Today I spoke at the EIC Connect Oil and Gas event in Manchester. Here is what I said:

What is the place for companies in the oil and gas supply chain in a low carbon world?

Let’s start with a thought experiment?

One day, when the last barrel of oil is bought and sold will it be very cheap or very expensive?

Responses in the room were split 45% expensive 55% cheap. (A resounding victory if you are a Brexiteer.)

I guess those who said ‘expensive’ were thinking that we will go on extracting hydrocarbons until what is left gets too difficult and costly. Those who said ‘cheap’ were thinking that we will choose to stop using hydrocarbons and leave significant quantities in the ground.

Either way, this experiment opens our mind to the idea that one day, perhaps some time from now, the energy world we know today will be very different.

The world has already changed

Back in today’s world, the oil and gas industry has had a tough four years. Four years ago, the oil price fell from over $100 to below $40 for the first time in a decade. Over the last year we saw a slow recovery to $70. Two weeks ago those gains were lost and today’s price is $52. This (slightly) higher price offers short term relief to many in the supply chain.

Whilst the price may be back in familiar territory this is not the same market as five years ago.

The most significant difference is North American shale. For decades, the dream of policymakers in the USA was self sufficiency in energy. That point has been passed and the Trump administration now speaks of ‘Global Energy Dominance’ – a significant shift in geopolitics.

Here, we may be seeing the start of the end game for North Sea oil and gas. This year new exploration is at the lowest level since 1965.

“Toto, I’ve a feeling we’re not in Kansas anymore.”

More change to come

The energy world has changed and is about to change more. The four ‘D’s, each on its own revolutionary, are together driving a transformation of the energy industry.

Decentralisation – In many parts of the world it is now cheaper to make electricity with local wind and solar than in central fossil power stations.

Digitalisation – Disrupts every market. It smashes existing value chains and re-assembles them in new ways. Energy is not immune.

Democratisation – Gives customers new energy choices. If they chose to put solar panels on their roofs, batteries in their garage and drive electric vehicles that will have a significant effect on this industry.

And, by the way. Within two years large numbers of people in the UK will be choosing electric vehicles, not for environmental reasons but because they are economic and cool. Once they drive EVs, cognitive dissonance will kick in and they will become fabulously self-righteous about the emissions from the internal combustion engine of the driver in front. In the next five years we will see public attitudes to air quality shift dramatically and this will bring new regulation on where, when and how we are allowed to burn fossil fuels.

Decarbonisation – This is the big one for the oil and gas industry.

For a long time, dismissing climate change has been scientifically and morally illiterate. At last it is also financially and commercially illiterate too.

The Task Force on Climate Disclosure, wider understanding of the ‘carbon bubble’ and the divestment movement have changed investors attitudes to fossil fuel companies. They are demanding companies show their strategy for a low carbon future. (Schizophrenically whilst also maintaining the high dividends delivered by oil and gas.)

Boards have some big decisions to make. This is only going one way. Timing is important to avoid ending on the wrong side of history.

But if all this sounds far too negative, that is not my message. I believe the supply chain that has served oil and gas should embrace the low carbon future.

More hydro, less Carbon

We use hydrocarbons because they are spectacularly good for storing, transporting and the releasing energy. As those hydrogen bonds snap they release energy. Unfortunately, combustion also releases carbon-dioxide, CO2.

If hydrocarbons are to have a low carbon future we must either capture the CO2 as it leaves the engine, or split the hydrogen from the carbon, use the hydrogen as fuel and bury the carbon. Either way this requires carbon capture and storage on a massive scale.

Last week a Committee on Climate Change report urged government to get serious about hydrogen. This afternoon I’m travelling to Edinburgh, where later this week Claire Perry, the UK Energy Minister, will announce a new Carbon Capture Use and Storage Road Map.

The oil and gas industry supply chain has much of the expertise to deliver carbon storage networks. We understand pipelines and compressors, sub-sea geology and how to deliver large infrastructure projects.

Cleaning up our act

It is not just CO2.

‘Natural Gas’ or fossil methane, CH4 is a greenhouse gas itself, with 85 times the impact on climate of CO2

The fugitive emissions of methane from USA shale production have been estimated at 2.3%. At that rate two thirds of the benefit from switching from coal to natural gas fired power is lost.

It has also been estimated that methane emissions could be halved at net zero cost as the value of the gas captured would equal the capital investment required. Who has the technology to stop methane leaks? – you do.

There is another reason why this industry needs to clean up its act. Looking around this room, I am sorry to have to say that too many of you look like me. Men of a certain age with white faces. If this industry is to have a sustainable future, we need to make what’s been called the great crew change.

A survey of USA graduates found that fewer than two per-cent would consider making a career in oil and gas.

We need to offer our diverse and talented future workforce the chance to grapple with the engineering challenges of delivering carbon capture, making hydrogen part of our economy and cleaning up our operations.

In short, the future for the oil and gas supply chain is to embrace and hasten the transition to a low carbon world. To deliver exciting solutions for energy, not to be part of the climate problem.