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Millennials' Push for 'Circular Economy' Signals Big Changes Ahead for Oil, NatGas Markets

Opponents of oil and natural gas have discovered what they think may be a more effective way than drilling bans to prevent natural gas and oil development in the United States -- stop pipelines from being built -- and it's gaining traction across the country, a leading energy expert said Monday.

Amy Myers Jaffe, who serves as executive director of Energy and Sustainability at the University of California, Davis, keynoted the 94th Gas Processors Association (GPA) Conference -- her second appearance in 10 years. She previously served as director of the Energy Forum at Rice University's James A. Baker III Institute for Public Policy.

Jaffe, an expert on global energy policy, geopolitical risk and energy and sustainability, said a lot has changed in the past decade since she addressed the GPA. Among other things, the environmental movement has learned a thing or two about how to prevent energy development.

"Politics has become increasingly local when it comes to the environmental movement as we move into the presidential cycle," Jaffe told a standing-room-only crowd.

Those in the business already can "feel intuitively the pressure of the no oil movement..." A big part of that has to do with the "global crisis related to carbon emissions...Therefore, no oil production is good," she said of the proponents to end the use of fossil fuels and transition to alternative fuels.

The movement in the United States of late has been focused on one thing: preventing the Keystone XL oil pipeline that would carry Canada oilsands to the Gulf Coast. However, the movement hasn’t been only about oilsands, according to Jaffe.

"In my opinion, when President Obama first ran, he got a lot of money from the environmental movement...A lot of people gave a lot of money." However, that constituency felt betrayed when Obama put more emphasis on health care.

The environmentalists then decided to pick a "litmus test," a victory that they could point to. The fear was, she said, that environmental groups had collected a lot of money and didn't have anything to show for it.

Taking on the coal industry "might have been the sensible target...with the benefits from shale gas, but that was too hard a target, and they needed a concrete victory. The decision was made to pick the Keystone pipeline, which they felt could definitely be blocked...

"Indeed, because the industry doesn't articulate its positions well, the Keystone was not built." The irony, she noted, is that more oil now is being moved via rail or by truck. And other pipelines are being built.

"Nobody shut in oil and gas, but they blocked a pipeline. It's hard to say this, but it was a successful strategy, and when a movement is trying to show they are successful, blocking a pipeline is more successful than anything else."

Many communities across the country, meanwhile, have "tried to show their displeasure" with bad actors in the industry by imposing bans on hydraulic fracturing and pushing for chemical disclosures of drilling fluids.

"What the communities found is that the industry sued them on jurisdictional bases, and it was hard for the communities to defend," Jaffe said. Many communities have been denied the possibility of winning in the courts, although "the jury is still out" on some, with 50 or so community bans imposed or under review.

However, Keystone has provided what many activists see as a winning strategy.

"Having been denied the possibility of winning in the courts...a more effective way is to stop pipelines because producers can’t do development if they don't have pipelines to take it away..."

The no oil movement now is spreading to other areas, said Jaffe.

"We have a giant, brewing divestiture movement," with a lot of pressure to "stop giving institutional capital to fund oil and gas...That movement seemed 'fringey' a year or two ago, but now it's starting to expand."

On another front, she said, some groups want to prevent oil and gas from being exported, many of which are part of the no oil movement. Those critics argue that if oil and gas can't be exported, the market would dry up.

"In my opinion, part of the no oil movement is misplaced intention. If you block pipelines, if you deny capital with changing human behavior, all you have is shortages," Jaffe told the audience. Having oil "stuck at Cushing is not achieving what the movement wants."

She warned that "the most powerful part of the movement is what we're not thinking about...It's consumer activism -- and how millennials think about your product" and how they may or may not use oil or natural gas in the future.

Recently Jaffe was in Detroit and shared a panel with Robin Chase, who is CEO of Buzzcar, a peer-to-peer car sharing service. Chase articulated the idea that no one actually needs to "buy" a car. Vehicles are available for daily use when driving around a city. For longer trips or driving that needs to be "more powerful," such as a trip into the mountains, consumers could rent those.

"To all of us baby boomers, we're not going to do that," Jaffe told the audience. "But to every millennial in the audience, that's a good business model..."

It's part of the growing "circular economy" movement in which everything is reused or repurposed, Jaffe explained. Huge corporations are taking part in the movement, including Walmart, many automobile companies, "all big consumer product companies...All of them are 100% focused on communicating to millennials about their commitment to a circular economy."

Jaffe's takeaway: "it's a big movement and it's global and it's going to be effective."

This emerging economic model is going to pose huge changes for gas processors -- and all types of energy companies, according to Jaffe.

Operators have begun to eliminate waste by turning it into a industry opportunity, she said. "They are figuring out a way to turn it into a useful product or reuse it again...Or do intelligent design that has no waste at all."

The circular economy "is going to become a big feature of all industries, even the car industry. In the retail space, you know what I'm talking about," -- that is, no plastic bags.

And when the automobile industry decides it has to eliminate plastics, that eliminates natural gas liquids (NGL) demand, she noted. When there is limited need for plastics, it "will shave off crude oil demand..."

Jaffe said she regretted offering a negative outlook for NGLs, but said it was important to "sensitize" the industry to what the millennial generation thinks about a circular economy -- and how the no oil movement is tied into it.

In the United States, "all of these jobs that we think we've created to bring on ethylene plants to absorb NGLs are going into a market where every other industry is trying to eliminate plastics from the supply chain. And we're not talking about it."

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