ENERGY MATTERS © VOL. 21
an opinion editorial written exclusively for ANZMEX
27 July 2020
By Chris Sladen
Energy matters – Now, how’s that?
I had been making good progress of late during lockdown even though I have trouble sleeping. I had started to get my head around the new world of energy in which hydrogen is king, supported by solar, wind, geothermal, hydro and nuclear. Electrification is pervasive – vehicles, wires, batteries. Hydrogen will be made by hydrolysis of water when there is excess renewable power, and also from natural gas with carbon capture and underground storage of CO2. Technology advances will be a key enabler, particularly for expensive to decarbonise challenges like heating, heavy haulage, trains, steel and other energy intensive heavy industry. Scaling up of hydrogen will bring the costs down. Hydrogen will be stored in underground salt caverns and where suitable in old oil and gas fields. Where necessary, hydrogen will be moved around the world in ships and pipelines.
And late one evening before bedtime, I had talked myself into believing current energy demand will come back quickly in a year or so, once a remedy for the pandemic is found. With some of the world’s best universities, institutions and companies leading on vaccines and treatments, and ideally a more co-ordinated response amongst nations, we should be confident this pandemic can be controlled and will be overcome.
That was all good until I woke up suddenly in the middle of the night in a cold sweat. This was because with the energy transition it means all the big oil exporters will have to adjust to not being big oil exporters anymore. And, today’s big oil importers will no longer be big oil importers. So we are headed towards a new world order.
Another new world order in my lifetime? The pace of energy transition is clearly picking up; many nations now have it at the forefront of policy. The EU has adopted a ‘hydrogen roadmap’ to achieve a ‘deep decarbonisation’. Many companies have taken up the challenge of net zero emissions. I hope to live another 20 years, so yes I may see this new world order.
My heartbeat rose as I grappled with what might happen. Mexico would not be relying on oil exports for income, neither would Saudi Arabia, nor Iran, Angola, Russia, Norway, Iraq and so on. Because demand will no longer exist. Everything that can be electrified will be electrified as oil is phased out, and new long distance power cables criss-cross continents. Europe will have weaned itself off its addiction to Russian energy. Existing oil & gas infrastructure will be re-purposed for use with hydrogen and to create ‘gas refuelling’ stations. Venezuela’s gigantic oil reserves will largely stay in the ground, as will Canada’s, and probably much of the Arctic and Middle East too.
Within 20 years, as oil trading winds down, the balance of payments of countries will look completely different. China, for example, will no longer have a massive bill for oil imports, neither will Japan, India, nor most of Europe. Oil products, like gasoline, diesel and fuel oil will no longer be in great demand in those countries, neither in Mexico, the Central Americas, South Korea nor Australia. Gigantic refining hubs such as in Singapore or along the US Gulf Coast will need to completely transform. Many refineries will be reconfigured to focus on hydrogen, petrochemicals and lubricants.
The dramatic reduction in use of oil products – principally gasoline and diesel – will lead to significant reduction in air pollution. Today, nine out of ten people breathe polluted air. Microscopic pollutants slip past our defences, damaging our lungs, heart and brain. One third of deaths from lung cancer, heart disease and strokes are linked to air pollution, respiratory conditions killing around 7 million people each year, including over 500,000 children. The pandemic has shown us how, in just a few months, reduced use of fuels in towns and cities can significantly improve air quality. If all transport is electric in 20 years’ time, imagine the benefits to cities.
It is not only the climate and our air quality that is set to benefit from hydrogen as an energy source and widespread electrification. Oil tanker disasters will become a thing of the past, consigned to modern history studies – the Torrey Canyon off the coast of Cornwall in 1967, the Amoco-Cadiz off Brittany in 1978, Exxon Valdez off Alaska in 1989. Similarly, industrial accidents – Ixtoc 1979, Macondo 2010 – and the many hundreds of other spills that occur every year will be a thing of the past.
Of course there will still be lots of natural occurring oil seeps. However, in a new hydrogen powered, electrified future, actions such as the devastation deliberately caused during the 1991 Gulf war, which saw oil wells opened and led to the world’s largest oil slick, will not be repeated.
The role of oil in wars and conflicts which has existed in various forms for over 100 years will have ended. Navies will no longer patrol sea lanes to protect oil tankers; oil rigs will no longer be used to stake out control of contested seas and islands. Military protection and arms will no longer be offered in return for access to oil reserves. Oil sanctions and oil-for-food programs will be something from our past. Disputes about transportation, consumption and fuel regulations, often resulting in complex arbitration and force majeure will no longer be relevant. Frantic bidding at auctions for oil concessions will no longer happen. Unitisation of oilfields that extend across block boundaries or international borders will no longer be needed. Pipeline diplomacy will be a thing of the past. Energy security and the meaning of both security of supply, and energy sovereignty, will be completely rewritten. There will be no more passionate speeches about oil patrimony; no more oil hegemony.
The need to have US$ to buy oil will have gone. The petrodollar will no longer have power or value. Oil hedging programs, currently a favourite with some oil producers, governments and investment banks will no longer exist. The relevance of cartels and national oil companies will have faded. The history and geopolitics of oil will be something that academics research, write books about and teach. Students will write essays about why we took so long to find an alternative to oil.
I fell back asleep realising that a new world beckons of politics, economics and foreign policy without oil.
About the author:
Chris Sladen runs an advisory service offering insights to inform, shape a decision, policy & regulation, and guide the next steps for energy ventures, acquisitions & divestments, energy transition and climate strategies. Chris has a unique global experience having worked in over 40 countries. This is underpinned by extensive knowledge of petroleum systems and where best to find oil and gas, notably in the Gulf of Mexico & nearby areas, Europe and NE & SE Asia, as well as the development of midstream, downstream & renewables investments in many emerging economies. Chris has extensive experience acquired on the Boards of companies, subsidiaries, business chambers & organisations. Chris has a career of over 40 years in the energy sector, living in Mexico (2001-2018), Russia, Vietnam, Mongolia, China & UK. His contributions to the energy and education sectors have been recognised by the UK Government with both an MBE and CBE, and also the Aztec Eagle from the Mexican Government – the first foreigner in the energy sector to achieve this award. Chris has published extensively over five decades. Chris’ articles for Energy Matters reflect his experience and enthusiasm and are not paid for in any way.
Send your feedback to:
ANZMEX ORG A.C. is a politically neutral business council with no political affiliation. The views expressed in this column are not necessarily representative of the official views of ANZMEX or any of its officers or staff.