“Oil people” understand oil industry but not its competitor (electric technologies like solar, wind, batteries, EVs)
On Tuesday, the Canadian Energy Regulator (CER) released its long awaited net-zero energy scenarios, which show a steep decline in Canadian oil production by 2050. On Wednesday, an interview with a business professor reminded me that those in the oil and gas business view the world very differently than energy modellers and climate advocates.
“The people I talk to in the [oil and gas] industry think the peak’s gonna be around 130 million barrels per day worldwide,” Dr. Bob Schulz, Haskayne School of Business, University ofCalgary, said in an interview. “The expectation of most oil people I talk to says 130 million by about 2040.”
Professor Schulz promised to email the scenario he referenced and I was hardly out of his office before my inbox pinged. His numbers come from Shell’s Sky/Paris 1.5 scenario, the most climate ambitious, from 2021. That scenario uses data from International Energy Agency reports published in 2020.
A great deal has changed in the past four years. External shocks to the global energy system – the COVID-19 pandemic that started in early 2020, but especially Russia’s invasion of Ukraine in February of 2022 – accelerating an already accelerating energy transition.
Still, four years is a short time to invalidate Shell’s scenario, right? Not necessarily. As I explained in this recent column, growth of “energy as a technology” (solar, wind, storage, Evs, etc.) is exponential while growth of fossil fuel consumption (coal, oil, gas) has for many decades been linear.
“Oil people” think of energy change in linear terms: small annual changes over a long period of time.
Let’s consider the CER’s take on Canadian oil production in Energy Futures 2023. For the CER modellers, emissions reductions – i.e. clean energy displacing fossil fuels plus increasing energy efficiency – is driven entirely by climate policies. The Current Measures scenario, which already includes some pretty stringent policies around the world, sees Canadian oil supply essentially flat for the next quarter century.
I think that’s a wrong way of looking at things (in fairness to the modellers, they were asked to create scenarios that focused on policy, so this isn’t a criticism of their work).
But I’ve recently interviewed economist Dr. Phil Verlager, long-time clean energy tech CEO Mike Andrade, American energy journalist Gregor Macdonald, and financial analyst Kingsmill Bond who all argue that the rapidly falling cost curves of key clean energy technology have already stimulated exponential growth of the technologies that will very soon start displacing fossil fuels.
In other words, stricter climate policies may speed up already rapid adoption, but clean energy tech has won the market battle with fossil fuels.
“Oil people” don’t get it. Why? Because they’re steeped in linear growth worldviews. The understand the hydrocarbon business, but they don’t understand the business of their competitors – renewables, electric transportation, and batteries. They assume the competition will behave just like oil and gas.
Oil is a zombie energy source – dead but still moving – and gas soon will be.
This is why Alberta oil CEOs talk about energy “diversification” instead of transition and why Premier Danielle Smith insists that the Canadian government should support a massive increase in Alberta oil and gas exports.
The CEOs and Smith are stuck in incumbent thinking. They don’t understand that the rules have changed. Or, more accurately, the very nature of the game itself is now different.
That’s why Professor Schulz’s view of oil’s future is perfectly reasonable and backed up with credible scenarios but will ultimately turn out to be wrong. The same is true for the CEOs and the Premier.
Unfortunately, by the time their error is obvious it will be too late for Alberta. The CER’s Canadian net-zero scenario means very difficult times ahead for Alberta oil companies and the global net-zero scenario is the industry’s death knell.
Alberta’s government and oil companies have a toxic habit of planning for the best and ignoring the worst possible outcomes. Perhaps it’s time to listen to our wise mothers who suggested we hope for the best but plan for the worst.