Energi Notes is less formal journalism than a news story or column. Markham’s musings, if you will. But Notes is still grounded in the foundation of Energi Media’s journalism: expert interviews.
“Growth will be linear. Energy growth has always been linear.” These words, recently tweeted to me by an Alberta oil and gas worker, succinctly explain why the industry is about to be blindsided by the energy transition.
He was responding to my interview with noted energy economist Dr. Phil Verlager, who stated the obvious: that adoption of clean energy technology like wind, solar, and batteries grows exponentially (see the graph at right). The oil and gas worker was responding from experience. And it’s that perception of energy growth that is behind the complacency of the Alberta oil patch’s response to the existential threat of competition.
Speaking of competition, oil has never had a competitor. For the past 125 years, more or less, transportation has been fuelled by petroleum. The idea that electricity, and perhaps low-carbon fuels like hydrogen for heavy transport and bio-fuels for aviation, might one day displace petroleum is relatively new. At least for we common folk. Elon Musk and Tesla changed our perceptions about what can power cars and trucks, but the world’s most successful electric vehicle manufacturer started just 20 years ago and its influence on our thinking about electric transportation is much more recent.
New ideas, like new technologies, take time to work their way up the S-curve.
The oil and gas industry has a long history of suppressing new ideas that might interfere with profitability. Climate science is a good example. Instead of embracing evidence of change or the need for change, oil companies decided long ago to manipulate public opinion with cleverly crafted narratives.
Oil will be around for decades! Electric vehicles are really bigger emitters than gas-powered cars! The grid can’t handle an influx of EVs! And so on.
In my experience, which includes five years toiling in the North American oil patch, engineers are particularly susceptible to narrative. They are the fiercest defenders of industry narratives and the most likely to distribute misinformation. This seems odd because engineering is such an evidence-based profession. Perhaps “Upton Sinclair disease” is a sufficient explanation: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
I bring up engineers because oil companies are dominated by them and their cousins in the geosciences. They used to dominate the C-suites of downtown Calgary. That’s less common these days – more executives with finance and legal backgrounds – but corporate culture is still heavily influenced by engineers.
Note: This is, admittedly, generalization on a grand scale. But my five years in the industry were spent talking to hundreds of engineers, in Calgary, Texas, California, and most of the smaller producing states. And in the 20-plus years I’ve been around the industry, the rule holds true. Your experience may vary.
Oil and gas engineers, unfortunately, don’t spend much time learning about their new competition. I can’t count the number of times engineers have expert-splained to me that wind turbines defy the laws of physics and will never catch on. Ditto for solar panels, EVs, and batteries.
And that brings us full circle to the linear vs. exponential debate.
As Mike Andrade, veteran electronics executive and now CEO of Toronto-based Morgan Solar, explained to me in this Energi Talks podcast (see below), energy as a commodity is very different from energy as a technology. And one of the most important characteristics of energy as a technology is that once it hits the inflection point on its S-curve, adoption becomes exponential. Or, for my Canadian readers, like the shaft of a hockey stick.
And energy as a technology operates under different rules than energy as a commodity. Wright’s Law (now called learning curves), for example. Every time production of a technology doubles, there is an observable drop in the cost to manufacture a unit of that technology. The more you make, the cheaper they get.
This is why solar and EVs, the two energy technologies threatening oil and gas, are a runaway train.
But if you don’t spend some time understanding energy as a technology, you view it through your existing lens of linear growth. Like our friend the oil and gas worker.
Now, you would think that huge oil companies populated with really smart people would understand this. In some cases you would be correct. But in far too many instances, CEOs and their boards of directors are as ignorant of the competition as our friend in the field. If your worldview is ordered by linear growth, why would you bother changing? An existential threat, if there is one, is decades down the road.
This is why oil and gas can be a “sunset” industry, as Verlager argues in my interview, and individual companies are still expanding production.
When the Alberta oil and gas companies are blindsided by clean energy technologies in the next two to five years, their trade associations and CEOs have ready narratives to explain away the threat and plenty of villains to scapegoat – the federal government, environmentalists, it’s a long list.
But they can’t say they weren’t warned.
*Want to listen to more interviews about this topic? I recommend a couple with Kingsmill Bond, senior principal in the Strategic Analysis & Engagement Group of the Rocky Mountain Institute.