Why Oil & Gas Will Lead the Energy Transition: A Study in History and Macroeconomics

By Xuan Yong, Co-Founder and Executive Chairman

Introduction

In 2021, a severe winter storm hit Austin, Texas. Our newborn, recovering from heart surgery, had just come home after nearly a month in the hospital. The storm knocked out power, taking away the single most critical resource we needed to keep him warm and safe. We were displaced from our home for a week. We vowed never to let this happen again. 

I bought battery storage and installed natural gas generators. No matter what Mother Nature threw at us, I wanted to be sure our family would have a consistent and reliable power source. Then it happened again: Our neighborhood lost power during an intense storm earlier this year. But this time around it was a much different experience. Our battery storage, designed for blackouts and temporary outages, lasted for hours — but we were able to go for days, with temperatures hovering around freezing, using our natural gas generator. We remained comfortable, and welcomed struggling neighbors into our home for meals. We essentially had created our own grid, on a micro level. 

Texas’ grid was absolutely part of the problem; extreme weather that month triggered an energy infrastructure crisis that left more than 4.5 million homes and businesses across the state without power. And as my battery storage reminded me so emphatically, there just isn’t yet a way to store and distribute renewable energy that can meet the 24/7 energy needs of a house facing extreme weather in one of the fastest-growing cities in the U.S., much less the needs of an entire state, country, or the world.

History shows us that global shifts in energy production and delivery — like the energy transition that is so top of mind today — are long, slow processes that take decades to unfold. My own experience grappling with power loss at home, and finding relief in generators that tapped into natural gas lines to deliver up to 44 kW of electricity to our home for days, has uncanny parallels with some of the challenges we are facing on a worldwide scale.

With rising demand, energy shortages, and deepening geopolitical challenges, the energy transition requires capabilities that only a select group of organizations can deploy. Those organizations, as counterintuitive as it may seem, are the Oil & Gas companies of today.

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Slow and Steady

Historical data shows that it takes more than half a century for new energy solutions to become adopted globally in a meaningful way. This was true for coal, then oil, then natural gas. For renewable energy, the road to a meaningful transition is long and winding for two key reasons: the limitations of today’s renewable energy production and delivery model, and the massive growth in demand caused by the increasing population. 

The narrative that we should be switching to renewables now — and that every investment in traditional energy sources like Oil & Gas represents a step back — is both fatally flawed and physically impossible. We need to continue to invest in a diverse array of responsible production solutions that we know can power this complex transition over time.

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A Shifting Finish Line

The energy transition is a marathon, not a sprint. And with every step, the race is actually getting longer. Let me explain what I mean there.

Energy demand will continue to rise because energy consumption is inextricably linked to basic human needs, quality of life, human dignity, and innovation. There is no such thing as a wealthy country that is energy-poor. Yet for those with consistent access to energy resources, it’s easy to take energy for granted. It can feel as natural, necessary, and plentiful as the air that we breathe.

As the world’s population increases, and energy intensity and demand increase along with it, fuel switching will get increasingly more difficult. To pull it off, we need companies capable of delivering solutions at immense scale.‍

‍High free-cash-flow (FCF) businesses — aka the world’s largest Oil & Gas companies — have the capability to ramp capital deployment faster than anyone else. It will take an estimated $275 trillion by 2050 to meet the energy demand of the future. That is a mind-boggling sum. But if anyone is capable of taking on a challenge of this scale, it is high FCF businesses. And while they’re doing so, natural gas has the potential to drive carbon emissions reductions more effectively than any other economic fuel on the market today.

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Commitment to Change 

Do you know what $275T looks like? Neither do I.

The challenge in front of us is monumental in scale and existential in importance. Nothing is more critical than our ability to power the planet, preserve our quality of life, and keep our families safe and warm. And no one is better positioned to lead us to a sustainable energy future than today’s Oil & Gas companies.

It’s one thing to find yourself in the right place at the right time. It’s another thing altogether to take action to become the energy companies the world needs you to be, simultaneously working to meet today’s needs and solve tomorrow’s challenges. Everything I know about this industry suggests they can — and will — rise to the occasion.

Stay tuned for an upcoming piece by our CEO Mike Witte, where he will discuss these companies in more detail: who they are, how they operate, and why they can — and will — rise to the occasion.

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