Competing pressures of climate issues and energy security expected topics at gathering this week

Collin Eaton, WSJ

HOUSTON
EnergiesNet.com 03 06 2022

While the race to develop cleaner energy intensified over the past year, an uneasy consensus emerged on a parallel track: At least in the short term, the world needs more oil and gas, too.

The dueling—and sometimes conflicting—imperatives are expected to be core topics in Houston starting Monday when oil executives, climate hawks and government officials gather at the industry’s premier annual energy summit.

For an industry accustomed to extreme cycles of boom and bust, the current environment is less binary and more complex than usual. Even as the biggest companies post record profits, huge questions linger. 

In particular, the geopolitical and market realignments that followed the Russian invasion of Ukraine have spurred the industry to re-evaluate how the energy transition will work, said Dan Yergin, vice chairman of S&P Global, which organizes the conference known as CERAWeek by S&P Global.

“We’re going to hear companies talking more about decarbonization and their low-carbon strategies, even as they also talk about stepping up conventional investment to meet the needs of a world that has suddenly become quite insecure about energy supplies,” Dr. Yergin said.

The chief executives of Exxon Mobil Corp., Saudi Aramco and NextEra Energy Inc., as well as U.S. officials including Energy Secretary Jennifer Granholm and White House clean-energy adviser John Podesta are set to appear before delegates from around 90 countries. 

U.S. officials are poised to use the conference as a platform to lay out their plans to implement the legislation passed last year known as the Inflation Reduction Act, which is expected to bolster clean-energy investments through tax credits and funding. 

The legislation has stoked excitement among beneficiaries such as solar and wind developers, but has also stirred industry concern that increased low-carbon investments could raise project costs and further strain supply chains.   

Little is known yet about how the legislation will be implemented, but what is clear is that government policy will play a much larger role in the current energy transition than previous shifts throughout history, which were driven by economics and technology, said Dr. Yergin, author of “The New Map: Energy, Climate, and the Clash of Nations.”

Another key theme will be how oil-and-gas companies integrate the energy transition into their businesses. Oil executives say conversations with investors last year focused less on environmental, social and corporate-governance guidelines, or ESG, which consumed 2021, and instead concentrated on financial returns. 

A month ago, BP PLC dialed back plans for an ambitious clean-energy transition and said it would pump more money into oil-and-gas production. BP Chief Executive Bernard Looney said the company was “responding to what society wants.” Exxon and Chevron Corp., which have been more conservative in their low-carbon strategies, posted record profit in 2022, buoyed by the highest oil-and-gas prices in years. 

The question of whether those profits can be repeated will hover over the conference, not least because natural-gas prices have plunged 54% in recent months, leading producers to scramble to recalibrate drilling plans. 

With Western sanctions having split the global oil and natural-gas markets, the conference is expected to take up subjects such as Russia’s increased dependence on China and the strategic importance of U.S. liquefied natural gas shipments for Europe.

For Mark Brownstein, a senior vice president at the Environmental Defense Fund, the experiences of the past year point to the need to accelerate global energy away from fossil fuels, for the sake of climate stability and as a way to avoid the kind of price volatility that rocked world markets last year. 

“There will be plenty of people at the conference demonstrating new technologies and talking about new business models that are readily available to us today to accelerate the transition,” he said. 

Rebekah Hinojosa, a campaign representative at the Sierra Club, is helping to marshal a march planned for Wednesday from the conference across downtown Houston to the offices of major energy companies and other institutions involved in supporting proposed LNG export projects on the Gulf Coast. 

“Gulf Coast communities are fed up with being sacrificed for the continuous fossil-fuel build-out,” Ms. Hinojosa said. 

Still, in some ways, the political tides seem to be turning somewhat for oil companies. 

Already tense relations between U.S. oil companies and the Biden administration soured further last year as some companies reported record profits and domestic gasoline prices hit historic highs. U.S. officials said companies wrongly focused on rewarding their investors through share buybacks instead of pumping money into the oil patch to help ease prices. 

In an off-script moment during his State of the Union speech last month, President Biden, who had campaigned with promises to crack down on fracking, said, “We’re still going to need oil and gas for a while.” He also proposed quadrupling the tax on corporate stock buybacks, to push companies to plow capital into oil production. 

Dan Pickering, founder and chief investment officer at Houston-based Pickering Energy Partners, said it appears investors’ push on ESG has plateaued for now, but oil companies have made progress on reducing emissions and are no longer behind the curve. More executives support global decarbonization as two polar-opposite camps—climate-change skeptics and people who advocate for an immediate switch from fossil fuels—have grown smaller, he said. 

“There’s a much broader push for decarbonization globally, and there’s also a much broader realization that we are ‘stuck’ with hydrocarbons until we can achieve that decarbonization,” Mr. Pickering said. “A bunch more people are saying it’s going to take time.”

Write to Collin Eaton at collin.eaton@wsj.com

wsj.com 03 05 2023