Houston needs to capture the baton and lead the charge toward the transition away from fossil fuels, the chairman of energy investment firm Tudor, Pickering, Holt & Co. (TPH) said last week.
Speaking at the annual meeting of the Greater Houston Partnership (GHP), of which he is chair this year, Bobby Tudor urged the industry audience to not fight the move toward a low-carbon future but instead embrace it.
“We need to be the driver, not the passenger,” he said. “Notwithstanding what we hear from some corners of media and politics,” energy has been a force for good in the world. “The demonization of the energy business is hypocritical and just plain wrong. It is not helpful to finding a path to a cleaner future.”
Still, the world is changing at a rapid pace, and Houston leaders have to lead the energy transition away from fossil fuels to remain the self-proclaimed “Energy Capital of the World.”
“Oil and gas production, and consumption, will not disappear anytime soon,” Tudor said. However, the “traditional” oil and gas business “is not likely to be the same engine for Houston’s growth in the next 25 years.” To that end, the region “has the opportunity and a responsibility to lead the global energy transition.”
GHP, the economic development organization for the region, promotes growth across 11 counties, representing 1,100 member organizations and about 20% of the region’s workforce.
Tudor said the region’s many business and civic leaders have to address the dual challenge of meeting expanding global energy demand while lowering the world’s carbon footprint.
“The economic vitality and growth of our region’s economy is inextricably tied to the energy industry,” Tudor said. The GHP and its members “should use our convening power to rally our companies, political leaders and fellow citizens to position Houston as the city that will lead this energy transition.”
The idea may be contested, he said, but advocates for an “abrupt transition away from fossil fuels will admit that it is likely that, absent some unexpected technological breakthrough in battery and other industrial technology, global demand for fossil fuels will continue to grow for another 15 to 20 years.”
In 2050, the world “likely will be consuming as much oil globally…as we are today. In short, in order to avoid massive economic disruption and hardship, especially in the developing world, we will need to continue to produce and consume large amounts of hydrocarbon-based fuels, for many decades to come. Without it, the world’s poor will not climb out of poverty.”
Technological advancements have made the industry more efficient, which has required fewer people, Tudor told the audience. That means the growth seen in Houston over the past 25 years is not going to be the same in the next quarter century.
“Simply put, we are creating more with less: 40% more oil production, with 20% less people. That trend is likely to continue, even as production grows.”
In addition, the energy investment guru noted that capital infusions peaked in 2014 and have been pulling back significantly since. Capital sponsors are “looking for returns, and if you don’t give them returns, they quit giving you capital. And that’s exactly what happened…The capital providers voted with their feet.”
At the same time, concerns have emerged around the sustainability of global oil and gas demand growth in the face of massive Lower 48 supply growth, which in turn has crushed natural gas and West Texas Intermediate (WTI) commodity prices.
“The industry doesn’t make much money at $50 WTI and $2.30 natural gas,” Tudor said. “Coupled with poor financial returns, climate change concerns have the industry dramatically out of favor at the moment, in most every corner of the investing and political world.”
In addition, there is ample evidence that “high levels” of carbon dioxide (CO2) emissions are impacting the climate, a problem that has to be addressed, Tudor said.
“Whether you individually agree with that assessment, it’s hard to argue that we are not facing a dominant secular trend that has great momentum in the investment world and with the general public, and we must respond in a responsible and rational way. At its most basic level, I think we can all agree that having less CO2 emissions in the atmosphere would be a good thing — and as Houston’s business leaders, we need to be committed to working to make that happen.”
Tudor pressed GHP members to take up the gauntlet by committing to lower carbon emissions and developing new technologies.
The area also has to “leverage our strength in natural gas production and transportation to accelerate the transition away from coal-fired power generation and toward this cleaner burning fuel,” he said. “Houston is the world capital of the natural gas industry, and its role in the future will be critical to lower global carbon emissions, both domestically and globally” particularly with the liquefied natural gas export businesses along the Gulf Coast.
“There will not be lower carbon emissions without natural gas being a large part of the solution,” Tudor said.
It may “feel unnatural” to advocate using less oil and gas, which has been the main driver for the region, but “there is absolutely no reason we shouldn’t be a leader in the area of energy efficiency and conservation.”
It is not enough to educate the world on how dependent it is on the hydrocarbon economy and how difficult it will be to change the energy mix, said the TPH chief.
“We can still be the voice of optimism even as we acknowledge the significance of the dual challenge…So let’s be the driver, not the passenger. We will get there more quickly. We will make a huge contribution to the future of humanity, and we will ensure that Houston continues to be one of the best places in the world to live, work and build a business.”
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