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Hydrocarbons Are Fundamental To An Orderly Energy Transition


David Yager.

Because of climate change, the world is attempting to execute its first centrally planned, policy mandated, global energy transition.

In a hurry.

Nothing like this has ever been attempted before. Therefore, the rivets are popping.

The sources of 80 per cent of the world’s primary energy – petroleum, coal and natural gas – are mandated to be replaced with wind, solar, nuclear, hydro, geothermal and plant-based biofuels.

The urgency of the transition is backed with data about emissions, temperature and targets. The current  GHG reduction goal for Canada’s oil and gas industry is 46 per cent below 2005 levels by 2030. This was announced in April 2021. The previous target, set at the Paris climate conference in 2015, was 30 per cent below 2005 levels by 2030.

This makes for great headlines. But “what” is much easier than “how.” Those who understand energy science and physics have been wondering for eight years how Canada was going to achieve the original 30 per cent reduction commitment.

Increasing that by 50 per cent in early 2021 as the world emerged from the pandemic lockdown – and without any quantum technological advancements in low-carbon energy replacements – has resulted in politicized reduction targets that are destined to fail.

Energy transitions have been continuous for centuries. But they have never occurred on demand or legislated by government policy.

Energy originally came from the sun, wood, grass and coal. Using mechanical ingenuity, wind and water were added to the mix.

The breakthrough energy transition that powered the industrial revolution was coal. This required more ingenuity for subsurface mining, transportation, boilers, and steam engines. Coal still supplies 27 per cent of the world’s electricity and is difficult to replace because of low cost and high reliability.

For developing countries, price and availability remain more important than emissions. Coal is difficult to dislodge because it requires minimal processing prior to combustion. Steam and electricity appear shortly thereafter.

Early last century, petroleum and natural gas from underground sources fueled the next great energy transition. This was possible only because of concurrent and significant technological advancements in exploration, drilling, pipelines, transportation, processing, refining and distribution.

Today oil and gas supply 56 per cent of the world’s primary energy.

But it took decades. Oil and gas work only because of massive investments in the equipment, expertise, chemistry, processing and infrastructure to move them from deep underground to individual and commercial consumers in the form of useable energy and a myriad of useful products and devices.

Powerful and compact, they can be easily shipped all over the world.

Today the oil and gas extraction, transportation, processing and distribution infrastructure is taken for granted. For billions of people, hydrocarbon energy and products simply exist. The biggest issue for the developing world is securing the same access to valuable by-products that the developed world has enjoyed for decades.

Believing that this massive and proven process can quickly be easily replaced is easier when you don’t understand that it exists, or how it was created.

As a result, not enough is understood about the enormity of the challenge to make the current energy transition possible and affordable.

Vaclav Smil of the University of Manitoba is a leading expert on energy transitions. In an address to the World Economic Forum years ago, Smil stated, “Energy transitions are not sudden revolutionary advances that follow periods of prolonged stagnation, but rather continuously unfolding processes that gradually change the composition of sources used to generate heat, motion and light… And while the recent focus has been on the unfolding transition from fossil fuels…the most consequential global shift during the coming 20 to 40 years will be the rise of natural gas to become the world’s single most important fuel.”

Smil added, “The most important historical lesson is that new resources require extended periods of development…it took the United States 25 years to raise the share of oil consumption from 5 per cent to 25 per cent, and for natural gas it took 33 years. After crude oil reached 5 per cent of global primary energy supply, it took another 40 years to rise to 25 per cent, and the comparable period was even longer, 55 years, for natural gas.”

“There is no shortage of national, even global, targets for renewable energy deployment…but these are, at best, aspirational goals and not realistic aims… During the first decade of the 21st century, the world has been running into fossil fuels, not away from them, a reality that will not change rapidly. And while the contributions of wind and solar more than tripled during that decade, the world is now more dependent, in both absolute and relative terms, on fossil-fuelled generation than it was in 2000.”

The spread between the political goals and the reality of the logistics, pace and cost of this massive undertaking are sobering.

An often-quoted observation about the investment and progress of the current energy transition came from Jeff Currie of Goldman Sachs in late 2021. He noted that despite spending US$3.8 trillion worldwide in renewable energy sources – primarily wind and solar – over the previous 10 years, the share of hydrocarbons as a primary energy source had only declined from 82 per cent to 81 per cent.

What makes the current targets for the adoption of lower carbon energy regrettably aspirational is the sheer complexity of the new energy sources versus the incumbents.

With coal, you dig it up and burn it.

Renewables are entirely different.

Expectations and targets are clouded by not understanding how long it took and how much it cost to create the existing fossil fuel infrastructure.

Meanwhile, recent events like the war in Europe and the rising cost of everything are materially changed the public’s priority for energy decarbonization compared to securing the necessities of life such as food, clothing, shelter and core shared services like health care, education and public safety.

Recent polling by IPSOS in its monthly What Worries The World surveys has seen climate concerns decline in most countries, particularly those without resources like Japan.

In the fall of 2019, Japan ranked second among 28 countries with climate change being an issue for 31 per cent of respondents. By the end of 2022 this had fallen to 17 per cent.

Before COVID, Canada was number at 34 per cent, the U.S. 7th at 24 per cent. Two years later the figures were 25 per cent and 21 per cent respectively.

Because of major power shortages in Texas in early 2021 and Europe six months later, the policy changes by governments and industry in the past two years surrounding the energy transition have been remarkable.

After the Russian invasion of Ukraine, it became clear that Europe’s energy supplies were no longer secure, the EU reversed earlier decisions that determined that natural gas and nuclear power should play no part in the decarbonization of energy.

Coal plants were restarted in many countries. The IEA now reports that in 2022, world coal consumption for electricity generation reached an all-time high of 8 billion tons. It is expected to remain at that level through to 2025.

In its April world oil market report, the IEA warned again of possible shortages later this year under current conditions. If nothing changes, higher oil prices are assured.

Texas has re-regulated its power markets by committing to major investments in gas-fired backup power to support wind and solar. And consumers will pay for it whether or not it is required.

In decisions criticized by environmentalists but applauded by producers, American President Joe Biden’s administration has approved the Willow oil development on Alaska’s North Slope. On March 29 a federal lease sale in the Gulf of Mexico was concluded.

The two European supermajors that were publicly leading the energy transition in 2020 – Shell and BP – are reviewing earlier commitments because their legacy assets become very profitable again.

Big financial institutions are reversing climate commitments from COP 27 in Glasgow in November2021. High profile defections include Zurich Insurance, Munich Re and America’s Vanguard. The cited reason is violating combines legislation.

ESG investment is taking a bruising. Industry heavyweight Larry Fink of Blackrock is saying much different things about what constitutes appropriate ESG investment criteria. Several U.S. states have publicly stated they would avoid investing funds under their control with ESG-focused money managers.

And the carbon footprint and mineral supply issues for EV batteries, wind power generators and transmission lines are finally gaining the attention they deserve. As the world finally starts to pay attention to the logistics of accelerated electrification, we’re all learning about scarce supplies, nationalistic hoarding, huge costs and the massive carbon footprint of increased mining, shipping and processing.

China is touted as the world leader in solar panel manufacturing and EV adoption. Which sounds great until you understand that the energy required comes primarily from coal.

Much research has been done about the energy cost of energy – how all low-carbon energy replacements are heavily dependent on the stuff they are trying to replace for their existence.

The good news is more people are finally acknowledging it.

This all looks good for Alberta. The focus in 2023 and beyond less on replacing hydrocarbons but finding ways to reduce the carbon footprint.


David Yager is an energy service executive, energy policy analyst, oil and gas writer, and author of From Miracle to Menace – Alberta, A Carbon Story. More at