Oil & Gas News

Is the oil industry facing an existential crisis?

oil

By: The Dallas Morning News – By the year 2050, 8 of 10 cars sold globally will likely be electric. That’s a prediction from IHS Markit energy expert Dan Yergin and one that appears to dovetail a progressive political vision of a world free of oil companies. But what that prediction really means, assuming it comes true, is that the U.S. will need oil and gas for many decades to come. The question is, how much oil and gas?

Two trends will help answer that question. One, how quickly will people ditch their gasoline cars and diesel trucks? And two, how much natural gas will we need to produce the electricity to charge all of those electric vehicles?

Texas oil and gas leaders appreciate the existential nature of these questions and are positioning themselves not just to ride out the COVID-19-induced bust, but for long-term change. Look no further than Pioneer Natural Resources’ recent purchase of Parsley Energy. As Scott Sheffield, chief executive of Pioneer told the Wall Street Journal, size and scale will be important for an oil company to survive as the world moves away from fossil fuels.

Even in the best-case scenario for those eager to see the world off natural gas and oil, that transition is a long way off. And this state would be unwise to follow the impulses of its most progressive politicians in pulling away political support for the oil and gas industry.

Let’s look at these facts. Last year the average age of a vehicle on the road reached an all-time high at nearly 12 years, according to IHS Markit, in large part because manufacturers are making better cars that last longer. Cars and trucks purchased today will likely still be running in 20 years, on gasoline and diesel.

Even if we assume a shift of 80% of new vehicles to a different energy source, that represents a fundamental change for the energy industry. Where will the electricity for those vehicles come from? And while 20% of electricity in Texas is produced by wind, 47% comes from natural gas-fired power plants, and 20% still comes from coal. Will the ratio shift toward renewables? Sure, but how far depends on a key technology: batteries.

The wind and the sun are not reliable sources, so natural gas fills the crucial role of generating electricity when renewables drop. The grand vision for a fossil-fuel-free world is that batteries could fill in the gaps that natural gas production does now, soaking up electricity when the wind and sun are strong, then feeding it back to the grid when needed.

But adding batteries to the Texas grid will require investment by private companies, unleashed by regulations that support a free-market approach that conforms to grid standards. That is, Texas still has a lot of work to do. And Texas is more advanced in renewables than other states. It is a very safe bet that, come 2050, we will still need natural gas to keep those new vehicles charged.

To ensure the Texas energy industry remains healthy through this change, it’s crucial that politicians face reality. Setting an arbitrary execution date for fossil fuels isn’t helpful. Using smart, market-based regulations to guide the industry through change is good politics and good economics.

To Top
Lease or Sell Your Minerals Rights in Oklahoma or Texas ➡️(405) 492-6277

Have your oil & gas questions answered by industry experts.