Energy Transition — the new concept in the energy market. As energy industry professionals are keenly aware, the Energy Transition is a hot topic with significant economic, political and engineering aspects. I recently moderated a webinar with industry professionals discussing “Pipeline Solutions in the Energy Transition.” Through that discussion, and the research I undertook to prepare for the conversation, two main themes developed:
- The energy industry and transition are wildly “VUCA” (volatile, uncertain, complex and ambiguous) in nature with both significant business risk and tremendous opportunities; and
- While the developed world is keen on decarbonization — attempting to reduce the human influence in climate change, the developing world is undergoing a transformational period of economic growth driven by affordable energy.
These themes are important for leaders and our society to bear in mind as we navigate the present and prepare for the future.
Planning During Disruption
Originally conceived by the U.S. military, the concept of planning to operate and succeed in VUCA business environments is now used pervasively in management and planning exercises.
While most economic and business processes involve some degree of VUCA, it is certainly the case that the energy industry and energy transition evoke VUCA in spades. Energy industry owner companies, contractors, consultants, manufacturers, policy advocates and others with vested interest in the energy economy are faced with significant planning challenges in the current political and business environment.
Endeavoring to understand the Energy Transition landscape, even from a very coarse, high-level perspective, is challenging. Current disruptive conditions include geopolitical turmoil and price and resource fluctuations relating to the current recessionary/inflationary economic environment; the Russia-Ukraine war; the U.S. relationship with Saudi Arabia and other oil and gas producers both foreign and domestic; global supply chain challenges; the effects of the global pandemic; and the fraught state of domestic U.S. and global politics.
Setting aside primary economic drivers and focusing on policy goals, another way of looking at the global energy transition landscape is that it is dominated by two dominating priorities that companies need to understand and navigate.
- First, much of the developed world has embraced the transition to renewable, lower carbon, non-fossil fuel-based energy sources, driven by a desire to reduce the man-made aspects of climate change, although the appropriate rate of transition, given economic and other considerations, is still a matter of contention.
- Second, continued global economic development and the reduction of energy poverty, which has resulted in dramatic improvement of standards of living and productivity in the developing world brought about largely by lower cost, reliable and predominately fossil fuel sources.
Progress in a VUCA Market
These priorities could be considered biologic-centric (combating climate change) and economic-centric (reducing global poverty) with significant aspects of overlap between.
For instance, an economic benefit is expected from current and prospective high levels of investment in new technologies; wind and solar generation; and pipeline and other infrastructure, which will be required to facilitate the transition away from carbon-intensive energy sources. On the other hand, significant environmental and health benefits are realized as the developing world transitions from wood and dung to cleaner burning fossil fuel and renewables.
A relatively under-reported fact, worthy of celebration by the energy industry, is that in the last 20 years roughly 1 billion people gained access to reliable energy and have been lifted out of poverty. The magnitude and rate of this eradication of poverty is staggering and unprecedented. Affordable energy provides a labor multiplier, driving productivity and economic growth, while also significantly reducing indoor air pollution, improving health and productivity. The figure below, based on World Health Organization reporting, illustrates the process of quality-of-life improvement with energy access.
Decarbonization: Three Gas Future
In the developed world, we have experienced and expect continued transition from coal to natural gas to produce electric power along with increasing amounts of solar and wind power.
The coal to natural gas transition has been facilitated in the United States by the significant increases of natural gas production and associated reduction in cost made possible by the hydraulic fracturing of tight shale formations.
In the future, natural gas supplies will increasingly contain renewable gas from waste sources and be supplemented by hydrogen. Capturing and deriving energy from waste gas will help decarbonize the energy supply. And, provided hydrogen is produced using renewable energy inputs, it will also increasingly decarbonize our gas energy supply. The future buildout of hydrogen infrastructure represents a tremendous opportunity for businesses that provide engineering and construction services.
Decarbonization is an aspect of energy policy that gets a significant amount of attention in our current political climate, with the reduction of carbon dioxide in the atmosphere an understood and widely shared goal to attempt to reduce the rate of global temperature rise. There are many strategies being considered and attempted by governments and energy companies to pursue the goal of decarbonization.
In addition to reducing carbon emissions and intensity in energy sources, carbon capture technologies — both at point sources and in the atmosphere in general — are being developed and implemented. After the carbon is captured, typically as carbon dioxide gas, it must be gathered, transported and sequestered. Currently, several large (and small) pipeline and other infrastructure projects, with underlying financial incentives from government entities, are underway to build out this gathering and transportation system.
Nuclear power is perhaps the best option to provide clean, reliable energy without significant carbon impact. However, concerns over the safety of nuclear power and the disposal of nuclear waste are significant, and at present the political will to permit and support new nuclear power generation is lacking.
Reference: Max Roser (2021) – “Energy Poverty and Indoor Air Pollution: A Problem as Old as Humanity That We Can End Within Our Lifetime.” Published online at OurWorldinData.org. Retrieved from https://ourworldindata.org/energy-poverty-air-pollution.
A Mindset Shift to VUCA 2.0
How do we balance priorities and thrive through the VUCA energy transition? Effective leaders should consider their actions across a multitude of dimensions: personal, their families, their business/organization, their country and globally.
In his Feb. 17, 2017, article for Forbes, “VUCA 2.0: A Strategy for Steady Leadership in an Unsteady World,” author Bill George, senior fellow of the Harvard Business School, offers a different perspective on VUCA for leaders, giving a description of leadership qualities necessary to navigate VUCA challenges: Instead of volatile, uncertain, complex and ambiguous, George describes “VUCA 2.0” as vision, understanding, courage and adaptability.
Leaders who strive to inculcate these principles in themselves, their management teams, and organizations, and are possessed of an outlook of opportunity (forward looking) rather than fear (longing for the “good old days”) will be able to position their organizations to thrive.
Tags: Energy Transition, GeoEngineers, November December 2022 Print Issue
Jon Robison, P.E., is pipelines discipline leader and principal at GeoEngineers Inc.