Published Jun 29, 2021 by A.J. Mistretta
Below are remarks from Bobby Tudor, chairman of Tudor, Pickering Holt & Co. LLC and chair of the Partnership's Houston Energy Transition Initiative, presented as the keynote address at the Future of Global Energy Conference on June 29, 2021. See full video of remarks.
Good afternoon. It’s wonderful to be here today speaking to both the live audience we have here at the Hilton Americas and the virtual audience wherever you may be.
Mayor Turner, thank you for being here today and for your commitment to the City’s Climate Action Plan and support of the efforts to position Houston as the leaders of the global energy transition.
Much has changed since I last addressed the Partnership during our Annual Meeting in January of 2020.
You may recall the focus of that speech was on the importance of establishing Houston as the global leader of the energy transition to a low-carbon world.
That speech was framed around the coming transition. Today, I’m here to say that the transition is happening now – and I believe it presents tremendous opportunity for Houston.
So, going back to my speech from 17 months ago, I highlighted four key thoughts:
In the many conversations I’ve had since then — with many of you… with experts in energy and climate… and, really, in all sectors of our economy… it has become even more clear that we in Houston — and for that matter, we in the world — are facing an acute dual challenge.
We need to do two things simultaneously that sometimes seem at odds with one another.
On one hand, we need to meet a global demand for energy that will continue to grow well into the future. On the other hand, we need to protect that future from the real and growing threat of climate change caused by ever-increasing CO2 emissions
That said, even the most ardent advocates for an abrupt transition away from fossil fuels will admit that it is likely that, absent some unexpected technological breakthrough in battery and other industrial technology, global demand for fossil fuels will continue to grow for some time period, though the length of which can be debated.
Since we last met, the expectation for when peak global demand would be reached has accelerated by several years from the late 2030s to early 2030s. Although the length of the runway may have shortened, in order to avoid massive economic disruption and hardship, especially in the developing world, we will need to continue to produce and consume large amounts of hydrocarbon-based fuels, for many decades to come as the world’s population grows and emerging economies bring billions out of poverty.
In 1990, the OECD accounted for almost two-thirds of global energy demand; the developing world just one-third. By 2040, that is projected to completely flip with emerging economies accounting for over two-thirds of demand. Adequate, reliable, and affordable energy is critical to more than one billion globally who live in energy poverty with no access to electricity.
But at the same time, we know that the production and use of hydrocarbons — the lifeblood of global economies since the industrial revolution — have also been a major source of greenhouse gas emissions that are effecting the earth’s atmosphere… disrupting the ecosystems and infrastructures we rely on… and threatening those very same global economies.
That’s the dual challenge.
And if Houston knows how to do anything, it knows how to solve problems.
So, what is Houston’s role in the transition, and what are the opportunities?
The Partnership set out at the beginning of this year to answer these questions and to develop a regional energy transition strategy.
With the support of McKinsey, we took a deep dive into understanding how the energy transition will likely impact Houston.
What are the areas where Houston can lead, and what can the Partnership do to support those efforts and advance Houston’s continued economic growth and opportunity for all?
Our answers to these questions were informed by over sixty stakeholder interviews, and I want to thank everyone who contributed to that process.
We focused our examination on three factors that will influence the pace of the energy transition:
We approached the formation of the strategy with this core belief:
Houston has a responsibility and an opportunity to leverage our energy leadership to accelerate global solutions for a low-carbon future.
No clear path has been determined for how society will solve the dual challenge. There has been a lot of talk – but the plans are still forming.
It’s urgent but will take a long time. It will be hard and complex. It will require investing trillions of dollars in new energy technologies and infrastructure around the world.
It is the kind of challenge that Houston is uniquely equipped to lead – primarily because of our incumbent energy industry and our understanding of this complex system.
I think we can all appreciate that the success of Houston’s energy industry as it navigates the transition is critical to Houston’s long-term growth and our continued strength as a global city.
The great news is, Houston’s incumbent energy companies are already making significant investments in low-carbon solutions and are working to reduce emissions within their operations.
To be clear, the Partnership fully acknowledges that every company is responding differently to the transition. We are not here to prescribe a business strategy or advocate for fundamental changes to your business model.
That is not our job.
However, it is our job to attract new businesses and investment that position the region as a great global city. And in the context of the energy transition, the Partnership will be seeking more risk capital to prove out incremental solutions or fund the big-ticket breakthroughs.
It is also our job to connect the dots and encourage collaboration among those who would benefit in working together to reach shared objectives, whether that is building an advanced plastics recycling facility or an effort to decarbonize the Houston Ship Channel.
The Partnership is advocating for solving problems. In our stakeholder conversations, it was clear that these companies had already identified the opportunities they were interested in exploring. The Partnership is here to help enable, support and celebrate those opportunities through this strategy.
When we talk about the energy transition as an opportunity to drive Houston’s continued growth, what exactly does this mean?
McKinsey modeled Houston’s potential job growth under three scenarios: business as usual, accelerated transition and a 1.5 degrees Celsius pathway.
McKinsey’s analysis suggests that as many as 560,000 jobs could be created by 2050 in the region if we were to take decisive action to lead in the energy transition, which means Houston would have to work aggressively to capture a significant share of the trillions of dollars that will be invested globally in the transition.
The flip-side of this is a point I made last year, the incumbent oil and gas industry will not be the same driver for growth in the next 25 years, as it has been in the previous 25 years – the transition will be a part of this, but much of this is due to flattening demand and improved efficiencies. There are a number of upstream oil and gas jobs that we will never recover, and new company formation in the incumbent oil and gas industry is already dramatically lower than in the prior two decades
So, as we think about the transition, it’s important to note there are multiple lenses we could apply to compel action or evaluate success of the strategy beyond job creation – these include environmental benefits and equity considerations.
While we are using job creation as the best proxy of our goal of opportunity for all, we are also mindful of those parallel priorities and understand they must also be factored into shaping a successful path forward.
Understanding that Houston must act to ensure its future economic prosperity and to be a solutions partner for a low-carbon world, let’s look at how we can accomplish this across three dimensions:
Let’s start with the assets can Houston leverage to capture the economic value presented by the transition.
Through a city benchmark analysis and the feedback from stakeholder interviews, there are five key attributes that position Houston to lead.
First, Houston is home to a large, diverse and technically-oriented workforce. The Houston region has deep experience in all aspects of the energy industry including engineering and digital tech to complex industrial project management, to commercial acumen, to research and development, to deep understanding of global trading markets and policy drivers.
The emerging low carbon energy market may call for additional skills, but those new skills will complement and build on the capabilities that developed in Houston over several generations.
Second, there is no place in America – and few in the world – that matches Houston for its concentration of energy infrastructure. The miles of pipelines, refineries, storage facilities, and logistics capacity all lend themselves to rapidly scaling new energy technologies like CCUS, hydrogen and advanced recycling of plastics.
Third, Houston benefits from significant, already-existing renewable generation capacity. Houston taps directly into the Texas power grid, which generates more wind power than any other state and more solar power than any but California. This advantages Houston to be at the center of developing renewable-based solutions, such as green hydrogen.
Fourth, the city’s policy and culture are strongly supportive of business innovation and growth. Our business-friendly environment supports the kind of growth and scale required for a comprehensive transition to new low-carbon technologies and infrastructure.
Additionally, Houston offers start-ups a proximity and connections with an industry hungry for new solutions and technologies that they can scale and rapidly commercialize. Houston should be the world’s energy transition laboratory.
Finally, Houston’s enormous port, rail and air infrastructure represents a significant platform for implementing large-scale decarbonization initiatives. For example, the Houston Ship Channel’s concentration of point source emissions, pipeline and logistics infrastructure, and energy-consuming manufacturing facilities presents an ideal ecosystem for capturing and transporting CO2 as well as producing and distributing hydrogen, and reprocessing plastics.
Plus the transport of hydrogen, ammonia, biofuels, clean LNG and other products is eased through the largest port in the United States.
Although these competitive advantages are familiar to many of you, they are not as well-understood by audiences outside of Houston. It’s important that we continue to share this message of Houston’s strengths.
These strengths provide us the opportunity to explore which value chains in the energy transition Houston should pursue.
The Partnership’s energy transition strategy encourages action across value chains in three domains:
The first is to jumpstart emerging technologies and markets where Houston has a strategic advantage.
Carbon Capture, Use and Storage – or CCUS – is a good example. CCUS refers to the process of stripping (or capturing) the CO2 that is emitted from point sources like power plant smoke stacks, refineries, steel mills and cement factories.
The captured CO2 is either put to use – as raw material for carbon-based materials, for example, or to improve the efficiency of existing oil and gas wells – or it is pumped deep underground for permanent storage. Experts worldwide cite CCUS as critical to any realistic strategy for achieving net-zero emissions and meeting the climate goals set by the Paris climate accords.
Houston is an obvious place to develop CCUS technologies and to implement them at scale. We are home to an unparalleled concentration of manufacturing facilities with point source emissions, along with extensive infrastructure of pipelines for moving CO2, and ready access to underground reservoirs for storing CO2 once it is captured.
Houston is also home to leading policy work on CCUS through the Center for Houston’s Future, University of Houston and Rice University.
The Greater Houston Partnership has already kicked off implementation of this strategic workstream with the formation of a working group to support the decarbonization of the Houston Ship Channel.
Other examples of technologies and markets included in this leg of the energy transition strategy include a hub for low-carbon hydrogen production and application.
The Houston Gulf Coast region is home to the world’s leading hydrogen system, producing approximately a third of the nation’s hydrogen gas annually. The region also encompasses a network of 48 hydrogen production plants supported by over 900 miles of hydrogen pipelines, which is more than half of the US’s hydrogen pipelines and one-third of the world’s hydrogen pipelines.
Studies sponsored by the Center for Houston’s Future and others have highlighted the potential for Houston to become a leader in driving a hydrogen-based economy – including “green hydrogen,” produced from zero-emissions power sources and raw materials.
Another area of opportunity includes advanced strategies and technologies for recycling plastics – often referred to as part of the “circular economy.”
The region’s petrochemical leaders have been sponsoring work to develop recycling technologies that break plastics down at the molecular level for reuse. An effort supported by the Partnership is in progress to create a complete end-to-end circular economy value chain to be deployed in Houston.
Battery manufacturing and advancements in energy storage solutions– an essential part of any path to net-zero energy emissions– represent yet another priority in this leg of the Houston energy transition strategy.
Houston possesses the required underlying backbone for this sector – a result of its leading chemical and advanced materials expertise, large scale manufacturing capabilities, as well as the industrial port area that supports the development and export of battery and energy storage systems.
The Partnership is working to attract battery manufacturing companies and startups as part of a growing energy storage ecosystem, paving the way for emerging new energy storage technologies, including mechanical and chemical advances to increase the efficiency, reliability and duration of energy storage.
The second leg of the Houston Energy Transition Strategy focuses on attracting and supporting companies in established yet rapidly growing “New Energy” industries.
The emphasis here is on wind energy, solar power, renewable natural gas, low-carbon LNG and biofuels, a key enabler for decarbonizing the energy industry as well as for advancing the hydrogen and energy storage value chains.
Texas produces more wind power than any other U.S. state and more solar power than any state other than California. Texas is well-positioned to have the first net-zero grid, and Houston can play a key role in this development by expanding the city’s renewable capacity and leveraging its access to talent and energy financing.
"The Houston Energy Transition Strategy aims to take steps to support solar and wind development in conjunction with the City of Houston’s Climate Action Plan by actively attracting and retaining project developers, asset owners, and financial traders to Houston.
The third leg of the strategy goes broad instead of deep, setting out to enable continued growth across Houston’s entire range of energy industries.
The Partnership will drive seven cross-cutting initiatives to accelerate the development and growth of multiple sectors, ranging from electric vehicle systems to the decarbonization of natural gas and oil, from petrochemicals to nature-based solutions; and from energy efficiency technologies to geothermal energy production.
These cross-cutting initiatives are focused on creating a collaborative environment that enables activities across this wide range. They include many activities that are already part of the Partnership’s strategic priorities – for example the longstanding efforts to attract leading energy companies and startups; the UpSkill Houston and the Greater Houston Higher Ed United with Business initiatives aimed at regional talent development; and advocacy for smart and supportive public policy.
Houston will need to be the home of innovative solutions that will be produced locally and deployed globally. We must also be focused on the development of the skills needed in the future to drive this new energy economy. This will prevent the displacement of workers and ideally, maintain Houston’s standing as a global hub for energy expertise.
Working with the City of Houston, the Center for Houston’s Future and other partners, the Partnership will also publicly promote Houston’s commitment to energy transition leadership on a global stage – welcoming new generations of talented, innovative individuals, start-ups and established enterprises from around the world.
Finally, and importantly, our efforts will include a workstream dedicated to ensuring a flow of capital into the region – tapping sources and financing models ranging from federal government appropriations to venture capital to green bonds.
Make no mistake – the energy transition will not be easy, nor will it be cheap.
While industry will be critical to developing and scaling future clean tech innovations, there is a limitation to the among of risk capital that can be allocated to exploring these solutions when the economics are unclear and balance sheets aren’t strong.
That makes collaboration with the start-up community, academia and government critical to developing the incremental and breakthrough technologies that get us closer to reaching our climate goals – and having the funding to embark on these endeavors.
Houston’s Energy Transition Strategy is rooted in the city’s eagerness for innovation; our appetite for high-risk and high-reward business investments; and our capacity for executing on massive, complex projects around the world.
It also leverages Houston’s deep experience and infrastructure in producing, moving, financing and marketing energy.
Our goal is to drive sustainable and equitable economic growth in the Greater Houston as we create value from the world’s transition to low-carbon energy systems.
Through this effort, we want to position Houston as the leading hub of energy and clean tech innovation. But, this requires every one of us to participate.
There is a critical role for every part of the Houston economy to solve for the dual challenge, either in significant pivots or by focusing on lowering the carbon intensity of their operations. Everyone has an important role to play. Even if your company is not making a fundamental pivot in its core business, it can still meaningfully invest in innovative technologies at levels that rival even the most mature start-up ecosystems.
This kind of participation by industry will attract new players and new companies to Houston to strengthen the region’s vibrancy and position in the global economy.
I am pleased that a number of companies have already signed the Partnership’s Energy Transition Initiative Letter of Support. Their names are on the screen.
The commitment centers around our vision for this initiative: leveraging Houston’s energy leadership to accelerate global solutions for a low-carbon future.
We know we have a long way to go, but these companies – and hopefully others to join in the coming weeks and months – are committed to driving these efforts forward.
The challenge, rather opportunity, of our time is the Energy Transition.
Houston has both the opportunity and a responsibility to lead the transition. It is our opportunity to embrace, and our challenge to solve.
And when we are successful, we will be creating opportunity for the generations of Houstonians to come."
Learn more about Houston Leading the Energy Transition.