Directing our future

New Energy Conference – Kings College London

File note :- I recently spoke at the new energy conference in London and here is the abstract of the presentation.?If anyone wants to know more or a copy of the slides, please contact me at [email protected] ?and I will send them to you.

Introduction

This is a high-level whistle stop tour of the energy dynamics over the next 30 years.

The reason for this, is there are a lot of vertical workgroups but critically moving forward, more connected competencies and interconnected capabilities are required to ensure we can meet the challenges ahead.

I will take you on a journey from the top, with several of the key points of the energy outlook, drop this down into UK terms and finally a summary of what this means to us today.

Energy outlook – a game of two halves

The energy outlook is a game of two halves.

The 1st half is about the strategy to move the energy market forward both for providers and consumers whilst being able to maintain security of supply of that energy at an affordable price to support our quality of living.

The 2nd half is about the carbon budget and how we deal with this as time is running out and the consequences could be disastrous. For example, 4.5 million years ago when CO2 levels were around 450 ppm, and the temperature was around 4.5 degC above the preindustrial age the seawater levels were estimated to be 15m to 25 m higher than today

A move away from hydrocarbon sources with climate change and energy transition, ranks in the top 3 risks within most governments risk registers today.

It is obvious that a longer-term integrated strategy is not clear as the key scenarios widely differ both within and across sectors and there are many competing priorities.

Government key drivers

For most governments in the world the three critical dimensions to help maintain social and security stability are Security of supply, affordability, and sustainability.

Prioritisation of these three key drivers can be driven many things but attitude and behaviour are crucial.?For example, today the conversations and the news are more focussed on the cost of living, cost increases, global conflicts, empty shelves and the need to grow GDP. In 2022, we saw the highest emissions of green house gases and the shortest overshoot day in our history, which is a telling story.

Behaviours from a risk perspective are mainly driving by short-term immediate and certain consequences that we are aware of, however with the mid-term risks we may have blind spots on those mid-term consequences and for longer-term risks we may use denial to justify the short-term requirements.?This is a big headache for any government and hence the wide range in the scenarios from now until 2050.

Divergence of oil and gas

Within the scenarios, there are several dimensions such as power generation, country wealth, quality of living, social stability, security stability and environmental conditions.??All of these are affected by oil and gas today, hence why I have used the oil and gas scenarios in this discussion paper.

We hear the 2050 net zero target frequently, but it is the major shift case as the uncertainty and risks multiply exponentially after 2030 for net zero initiative. Although it is a clear target, how we can achieve net zero is a major challenge.?The base case is accelerated energy transition with a transition from Coal, Oil and Gas into sustainable energy sources and the variance case is where global pressures on the economy drives renewed momentum in oil and gas.?There is also an outlier that states we could still be at 100 million barrels of oil equivalent per day in 2050.?This compounds the uncertainty into post 2030 strategies and plans for governments, businesses, and individuals.

Demand for energy

If we go back 120 years, energy demand and use of resources was small in comparison to today, climate change was not an issue and growth potential was huge with the industrial revolution and the use of coal as a cheap energy source.?In just 120 years our energy demand as grown by over 1800%. However, today most of our energy used globally is still hydrocarbons sources (coal, oil and gas and wood) and there is no visible decline yet.

With the demise of hydrocarbon sources on the cards due to net zero, this will require more electrical power generation for transport, heating, processing and new technologies and the forward projection is at least a 400% increase in electrical power requirements over the next 80 years. ?But that is not the full story, as we need to replace the existing hydrocarbon generating plant which multiplies the challenge for decommissioning, capital development and strengthening of the national grids.

This might be a great challenge but also a brilliant opportunity for those within the energy sector and something that should be more visible.

UK’s energy balance

Today the UK is in relatively good shape for energy security of supply with 105GW of installed power generation capacity with around 70GW of usable capability based on availability.?In February this year, the average was 35GW with a peak of 45GW, so some spare capacity that we think could be used of hydrogen generation.

However, the UK has 38 million vehicles on our roads, 28 million homes mainly with gas heating, 32 gas power plants and many processing sites using gas for power, heating, and processing. Transitioning these elements could easily remove any spare capacity and leave a deficit in the energy balance between supply and demand.

In 2050, we currently forecast wide variations in the power demand with both average and peak requirements. So, the numbers stated here are based on global trends and the UK’s current strategy and have a reasonable amount of uncertainty.?We could see 250GW power generation required post 2050. But with peak swings of over 100 GW potentially, wind and solar based supply is not the answer for maintaining security of supply 24 /7. We need a more radical mix of power generation sources.

Safe bets and wild cards

In 2030, the safe bets to get us to the first milestone in 2030 are 80% of the strategy and the wild cards just 20%, so 2030 targets should be achievable.??When we forecast out to 2050 with reductions in hydrocarbon use and increase in power demands, this will require 80% of the current wild cards to come to fruition, to meet the net zero objective.

This will require more technology innovation and for companies to adapt new technology much quicker than they have done in the past. Both a cultural and mind-set shifts on company boards are required if sustainability is to become a reality.?

So, what are the critical risks?

Risk 1-Sustainability

At global and country levels there are 20 to 25 main thematic clusters when it comes to future global risks and in the top three risks, most countries list climate change including energy transition and net zero. This is reflected on over 80% of company boards that now have net zero strategies in place, although putting this into action is around 40%, so a long way to go as we start the next journey.

What we hear, is the climate is changing and we need to act.?We hear a lot about oil and gas and emissions. However, the one of the largest risks is the worlds natural resources.?From several independent sources, including OECD, research on the top 15 countries show they have combined strategies to drive GDP growth by around 230% over the next 35 years, thus, increasing the demand of resources. However, the overshoot day, the day that we use 100% of those resources for that year continues to get less and in 2022 this was in July.

For example, with current electric vehicle battery technology, there is only enough cobalt to replace 50% of all vehicles currently on the road, enough lithium to replace 1.5 times all vehicles on the road and enough nickel to replace 2.0 times all vehicles on the road, so the competition for these resources is going to escalate.

Global temperatures are on the increase, this is partly due to man-made global warning, but also natural global warning where 20,000 years ago we estimated the lowest temperature the earth has been and since then, it is going through a warming cycle.

Modelling climate change is very difficult and requires an integrated approach.?As the CO2 increases, warmer weather and wetter weather creates a climate for plant growth that absorbs CO2 and hence the saw tooth affect over the last few thousand years.?Manmade emissions are accelerating CO2 levels above normal conditions and we know from 4,5 million year ago that CO2 level around 450 ppm has major consequences. Hence the need to drive energy transition, but this requires robust mid-term and long-term commitments rather than just the short-term focus.

Risk 2 – UK Electrical Power

They say there are lies and then then are statistics.?I remember seeing a note about how the UK now provides over 52% of its power from renewable sources, however the time this happened was 02.30 in the morning.

The UK used to burn over 260 million tonnes of coal per year, but coal and oil now represents only 4% of the UK’s power generation. So, energy transition is not new, it has been constantly with us from the 19th century as we have moved from wood, coal, oil, gas, and nuclear, and onwards to renewable energy sources. The explosion of energy has been capitalised over the last 120 years and growth in the energy market phenomenal, and so the transition continues. ?

The 32 gas power plants still produce the largest amount of electrical power on a day-to-day basis.?Maybe, it is the realisation of the challenge that has decoupled oil and gas and gas being redefined as a greener energy source when compared to coal and oil.?This has led to the change of gas demand scenarios moving forward.

The UK will soon be out of natural gas and rely on 3 key major pipelines and an LNG terminal, so the move to new energy is the right strategy for security of supply.

The challenges are now, how do we reinforce the network? how can we be competitive for financial investment? and can we ensure we gain access to the right resources?

Risk 3 – Skill and Capabilities

As the UK’s heavy industries decline along with the resources the issue is how do we ramp up new resources to provide the capability for the capital developments and asset operations ahead.?Many schools do not provide those engineering skills, whether woodwork, metal work, technical drawing etc that the industry requires for the new energy transition.

The skills gap is getting bigger and with competition for decommissioning older assets and other industries, this will mean those with the right capabilities will be the winners. The strategy on strategic capability must be assessed now before it is too late.

This is especially true with project management within the heavy industry environment, were we consistently see lower levels of competency in specific areas such as value engineering, negotiation conflict management and cultural management, and many do not take these competencies seriously enough.

Risk 4 – Access to capital

The uncertainty gap for investment in the oil and gas sector verses the new energy sector widens post 2030 due the wide range in the three core scenarios. This means the competition for access to finance will become fiercer, especially between gas developments and new energy developments.?Key will be whether the development enhances security of supply and affordability.

Over the next 30 years, depending on what scenario plays out the swing in the balance of investment between oil and gas and new energy could be as much as $9 trillion. So, getting the investment proposal water-tight including the confidence of the execution of the work is paramount.

In summary

There are four key areas to consider.

1.???New energy will expand, and hydrocarbon use will reduce and as this happens it will be all about security of supply, affordability and how the national grid copes with the changing power generation model and increased demands.

2.???To ensure the transition gains momentum, a key challenge will be to ensure we have the right resources in terms of people, materials, and finance to meet the objectives, expectations and outcomes. With people, precious metals and construction assets, the competition will be fierce.

3.???Project performance must improve further to maximise capital efficiency including areas such as value engineering and conflict management.?This must include more sophisticated decision and risk management systems and practices, as this is the way to improve both efficiency and effectiveness, so the goals and objectives are surpassed.

4.???I know from my experience, that excellence in innovative contractual and commercial relationship can drive performance to ‘best in class’, reducing unit costs whilst improving asset performance.

The gauntlet has been laid and the opportunities are abounded, but it is about how we approach them that will be the key to success. Do we have the right attitude, behaviour, mind-set, inquisitiveness, collected competency and interconnected capabilities to ensure we can show the way to a better future??If not, how do we get them?

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CTB 23rd February 2023.