Windmills. Electric cars. Solar panels. When the cost and performance of emerging technologies improves, incumbents get nervous. Eventually the oil age will end, and it won’t be because we’ve run out of oil. Something better will come along. Something cheaper. It’s inevitable, and the question is how the oil and gas companies of today become the energy companies of tomorrow.
This question is urgent because we’re living in a world where there are predictions that peak oil demand will be reached in years rather than decades, stubbornly low oil prices and investor demands for more climate-related disclosures. It’s a good bet the answer to the question about the future of energy will have something to do with electricity.
Electrification has always been a catalyst for the broadening and deepening use of energy. In 2000, Neil Armstrong, speaking for the National Academy of Engineers, called electrification the greatest engineering achievement of the 20th century, ahead of the automobile, airplane and television.
Power generation is the single largest use of energy in the United States. In 2016, 39% of all energy used (37.8 quadrillion BTUs) flowed through the electric power grid. The question has never really been whether electricity would eventually dominate the way that energy is delivered, but rather how the electricity system would be fueled. A bet on the answer to that question (natural gas vs. renewables, solar vs. wind) is a bet on the future of the energy industry, including oil and gas companies.
Oil companies have ventured into the power sector before, but those investments were focused on creating markets for natural gas and creating optionality for gas marketing and trading operations.