two examples of what happens when there is insufficient generation or spare capacity to ensure security of supply.

           

Since the last commodity price crash in 2015-16, mainly due to lack of sufficient funding, only a fraction of the exploration needed to guarantee supply has occurred. The reasons for that lack of funding were linked to global oversupply, mainly of unconventionals in the United States, which made our country energy independent for the first time in recent history, and a net exporter for a brief period of time. Even when prices rose to a sustainable level of around $50-60/BO in 2018-19, which would have been enough to revive exploration activity, the emergence of the Covid-19 pandemic in late 2019 only made the problem worse, with reduced global demand for fuel and numerous unordinary lockdowns. 

           

By December 2021, energy supply and demand looked very much different.  Demand greatly increased with opening economies, while supply continued to decrease with lack of exploration and production (E&P) activity. With focus on transitioning to "green" sources of energy almost overnight, the investment community’s current assessment of E&P appears to be short-sighted and is only likely to decrease. As with the global financial crisis in 2008, the signs of a pending crash were equally evident in 2020 and realized to the extent of even a negative oil price for one day in May of 2020.

            

However, with Western investment stalled, the efforts led by Environmental, Social and Governance (ESG) controls are only likely to make matters worse, while possibly even increasing carbon emissions.  We believe it is not too late to instigate a realistic approach to a new cycle of exploration, with ESG compliance, to help restore domestic supplies over the next five years.

           

As mentioned above, currently 20 years is the estimated time needed to develop alternative technologies, infrastructure and changes in lifestyle required for transition to be achievable, affordable, and therefore acceptable (the 3A’s), as also previously mentioned above.

           

One interesting aspect of energy transition that we believe is being very badly missed in all this green energy push, is that natural gas is rarely compared to other fossil fuels and clearly needs to be recognized as a vital fuel of transition that satisfies the 3A’s, due to its low emissions compared to oil and particularly coal.

           

And to make matters even worse for Americans, is that China will be cashing in the most on Biden’s green energy push.  Currently, China controls 85% of the world’s rare earth elements required to make a green energy transition possible.

           

In addition, and even what’s more ironic, is that China has in excess of 3,000 coal fired electric generating plants in use and is considered to be the world largest contributor of carbon emissions.  Whereas the United States has consistently been decreasing its annual carbon emissions every year since 1992 and only contributes about 10% of the world’s total carbon emissions.  Biden’s climate czar John Kerry has even said himself, “that even if the United States goes to zero carbon emissions it will not make a difference.”

           

WHAT WE BELIEVE

           

Nearly 70% of all our current electricity is generated by natural gas. All other sources, coal, wind, solar, hydro, geothermal, and nuclear, make up only about 30% combined. Prominent energy pioneers that we personally knew, such as the late Aubrey McClendon (Co-founder of Chesapeake Energy), and the famous Boone Pickens (Mesa Petroleum), with his CNG Pickens Plan, were probably right about a lot of things pertaining to “clean burning natural gas.”

           

Let’s just say perhaps they were actually right about a lot of these things, and the recent and dramatic global price rises are perhaps the early signs of this undersupply biting and just a taste of what’s to come. For example, the infamous Cushing oil hub, with 50 million barrels plus of oil storage on the surface, just 30 miles from us, is now reported to be nearly empty, as supplies continue to go south on the southern leg of the Keystone XL Pipeline to Port Arthur, Texas. Now, there are insufficient regional oil replacements, no completion of Keystone's Northern leg, and the much-needed Canadian and North Dakota Bakken Shale oil will never meet the needs of the seven large refineries in the Gulf that Cushing supplies.

           

In late 2021, referring to the herein included RYSTAD ENERGY graph and seeing that with now, nearly six (6) years of almost zero E&P investment and subsequent loss of experienced geoscience and engineering teams, very few established E&P firms can grow their exploration capability sufficiently fast enough, if at all.  With such a limited pool of experienced geologists, geophysicists and engineers who know where to work and achieve exploration success, it will be very challenging to say the least, for supply to keep up with demand.

           

New exploration techniques and technologies may, and that’s a “big may,” advance and improve success rates and cycle times, but time will tell.  In the meantime, a rocky road is predicted, which undoubtably means much higher prices.  And for us as a whole, while still active with a wealth of proven oil and gas reserves in our control, we should continue to work hard and take advantage of the times as long as they last.

 

And finally, that’s what we strongly believe to be is:

“The Real Truth About Energy Transition!”

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