[Editor's note: A version of this story appears in the December 2020 issue of Oil and Gas Investor magazine. Subscribe to the magazine here.]

With a Biden presidency all but imminent come next month—assuming it survives election legal challenges and the electoral college vote—the U.S. oil and gas sector needs to prepare for the inevitable: Business as usual will never look like it used to. President-elect Joe Biden has stated unequivocally that fossil fuels need to be driven out of the energy stack as urgently as possible and that he will lead the charge domestically.

The call for an energy transition to no-carbon fuels has been building within developed nations, but it appears the election of one of its champions to the world’s most influential nation finally gives the movement the critical mass it needs to put the machine of transition into drive. The United States will now lead the way. And like it or not, oil and gas are industria non grata.

Regardless of the logical reasoning of the viability of the plan, the great experiment is in motion. The capital and public momentum are behind it.

“It’s widely expected that Biden’s policies will attempt to accelerate the move toward renewable energy,” said Marcella Burke, partner in energy transition for law firm King & Spalding LLP, speaking on a virtual panel for the Rice [University] Energy Finance Summit in November. These policies will “strategically and tactically” put traditional fossil fuels at a disadvantage, she said, “which would then allow competitors or substitutes in the energy market, namely renewables, an advantage in order to give them a step up and an opportunity to shine.”

Anton Cohen, head of renewable energy for advisory firm CohnReznick and speaking on the same panel, said the fundamentals for a move toward renewables and a move away from fossil fuels are stronger than ever.

“The momentum is there. It’s been on its way from my perspective.”

Outgoing Texas Railroad Commissioner Ryan Sitton (sitting on the agency that regulates oil and gas in the state) said forced change is one way to drive the transition. If the Democratic Senate candidate prevails in the Georgia January run-off election, thus handing both Senate and House control to the Democrats along with the White House, then “they’ve got the ability to force legislation fairly ubiquitously.”

But Sitton, speaking at the Rice Energy Finance event, believes the energy transition is going to happen independent of politics. Rather, it will be economically driven.

“Regardless of political changes, there are coming economic shifts that are going to accelerate a transition.” Consumers, he said, prefer green alternatives such as renewable-sourced electricity and electric vehicles as long as they are reliable and affordable—in that order with “clean” as the third priority. That shift with consumers “is definitely coming.”

But within limits, he emphasized. “Consumers are only willing to pay 12% to 13% more on average” to be green, he said, and governmental policies that shift the landscape in such a way as to push the electorate beyond those economic tolerances would likely result in them being voted out, he said. “That’s really the test we’re going to have to watch. There’s a lot changing right now that will affect the pace of the transition.”

Regardless of Georgia, fast or slow, the change is here. And if you still believe an inversion in market demand will take decades, Simmons analysts offered this warning in a September report:

“For those that question how quickly this transition can occur given entrenched fossil fuel usage, we remind readers what the U.S. shale revolution accomplished in just 10-plus years. U.S. shale completely disrupted conventional oil and gas resource holders and directly led to the carbon reduction success in the U.S. due to abundant, low-cost natural gas.”

The time for resisting an energy transition to lower carbon options is past. Consumers and investors want it, and it’s been gaining traction long before the latest presidential election.

The only question for the oil and gas sector is, what role will it play in said transition? The world likes the idea of a carbonless future, but everyone wants to retain the benefits enjoyed by a fossilly fueled society. The reality is, the world can have the best of both while saving the planet.

Hydrocarbon producing companies need to create strategies and drive a narrative on how the world can continue to use their resources without putting excessive carbon atoms into the atmosphere. Promote natural gas over coal for power gen in developing nations. Invest in technologies that remove emissions by end users consuming your produced product. Plant massive forests to offset emissions across the value chain.

And tell the world about how you are driving this change. In your corporate messaging. Via positive stories on our televisions. The world wants to know that the greenhouse gas molecules that come out of your wells are not ending up in their atmosphere.

Lead the transition. Be a valued part of the transition. Rather than being voted out of the transition.

Comments