Embracing the energy reality: Navigating the complex path to a sustainable future
Charles ‘Chuck’ Davison, Jr., CEO, EnerMech
In recent years, the global energy landscape has undergone a seismic shift. From the pre-pandemic era of "energy duality," which emphasized both affordable and cleaner energy, we have navigated through the turbulence of the pandemic and geopolitical upheavals, such as the conflict in Ukraine. This journey has led us to a sobering recognition of “energy realities”—a complex, costly and protracted energy transition that challenges our previous assumptions.
Before the pandemic, the world was focused on balancing affordability with cleaner energy. However, during Covid, there was a widespread belief that we had reached peak fossil fuel demand. This perception was shattered by the geopolitical shocks of the Russian invasion of Ukraine, which forced us to grapple with the "energy trilemma"—the need for energy security, affordability and sustainability.
Transition will take time. Now, as we confront the energy reality, it's clear that the transition to a sustainable energy future is not only complex and expensive, but also lengthy. The anticipated, quick phase-out of oil and gas is being reassessed, and there is an acknowledgement that these energy sources will still be required longer than initially expected. Technology development is a key hurdle in this area. New innovations are critical to advancing renewable energy and ensuring its reliability and cost-efficiency. Unlike the oil and gas industry, which has benefited from decades of technological refinement, renewable energy technologies are still in relatively nascent stages. Bridging this technological gap is crucial for the sustainable growth of the renewable sector and its ability to compete with the more-entrenched fossil fuel industry.
The ongoing reliance on oil and gas highlights the need for a balanced approach that addresses immediate energy demands while progressing towards long-term sustainability goals. Consequently, there is an urgent need to focus on reducing emissions from existing fossil fuel operations through advanced technologies like carbon capture, utilization, and storage (CCUS), and addressing methane leaks.
The need for order and returns. Across industry, it is agreed that the energy transition must be orderly and market-driven, not forced. The challenges faced by the electric vehicle (EV) market and offshore wind development in the U.S. and Europe highlight the difficulties of a hasty transition. The wind sector’s challenges have been well-documented, with high upfront investment costs stalling projects, while turbine reliability is an ever-growing issue.
Investors in the wind energy sector, like any industry, need to see a return on their investments. Without this, investment will dry up. We are already seeing evidence of this, with spending in offshore wind plateauing in the last year. The size and complexity of turbines has also accelerated at a rapid pace and led to an “arms race” among original equipment manufacturers to scale up components. However, this has resulted in a strain on the supply chain, with bottlenecks in delivery. Additionally, there is a need for robust grid infrastructure to integrate offshore wind energy effectively, which requires substantial time and financial investment.
When analyzing the EV market, its growth is largely driven by the U.S., Europe and China. While its expansion has been steady, issues such as insufficient charging infrastructure, the high cost of electric vehicles, and supply chain constraints for critical minerals like lithium and cobalt, have slowed down the anticipated widespread adoption. These markets demonstrate that pushing for a rapid shift can lead to both inefficiencies and setbacks. By learning from these challenges, the industry can strategize more effectively, prioritizing long-term planning, investment in research and development, and fostering collaboration between public and private sectors to achieve a balanced and pragmatic energy transition.
Adapting existing infrastructure. There is also the subject of existing energy infrastructure. Built over decades with significant investment, it cannot be abandoned overnight. The intricate network of pipelines, power plants, and distribution systems forms the backbone of our current energy supply, and much of this infrastructure offers huge opportunity, presenting a valuable opportunity for repurposing to support the development and deployment of renewable energy sources, particularly hydrogen.
While originally designed for natural gas, pipelines, for instance, can be adapted to transport and store hydrogen, thereby reducing the need for entirely new infrastructure and significantly lowering the cost and time required for transitioning to green energy. There are already examples of this activity, with Gasunie, a major European gas infrastructure company, actively repurposing its natural gas pipelines for hydrogen transport. Meanwhile, feasibility studies and initiatives are also underway in the UK, Australia and the U.S.
With refineries already producing substantial amounts of grey and brown hydrogen, these sources are relatively established; however, blue and green hydrogen still require more acceptance from the U.S. and Europe to truly progress and become commercially viable.
Decommissioned oil and gas wells and offshore platforms also present significant opportunity to support the adoption of renewable energy. This infrastructure can be converted into sites for hydrogen production and storage, effectively harnessing existing expertise and technology. The repurposing not only extends the lifecycle of valuable assets but also accelerates the shift towards a sustainable energy system by providing an efficient and economical method to the energy transition.
The move to new green energy infrastructure must be developed gradually, ensuring reliability, safety and affordability at all stages. This steady approach allows for the integration of renewable energy sources like wind, solar and hydro into the current system without compromising functionality or causing disruptions. This gradual shift also offers the time needed for technological advancements, workforce retraining, and the establishment of robust supply chains.
Workforce and supply chain concerns. The importance of building a skilled workforce and reliable supply chain to support this activity cannot be overlooked. By phasing in renewable energy solutions and enhancing our energy storage capabilities, we're not just building a green energy grid, we're creating a resilient and adaptable one that can withstand future challenges.
Over the past year, the S&P Global Clean Energy Index's 26% decline contrasts sharply with the broader market's growth, underscoring the financial challenges of clean energy ventures. Even U.S. Secretary of Energy Jennifer Granholm acknowledged the enduring role of traditional energy sources alongside new energy developments, though her recent comments on the Biden administration's LNG pause were met with skepticism from the industry.
As global energy demand is projected to increase 50% by 2050, we must recognize the complementary benefits of all energy sources. Currently, electricity supplies only 21% of global energy demand. In countries like Norway and Sweden, electricity covers up to 50%, but these are exceptions. Expanding the electricity infrastructure, particularly for generation, storage, distribution, and transmission, is a monumental task. The transition to weather-dependent energy sources like solar and wind further complicates this, as reliable storage solutions are not yet fully developed. Until battery technologies mature, gas generation plants must back up intermittent renewable energy. Energy Institute’s 2024 Statistical Review of World Energy noted we're installing more renewable capacity worldwide than we can effectively utilize, due to storage issues. This stems primarily from inadequate battery technology.
The A.I. power drain. The rise of heavy computing and artificial intelligence is also driving electricity demand even higher. With data centers already consuming around 3% of U.S. electricity, the strain on the energy grid will only increase. The Electric Power Research Institute is predicting this will increase to 9% in 2030. Thus, our future energy supply must integrate both electrons (electricity) and molecules (traditional fuels transitioning to cleaner alternatives like biofuels and hydrogen). Undoubtedly, one of the most significant impediments to building the necessary energy infrastructure is the slow and cumbersome permitting processes in the U.S. and Europe. While the Inflation Reduction Act in the U.S. has accelerated progress through its clean investment incentives, there are still many roadblocks to overcome.
Stories of delayed approval timelines for U.S. mining projects and airport expansions illustrate the regulatory challenges. However, the German response to the energy crisis— rapidly permitting floating storage and regasification units (FSRUs)—demonstrates that swift action is possible in critical times. The energy transition also hinges on efficiently managing the mining and supply chain for essential metals and minerals. Currently, a significant portion of processing occurs in China, leading to inefficient logistics and strategic dependencies. Moreover, geopolitical tensions are prompting a shift towards "near-shoring" and "friend-shoring" of supply chains, which, while aimed at enhancing reliability, may increase costs and complexities.
A balanced approach is needed. As the world reassesses its energy strategies, the intertwined challenges of political regulations, supply chain dynamics, and geopolitical shifts cannot be ignored. The developed world's slow permitting processes and resistance to processing industries must evolve to meet the urgent needs of the energy transition.
Embracing a new energy reality requires a balanced, market-driven approach that integrates all available energy sources, while advancing technological innovations and regulatory efficiencies. However, this process will not be fast, as we navigate the complex path toward achieving a more diverse energy future. Collaboration between governments, industries and communities will be crucial to achieving a sustainable, secure and affordable energy future.
Ensuring these steps to a net zero path is setting the stage for a future where renewable energy is the norm, and guaranteeing we're doing it in a way that ensures everything runs smoothly. It's about making smart, strategic moves, so that our energy infrastructure remains strong and dependable for years to come.
REFERENCE
https://www.iea.org/reports/global-ev-outlook-2024/trends-in-electric-cars
CHARLES ‘CHUCK’ DAVISON, JR., is CEO of EnerMech. He has 25 years of experience in growing and transforming international technology-focused businesses in oil and gas services, energy infrastructure, and industrial, consumer, and engineered products. Mr. Davison was previously Executive Vice President of Operational Excellence and Chief Operations Officer at Weatherford International plc. Prior to that, he was at Strike, LLC., where he served as President and CEO. Also previously, Mr. Davison was the Chief Operating Officer for Oceaneering International.
