Exploring Australia's Energy Transition: Questions and Insights
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Chapter 1: The Landscape of Energy Transition
Recently, I had the chance to engage with over 300 attendees during a webinar hosted by the Australian Smart Energy Council. This session was particularly timely as I was in New Zealand, providing a unique opportunity to connect with an Australian audience. Although over 600 people registered, many opted to watch the recording later, which is available via the link in the introduction.
The webinar was organized by Steve Blume, the former President of the Council, who along with me, believed it would be beneficial to address a multitude of inquiries through articles that would be shared with participants. This piece is part of a series where we address various topics, with previous articles discussing aviation, biofuels, and hydrogen.
My prepared remarks revolved around the concept of the Radical Electrification of Transportation. Over the past 15 years, I've extensively researched this subject across various transport modes.
To encapsulate my presentation, I believe that all forms of ground transportation—cars, trucks, buses, utility vehicles, trains, and mining equipment—will transition to electric power. Inland shipping and approximately two-thirds of short sea shipping will also electrify, with only the longest routes relying on biofuels. The aviation sector will experience significant changes due to electric regional air mobility, autonomous flight, and digital air traffic management, meaning that in 50 years, only trans-oceanic flights will still depend on biofuels.
As a result, the massive demand for fossil fuels will decline, replaced instead by a substantial need for technology metals like lithium and cobalt, along with some biofuels for aviation and shipping.
The presentation was concise, lasting about 30 minutes, which unfortunately did not allow sufficient time for questions. Therefore, I am addressing many of those inquiries in writing.
The first video features Mike Rann discussing the future of Australia's energy landscape beyond fossil fuels. This insightful talk addresses critical questions about the transition to renewable energy sources.
Section 1.1: The Future of Fossil Fuels
Oil companies are actively seeking to exploit seabeds for new oil fields. Given the current scenario, will these resources become stranded assets?
Absolutely. Peak oil demand is anticipated within this decade. As this happens, the more expensive oil and gas will be the first to exit the market, including Alberta and Venezuela's heavy crudes. These will become increasingly costly to process as hydrogen decarbonizes energy systems. As time progresses, only the lightest and sweetest crude, which is easiest to extract and closest to water, will remain available.
Many oil and gas infrastructures will likely become stranded assets. For instance, the Canadian Trans Mountain pipeline expansion may only achieve 50% utilization at its peak, potentially leading to bankruptcy by 2040. Additionally, the extensive network of oil and gas pipelines in the U.S. may face abandonment or degradation.
The costs of establishing operational wells offshore or in Arctic regions will become prohibitive in this evolving market. Stranded fossil fuel assets and declining reserve values are on the horizon for the next 30 years.
Subsection 1.1.1: Guidance for Energy Transition Professionals
Many individuals working for oil and gas companies are eager to push for a transition toward more sustainable energy solutions but feel hindered by the slow pace and lack of direction in their organizations. What advice would you provide for those wishing to shift their strategic focus?
Firstly, if you’re employed by an oil and gas major not named Orsted, chances are they won’t change their approach. Recent activities indicate that these companies are cutting unnecessary expenses—retaining lobbying and PR efforts while extracting their reserves before facing the inevitable decline.
Consider seeking employment at a company focused on adjacent markets, possibly one like Orsted, where your skills could be applied effectively. If you have the opportunity to leave your current position, take it. While there will still be jobs in oil and gas as these sectors decline, many others can take those roles. If you possess talent and ambition, channel that energy into sectors that will genuinely contribute to climate action.
If you work for a gas utility, refer to Christenson and Raynor’s strategies from The Innovator's Solution. Start by convincing your Board and regulatory bodies about the existential threat posed by a utility death spiral—where declining customer numbers result in stagnant expenses. Transition to higher-profit scenarios by gradually decommissioning the gas grid, starting with the least efficient networks. This approach will enhance profit margins while offering clarity and support to customers during the transition.
Section 1.2: Economic Impact of Renewables
At what point in generation costs will fossil gas become uncompetitive against renewables, and how will this affect countries rich in gas reserves?
This situation is already unfolding in many regions. Power purchase agreements for wind and solar energy are significantly cheaper than those for coal, gas, and nuclear power. Absent the need for day-ahead reserves and peak electricity supply, gas plants would struggle economically.
The negative externalities associated with coal—estimated at around 80 pollution-related deaths per plant annually—have driven up the demand for natural gas over the past three decades, but this trend is rapidly changing. My prediction is that peak natural gas demand will occur in the mid-2030s, as the expansion of renewables and storage solutions continues. Solar-plus-storage systems are already proving more cost-effective for peak electricity generation in many locations.
For countries that heavily rely on natural gas for heating, we can expect a swift decline. Heating systems are increasingly adopting heat pumps, which are more efficient for water and space heating. With 45% of industrial heating below 200° Celsius, current heat pumps can easily meet these needs. District heating systems are increasingly implementing large heat pumps to fulfill heating demands using low-carbon electricity.
For economies dependent on gas reserves, a decline in exports and domestic sales is likely unless they prop up domestic gas consumption against rational economic and climate policies. However, an economy powered by renewables, with electricity providing heat and energy, will be more efficient and cost-effective, ultimately leading to a healthier environment and enhanced productivity.
The second video, "Supporting Oil & Gas on Our Shores," offers a candid discussion about the ongoing challenges and strategies within the oil and gas sector as it navigates the transition to sustainable energy solutions.
As we continue exploring questions from the Australian audience, stay tuned for more insights on geopolitics, nuclear energy, and strategies for adding value to Australian resources.