Energy Supply Resilience: The Case for Hydrocarbon Durability
While many politicians and ideologues focus on what things might look like 20 or 30 years from now, a trifecta of events in 2021 have brought energy reliability into the forefront: the Suez Canal closure that blocked global logistics, Winter Storm Uri's blackouts, and the cyber attack on the Colonial Pipeline (and we think cyberattacks will become more frequent, not less). These events follow less recent interruptions, including the drone attack on Abqaiq, periodic shipping delays due to fog in the Houston Ship Channel, and power losses from wildfires in California.
The power and energy that supply the modern industrial economy require a networked global supply chain, some elements of which are more delicate than others. In some cases, energy supply is resilient because of competing and overlapping supply options. Colonial’s supply from the US Gulf Coast to the Northeast has natural competition, to an extent, from the likes of marine-borne cargoes from Europe, the Plantation pipeline, and the ability to truck. But in cases where there is no plan B, as in the Texas power outage, energy outages can be lethal. Texas narrowly missed a voltage driven grid collapse that would have taken the blackout to a month or more. And those Texans who did bridge the cold spell did so in large part with the aid of diesel- and gasoline-powered generators.
Resiliency in power and fuel is a national security concern, a key impediment to a rapid deployment of renewable power. Technologies such as pumped storage offer proven and reliable electricity storage, but, much like geothermal power, are limited in opportunity by geography. Utility scale batteries offer opportunities for short term grid management, but fall short for managing long periods of supply disruption. Novel technologies such as gravity storage or pumped air storage have not yet proven to be feasible at scale. Long haul transmission connections between and among grid regions offers some hope for balancing loads, but not without enormous cost and NIMBY hurdles. In short, electrification moves us away from a more easily stored and transported medium of energy to a less resilient one.
As such, we continue to view some of the wild optimism of the energy transition as in need of moderation by a sober assessment of technological and cost impediments. For this and other reasons (eg global population growth, “energy poverty” and standards of living, etc.), we view the near term demise of oil and gas as unlikely. For more of our thoughts on this matter, see our recent webcast on the energy transition at www.bpcfunds.com.