What role will new technologies play in helping the US decarbonise its power sector by 2035 and to be entirely carbon neutral by 2050?
In this guest blog, Andrew Baker, Associate Editor at Natural Gas Intelligence, explores the vital role oil and natural gas companies can play in achieving President Biden’s ambitious climate change goals.
- The Biden administration has said that oil and natural gas companies can play a role in the energy transition to a carbon emissions free power sector by 2035 and a carbon neutral economy by 2050 by embracing new technologies.
- These technologies include carbon capture, utilisation and storage (CCUS), green hydrogen – created with non-fossil sources – and blue hydrogen, which is created with fossil fuels.
- The policies leading towards the energy transition will have an impact on the job markets in oil and gas sectors, and may also affect the oil price.
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Oil and natural gas companies can play a vital role in achieving President Biden’s ambitious climate change goals if they choose to embrace it, administration officials recently indicated.
In remarks delivered at CERAweek by IHS Markit, which was held in early March, Department of Energy (DOE) Secretary Jennifer Granholm and Special Presidential Envoy for Climate John Kerry said that fossil fuel companies should leverage their existing infrastructure and expertise to help decarbonise the energy sector through new technologies.
These include carbon capture, utilisation and storage, along with green and blue hydrogen, both of which will be vital to meeting Biden’s goals of a carbon emissions free power sector by 2035 and a carbon neutral economy by 2050.
Blue hydrogen refers to hydrogen created with fossil fuels, while green hydrogen is created with non-fossil sources.
Oil and gas companies’ role in the energy transition
“If you’re involved as an oil and gas company today, you’ve got this incredible infrastructure, you have the ability to move and transport hydrogen,” said Kerry. “There are all kinds of ways to… accelerate this transition, which we need to do.”
Kerry said that what firms “ought to be doing is figuring out, ‘How do we become not an oil and gas company, but how do we become an energy company?'” He continued: “I don’t object per se to fossil fuel, I object to the by-product of fossil fuel, which is the carbon… and the methane, that’s another major problem emerging.”
Kerry said: “In addition, I think we have to pursue every other form of energy as a hedge against whatever technology we can or can’t produce.”
He cited potential breakthroughs on battery storage and next-generation nuclear power as possible game changers.
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Advances in green and blue hydrogen technology
Hydrogen, meanwhile, “is a jump-ball right now” on the international stage, Kerry said, explaining, “We need to get much more involved in the development of that.”
Citing projections from the Intergovernmental Panel on Climate Change, Granholm said, “we’re not going to get to net zero” without CCUS.
The former Michigan governor added: “There are huge advances that are happening… in green hydrogen, in blue hydrogen, to be partnered with natural gas. We want to further that work, and we see that as an important element of the strategy, in addition to adding obviously clean, carbon-free ions to the grid.”
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Impact of the energy transition on the jobs market
Granholm said the administration is committed to ensuring the fossil fuel industry workforce is not left behind by the clean energy transition. She has created a jobs office within DOE for helping displaced workers transition to jobs in the clean energy sector.
However, trade unions have expressed scepticism about this idea. A majority of tradespeople in the energy sector have said oil and gas jobs offer better pay and more job security than the renewables segment.
Groups such as North America’s Building Trades Unions (NABTU) have cited CCUS, however, as a segment with potential for high-paying jobs.
American Petroleum Institute (API) CEO Mike Sommers expressed a similar view at CERAWeek. He noted that the oil and gas industry supports more than 10 million jobs in the United States, and they “pay twice as much as the average job in the United States, and that’s true worldwide as well.”
Oil and gas workers and tradespeople are worried that some of the promises about clean energy jobs can’t be met, Sommers said.
How will energy commodity prices be affected?
The impact of Biden’s policies on energy commodity prices remains to be seen.
The U.S. Energy Information Administration said in its last Short-Term Energy Outlook that it expects the Henry Hub spot natural gas price to average $2.95/MMBtu in 2021 and $3.27 in 2022, up from $2.03 in 2020.
The higher forecast is driven in large part by resurgent demand from the liquefied natural gas and industrial segments as vaccines are rolled out and COVID-19 restrictions continue to loosen.
Some observers also have suggested that drilling limits on federal property could have a bullish impact on oil prices over the long-term.
On CCUS, the API chief said: “We need a partner in the United States government to build out that infrastructure. We have it at some level already with the 45Q tax credit.”
Section 45Q of the U.S. tax code provides up to $50/ton for carbon captured and placed in secure geological storage, and credits of up to $35/ton for carbon injected into oil or natural gas wells.
API supports additional policies to promote CCUS development, as well as direct federal regulation of methane emissions from the oil and gas sector, Sommers said. He noted that the trade group supports the ambitions of the 2015 United Nations (UN) Climate Accord, aka the Paris Agreement, which the United States rejoined in January under an executive order issued on the day Biden took office.
Climate summit announcement
At a climate summit hosted by the Biden administration scheduled for April 22-23, the United States is scheduled to announce its nationally determined contribution (NDC) for greenhouse gas reductions. That would precede the 26th UN Climate Change Congress in Glasgow slated for Nov. 1-12, Kerry said.
API and other industry groups have been less supportive of other actions taken by Biden since taking office, including executive orders to halt oil and gas leasing on federal property, and to revoke a crucial permit for the Keystone XL crude oil pipeline, which moves oil from Canada to Lower 48 markets.