HOUSTON—The energy industry is transitioning as consumers expect lower carbon emissions to be produced along with companies using a mix of various sources such as wind and solar, said Melody Meyer, president of Melody Meyer Energy.

Meyer and Vicky Bailey, founder of Anderson Stratton International, a management consulting firm, along with executives from professional services firm KPMG, discussed the outlook of the energy industry and its impact at the company’s global energy conference in Houston on June 5.

The traditional oil and gas industry has evolved, and its pace of transition has accelerated as more companies are investing in solar and wind as sources of energy, they said.

The diverse mix of sources of energy will continue as the expectation of lower carbon emissions continues to increase as the impact of climate change is being felt globally. Consumers are now anticipating more energy options, such as solar and fast-charging stations for electric vehicles, said Meyer, who retired from Chevron in May 2016 after a 37-year tenure and served as the president of Chevron Asia Pacific E&P.

The consumption rate of energy in 2018 was the highest amount, according to the Energy Information Administration (EIA), the independent statistical arm of the U.S. Department of Energy based in Washington, D.C.

The consumption rate reached a record high of 101.3 quadrillion British thermal units (Btu) in 2018, an increase of 4% from 2017 and 0.3% above the previous record set in 2007, an EIA report said. The increase in 2018 was the largest increase in energy consumption, in both absolute and percentage terms since 2010, the organization said.

The primary sources of petroleum, natural gas and coal accounted for 80% of U.S. total energy consumption. Natural gas consumption rose by 10% from the previous year and reached a record high,
rising by 10% from 2017. The use of coal declined by 4%.

Renewable energy consumption also reached a record high of 11.5 quadrillion Btu in 2018, an increase of three percent from 2017 because of addition of new wind and solar power plants, the EIA report said. Wind electricity consumption rose by eight percent while solar consumption increased by 22%. Biomass consumption, which is used in transportation fuels such as fuel ethanol and biodiesel, accounted for 45% of all renewable consumption in 2018, up 1% from 2017 levels. Hydroelectricity consumption dipped by 3%.

The energy industry is looking ahead to the future and making technological investments for both the near term and longer cycles such as deepwater drilling, Meyer said.

Companies are making an effort to integrate more renewables into their mix, said Bailey, a former assistant secretary for policy and international affairs for the U.S. Department of Energy and a
former commissioner of the Federal Energy Regulatory Commission (FERC).

The fundamentals for energy companies has not been altered and executives are focused on remaining competitive and on the execution of their strategies and adding diverse employees while facing the challenges of coping with a growing number of intrusions from cyber attackers hacking into their systems.

Companies are becoming more disciplined in their approach to making capital investments while their attention is also needed on the regulatory front and to deal with the issues that crop up from severe weather patterns.

The impact of the tariffs levied in China and Mexico remains unknown and disrupts the supply chain of companies, said Constance Hunter, chief economist for KPMG.

“It throws a huge amount of uncertainty and holds back investments,” she said.

The energy industry must focus on being more efficient, Melody said. While mergers and acquisitions will continue in the sector, the deals must also be more efficient.

There are opportunities for companies to conduct more strategic deals while looking at power companies, technology ventures and partnering with smaller firms to accomplish those efficiencies, she said.

Bailey echoed the same sentiment about companies being acquisitive, citing the June 3 announcement that El Paso Electric Co. (NYSE:EE) agreed to be acquired by JPMorgan's Infrastructure Investments Fund (IIF) for $4.3 billion. The deal should close in 2020 and El Paso Electric, which has 428,000 retail and wholesale customers, is expected to operate as an independent regulated utility.

Companies are seeking to scale up and have more ability to increase its revenue, she said.

Management teams will strive to be more disciplined in their deals since both shareholders and activist investors are seeking a more conservative approach in capital expenditures and looking more closely at the balance sheet, Bailey said.

One area that will not continue to grow is shale production even though producers are seeking more capital, said Robert Johnston, managing director, global energy and natural resources of Eurasia Group of KPMG. Capital providers are on the sidelines and waiting for better deals in the energy business.

There is “misplaced optimism that shale will grow at the same levels as in the past couple years,” he said

The impact of climate change is enormous and severe weather globally such as extreme flooding in the Midwest and Texas in the past couple of years is becoming “a present day risk and a more acute problem,” Hunter said.

There are incentives for companies to deal with the impact now, she added.

Technological advances such as the efficiency of renewable batteries and carbon capture are now part of the norm. The challenge now lies in seeing a collective response globally and asking other countries who are not as rich per capita to take on the upfront cost of managing these issues, Hunter said.

“It is absolutely in our interests to do this,” she said. “We are starting to see the negative economic impact.”

Climate change and carbon capture, which is the process of capturing waste carbon dioxide from sources such as power plants or factories will “shape energy policy for many years,” Bailey said. Many Fortune 500 companies are already stepping up to the plate and working to reduce greenhouse gas emissions.

Decarbonization strategies are long-term and should not be based on election cycles, she said. Innovation and technology will emerge to be part of the solution.

The use of technology such as artificial intelligence, big data and robotics will aide companies in achieving transformational efficiencies. Meyer said. When organizations can share, standardize and make data public, they will be more productive and safer.

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