It is March in Houston. We have survived the big freeze that has shown the weaknesses in the Texas/ERCOT energy system. March traditionally is a time for the Rodeo, baseball, basketball, and CERAWeek but it is different this year. Last year everything was canceled due to the virus. This year CERAWeek is back but it is quite different. It is virtual. The Hilton of the Americas which would host the event is lonely. Many local stores, restaurants, taxi/ limo drivers and hospitality workers that depend on this busines are wondering if CERAWeek will be back. We hope so. Surely there will be a lot of discussion about the virus and how it has impacted everybody's business and daily life and when there will be an end.
Daniel Yergin and the CERAWeek team are hosting the 39 th year of this gathering. Over the years it has grown to be the most important event in the energy business. It brings together professionals from industry, government, entrepreneurs and academia to the energy capital of the world. This year though it will be virtual, something we are all having to get used to. Not sure how it will work out. Their will be no shaking hands or friendly hugs. No early breakfast meetings or any person-to-person meetings. No meeting new people in the hallways or at the presentations. I think we all miss being at the Hilton, but CERAWeek has adapted just like our industry.
The line up of speakers and participants is stellar. How can you go wrong with people like Bill Gates. The heads of the major oil and gas companies like EXXON, Shell, bp, Total, Aramco, Equinor, Baker Hughes to name a few. Government officials from the Far East, Africa, Middle East and all the Americas. Technology companies like AWS, Siemens, ABB along and financial institutions, like TudorPickeringHolt, Goldman Sacks, and HSBC.
On day 1 there were a number of early strategic dialogues covering such things as emerging business models, the upstream business model, and financing. The official kick off was Daniel Yergin welcoming Bill Gates back after several years to talk about the Bill and Melinda Gates Foundation and his new book titled How To Avoid A Climate Disaster. He talks about Direct Air Capture, Green Hydrogen and nuclear. The cost of green hydrogen will keep coming down but will still be expensive. Direct air capture is complicated and requires a lot of storage. In the book Mr. Gates shows he is a strong supporter of nuclear but not large scale. He sees a future in small scale nuclear fission, even tabletop.
The conference continued with a discussion on reinventing energy with AWS and bp. How do you achieve reducing carbon emissions in a new era of carbon capture and a pandemic? bp and AWS have been working together for a while. AWS has helped bp move their data to the cloud and bp sells electricity to AWS. There is certainly a move of both high tech and energy companies working together for a caron neutral economy.
We next moved to investing in energy with a talk hosted by Roger Diwan (IHS Markit) with John Hess, Maynard Holt (TudorPickeringHolt & Co) and Marcel Van Poecke of CIEP. The conversation first pointed out how there has been a large decapitalization in energy. That today we find a V shape in demand and a U shape in capital available. Investors are looking for durable cash flow and larger returns for investors. Capital costs are going up and looking for lower carbon emissions barrels. As there seems to be an end insight to the pandemic demand is returning in a V shape.
In a separate session the topic was what are the transportation fuels of the future? This was covered by Jack Fusco, CEO of Cheniere Energy and Tetsuhiro Hosono Chairman of JOGMEC. Atul Arya and Michael Stoppard of IHS Markit were host. Mr. Fusco likes LNG and not with out good cause. LNG is available in large and secure quantities. It is easily transportable and safe and is also a lower cost than other fuels. On the other hand, Mr. Hosono as a representative of the Japanese government has numerous concerns starting with energy security. Japan produces little of its energy at home and depends on imports from around the world especially the middle east. LNG is a large component of the transition. Natural gas will help Japan on its road CCS, blue ammonia & blue hydrogen paving its way to green energy economy.
After a few more sessions Daniel Yergin interviewed the President of Colombia, Ivan Duque Marquez who explained his countries policies on energy. In addition, he told us what his country is doing on combating the virus. The Colombian government has a plan for massive vaccination, help workers and the poor. This, with financial assistant in order to help the development of renewable resources. Colombia has a special position in carbon capture because of its trees. Instead of deforestation Colombia has a plan to plant more trees. Trees are one of the best ways to capture carbon. The President also has a goal to become Latin America's Silicon Valley. By next year they expect to have 70% of their population connected to the net. Already AWS and Microsoft have made large investments in the country. Colombia is not against oil and gas and the national oil company, ECOPETROL is a leader in the transition to renewables.
Our next session included Shell and United Airlines. Ben Van Beurden of Shell explained the company's commitment to oil and gas but also the work they are doing to increase the amount of low carbon mix. They are a large player in decarbonization, hydrogen and biofuels which are the largest area of growth and investment. They see the use of oil declining faster than gas but that both will be around for a long time. Scott Kirby of UA sees companies moving to carbon offsets but does not think you can plant enough trees or write a check to meet governments goals. Scott added that a low hanging fruit in reducing carbon emissions is air traffic control and if you add cars it makes so much sense. Separately he does not see planes flying on hydrogen for a long time. Ben concluded with the thought that we need to take the emotions out of renewables and that there is no solution without nature.
Nearing the close of the first day we moved to what kind of recovery. Jeff Currie of Goldman Sachs sees a commodity super cycle in oil and gas but more importantly in copper and rare earth metals. Jeff sees these precious metals helping the development of EV's and thinks Tesla is one of the leading companies in this field. Without precious metals we will not be able to electrify the world but pointed out they are in remote places and politically unstable countries. Mr. Vaiday of Indian Oil Corp. sees a vision where India will increase its use of natural gas from 5% to 15% in the next few years. Does not sound like much but it is huge. LNG will be a major beneficiary. Biofuels are particularly important in a country like India that has so much rual agriculture. There is also a big need for building charging stations and battery swapping locations. In any case oil and gas will be used for a long time to come.
In one of the last sessions, we heard from government officials how ambitious the Paris Accord goals are and probably unattainable. This is probably not a big surprise to most of the CERAWeek participants. Mike Sommers of American Petroleum Institute predicts that the world will be using the same amount of oil and gas in 2026.The decline in use will be slowed because new emerging countries that will continue to use the cheapest form of energy, i.e. oil and gas.
More to follow.