Why hydrocarbons will remain pivotal in the global energy mix

31 July 2023 Consultancy-me.com 6 min. read
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As the world increasingly transitions its energy capacity towards renewable solutions, hydrocarbons will remain an integral part of the global energy mix. Ennio Senese, partner and chief operations officer at UMS Group, outlines why hydrocarbons will – at least not in the conceivable future – be entirely phased out by renewables.

Today, approximately 80% of the global energy supply comes from fossils fuels, 54% of which is supplied by oil and gas. With a growing population and the goal to provide future generations a better quality of life (but with lower carbon emissions), demand for energy will see a strong rise in the coming decades.

To meet these demands, it is important to recognize that hydrocarbons will unavoidably continue to be a significant part of the global energy mix. Its persistence in the next ~30 years builds on six main reasons.

Electricity generation by source, World 1990-2020

Abundance and accessibility

Hydrocarbons are still abundant and easily accessible in many parts of the world. Vast reserves of oil, natural gas, and coal exist in various regions, including the Middle East, North America, Russia, and China. These reserves can be extracted and utilized with existing technologies, making hydrocarbons a reliable and readily available energy source to meet growing global energy demand.

Having said that, investments in exploration and production are not keeping up with the demand and this longer term will unavoidably result in higher energy prices and less or no access to energy for billions of people, especially in developing countries.

Energy density and versatility

Hydrocarbons possess high energy density, meaning they contain a significant amount of energy per unit of volume or weight. This characteristic makes them highly efficient for transportation, where energy density is crucial for long-distance travel. The existing infrastructure, such as pipelines, refineries, and distribution networks, is primarily designed for hydrocarbons, making their use convenient and cost-effective.

While similar logistics for hydrogen would pose serious challenges, hydrocarbons can be easily converted into various forms, such as gasoline, diesel, jet fuel, and natural gas, making them versatile for different sectors and applications.

Electricity consumption by sector, World 1990-2020

Economic considerations

Hydrocarbons have long been a pillar of many economies, supporting industries, job creation, and economic growth. Numerous nations heavily rely on hydrocarbon exports for revenue generation, which contributes to their national budgets and economic stability. The oil and gas industry also provides employment opportunities across the value chain, from exploration and production to refining and distribution.

The economic significance of hydrocarbons and the associated infrastructure investments create inertia in transitioning away from these resources, particularly in countries heavily dependent on their revenues.

Technological and efficiency advancements

Technological advancements have led to significant improvements in the extraction, production, and utilization of hydrocarbons. Advanced drilling techniques, such as hydraulic fracturing (fracking) and horizontal drilling, have unlocked previously inaccessible reserves, expanding the available hydrocarbon resources.

While the sustainability and the environmental footprint of those extraction methods are highly controversial, those reserves are adding nonetheless the time and resources to bridge the period to truly sustainable and renewable resources.

Additionally, advancements in carbon capture, utilization, and storage (CCUS) technologies offer the potential to reduce greenhouse gas emissions associated with hydrocarbon utilization, making them more environmentally friendly.

Energy security and reliability

Hydrocarbons provide a level of energy security and reliability due to their established infrastructure, diversified supply sources, and well-functioning markets. Countries without significant domestic renewable energy resources often rely on imported hydrocarbons to meet their energy needs. Diversifying the energy mix and reducing reliance on a single energy source is a complex process that requires time, investment, and infrastructure development.

Why hydrocarbons will remain pivotal in the global energy mix

Hydrocarbons, with their existing infrastructure and reliable supply chains, ensure energy security, especially during the transition to a more diversified energy system.

Transition challenges and cost considerations

While renewable energy sources continue to grow, a complete transition away from hydrocarbons within 30 years presents significant challenges. Scaling up renewable energy infrastructure, improving storage technologies, and tackling intermittency issues require substantial investments and time. Furthermore, renewable energy technologies are still evolving and may not yet be able to fully replace hydrocarbons in certain areas.

The main challenges though find themselves not in whether or not hydrocarbons can and should be replaced but in the current infrastructure, which is aging, as many electricity grids around the world were built decades ago and are now reaching the end of their operational life. Aging infrastructure poses reliability and safety concerns, as well as increased maintenance costs.

Meeting the growing demand for electricity requires sufficient generation capacity and a stable supply. As demand increases, current mainstream renewables such as wind and solar and traditional power plants may struggle to keep up, leading to potential blackouts or brownouts. The only way this energy supply challenge can be mitigated is through nuclear power, but building nuclear plants requires at least ten years.

About the author: Ennio Senese is partner and chief operations officer at UMS Group, an internationally operating management consultancy specialized in the energy and utility sectors. He previously held executive-level roles in consulting and industry.