A global energy transition should be a rational process managed by creative and experienced engineers top lawyers and skilled project managers. It is a huge multinational project. All economies fully depend on a reliable energy distribution system.
The first question is off course what is the alternative? Is there an alternative that meets all our future requirements? This white paper is an answer to that question.
Also important is the question how are we going to decommission the field and production operations of the present oil and gas industry. And what is the role and responsibility of the industries during the process of transition.
Abandoning field operations and process equipment, both nuclear and fossil, and leaving them unattended is a major risk for the global environment and in particular the aquatic environment. Working towards a ‘shareholders and banking strike’ in big oil & gas is therefore a very bad idea. If these public companies can’t decommission their field operations themselves, it will require a new industry and only taxpayers money to execute this operation.
The existing industry is probably capable for organizing a worldwide energy transition if the alternative system matches the present system in scale, logistics, finance and operations. Nuclear energy is in this respect the only alternative for the existing industry.
In Europe Peter Terium and Isabelle Kocher are examples of CEO’s of the big energy industries who have lost the battle for sustainable change within their companies. The assets transaction in Germany between EON and RWE is remarkable.
Apart from 3M, big industries are in general not known for their innovative skills.
“As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative.“
“Mistakes will be made. But if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it undertakes to tell those in authority exactly how they must do their jobs.”
“Hire good people and leave them alone.”
Even a giant like General Electric is despite its innovation budget of $5 billion (2015) and the employment of over 2000 high-end scientist not very successful in energy innovations. GE still prefers to buy successful startups or well established technology companies like Alstom (wind turbines) in 2015.
The strength and importance of the energy industry is highly underestimated while the innovation strength and capability is highly overestimated. All together this is a major issue for managing the environmental and economic risks of a worldwide energy transition.
Carbon tax schemes are nothing more or less than short term window dressing. Professor James C. Scott (Seeing like a State, 1998) calls this ‘administrative ordering of nature and society’.
The industry is still serving the international community which means that nobody is innocent. Every consumer of energy is responsible for a smooth energy transition.
It is irrational to believe that a controlled dismantling of the present energy industry in favor of a new renewable energy industry will harm the world economy. It is not realistic to believe that the high skilled workers of the industry will face unemployment. Also ‘big energy’ is a people business. The decommissioning of assets will become a huge industry on itself. We are talking here about an extremely complex multi trillion $ business development.
The discovery and production of 44 billion barrels of oil and gas in the UK’s North Sea since the 1960s has left the industry with the need to decommission 320 fixed installations, 3000 pipelines and 5,000 wells at a cost, estimated the UK’s Oil and Gas Authority, of between £45 and £77 billion. The House of Commons Public Accounts Committee report, March 2019 accepts HRMC’s calculation that £24 billion ($30.1 billion) would fall to the taxpayer through tax reliefs. (Rigzone, Nicholas Newman, June 19, 2019)
The best recommendation for the energy industry to prevent for a devastating shareholders and banking strike is to establish a Trust Agency (Treuhandanstalt) like Germany did for the integration of the former DDR with BRD. It might be the only way to prevent for political activism and a new environmental disaster.
Another serious aspect of the energy transition is disruption of the product mix of the oil industry. Refineries produce a range of distillation products, from very light fractions to heavy fractions. If the applications of one of the fractions disappears and there is no alternative available, these fractions have to be disposed of by other means. One of the costly solutions is to inject this fraction back in abandoned oil fields.
Naturally occurring asphalt is sometimes specified by the term “crude bitumen”. Its viscosity is similar to that of cold molasses while the material obtained from the fractional distillation of crude oil boiling at 525 °C (977 °F) is sometimes referred to as “refined bitumen”. The Canadian province of Alberta has most of the world’s reserves of natural asphalt in the Athabasca oil sands, which cover 142,000 square kilometers (55,000 sq mi), an area larger than England.
The availability of road bitumen or asphalt does not depend on the oil industry.
Governments, oil companies, and development institutions around the world are encouraged to endorse the “Zero Routine Flairing by 2030”, an initiative of Worldbank group. (GGFR)
Pearl GTL (gas to liquids) is the world largest plant to turn natural gas into cleaner-burning fuels and lubricants. (Shell) Pearl is a Shell-Qatar Petroleum partnership. Development costs are in the range of $18 – $19 billion, about four times the original budget. Over its lifetime the plant will process about 3 billion barrels of oil equivalent. GTL is a beautiful, but expensive, clean-burning fuel for diesel engines. One of the problems is that GTL is under the same tax regimes as normal diesel fuels.
Pearl proves that zero routine flaring in a changing energy world is not an simple business case. Pearl processes natural gas from the North Field, an offshore well.
For onshore wells liquification (LNG) is also an option. A number of companies is presently developing this technology. As storage is no option the large volumes of natural gas make it difficult and expensive to develop the right technology.
Like with all basic industry activities governments are also not innocent. Governments are closely involved in the energy industry with their taxation schemes. Only in the European Union the annual tax income on energy is around €92.000.000.000.
It will be missed in the future!
It is a general misunderstanding that the energy transition, the new engines, the new infrastructure and the new applications, will increase the costs of energy for the people and for industries.
Continuum mechanics will mean that the world community will transform from mass conversion methodology to mass flow methodology. A methodology that is applied by nature itself.
In the first case biomass (coal, oil, gas) has to be searched for, mined, refined, distributed and converted into heat and electricity. Most of the time electricity has to be transported over long distances, transformed and distributed in low voltage systems.
Mass flow methodology means that all these activities become obsolete. Only the conversion in new types of non-combustion engines and distribution in smart grids stays. The energy density of mass flow is substantially lower than it is for mass conversion and therefore the novel engines are of a much smaller scale, ideal for small smart grids.
Altogether it results in a much lower cost price of energy for the people. The investments in novel engines is relative low and the total cost of ownership are very desirable over for instance combustion engines.
U.S. Energy Information Administration has published 2017 figures about energy expenditures as a percent of gross domestic product in different States. Expenditures vary from less than 5% to more than 10%. U.S. average energy expenditure is between 6% and 7% of GDP with the State New York under 5% and Louisiana over 13%.
Given the fact that world’s GDP in 2018 was almost reaching US$ 90 trillion, the total annual expenditures on energy is a serious number. Transformation towards mass flow technology and a shift of ownership will result in very substantial savings on energy costs for people and businesses.
It is complex to calculate these savings in this stage but 60% savings is a fair number. Future market dominance / administrative ordering and taxation can influence this number substantially.
The positive message is that despite huge decommissioning costs the energy transition will provide substantial margins for the investments in sustainable development like a circular economy. There is no reason to believe that low income households can’t benefit from the energy transition.
Another very important issue is off course the question what will be the economic consequences for OPEC (Organization of the Petroleum Exporting Countries) countries? Together OPEC members control about 80% of the world’s proven crude reserves.
Not all OPEC members promote the control over revenues by the people like Norway does. Norway is acting as an observer in OPEC meetings.
Norway is Europe’s largest producer of hydropower and the 6th largest in the world. 90% of capacity is publicly owned.
Norway is a heavy producer of renewable energy because of hydropower. Over 99% of the electricity production in mainland Norway is from 31 GW hydropower plants (86 TWh reservoir capacity, storing water from summer to winter). The average hydropower is 133 TWh/year (135.3 TWh in 2007). There is also a large potential in wind power, offshore wind power and wave power, as well as production of bio-energy from wood.
The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway.
The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. In May 2018 it was worth about $195,000 per Norwegian citizen. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.
The Government Pension Fund Norway is smaller and was established in 1967 as a type of national insurance fund. It is managed separately from the Oil Fund and is limited to domestic and Scandinavian investments and is therefore a key stock holder in many large Norwegian companies, predominantly via the Oslo Stock Exchange.
Norway seems to have no good reason to abandon its fossil fuel industry voluntarily.
Russia is another example. Half of the Russian population (half of 145 million people) lives on less than $550 per month. Oil and gas production is a very important source of income for the Russian people.
It is very difficult to predict how these economies will develop after continuum mechanics has become a proven technology and been widely introduced in the world.
Continuum mechanics will prove to be also disruptive for emerging technologies like wind, solar, tidal, hydrogen, biomass, EV-lithium battery and large E storage technology. Hydro energy will not be disrupted. Although there is a tendency to restore areas where hydro plants have changed (reservoirs) the environment.
A temporary standstill in the energy transition can’t be excluded. If handled like it is hoped for, the energy transition will accelerate towards ‘100% carbon free’ at much lower costs and much faster than predicted.