ROB WEST: Divestment is absolutely not the right way forward to achieve energy transition, just logically. If we want to improve global health care, or life expectancies, nobody thinks this would be achieved by pulling out all of the capital from the pharmaceutical industry.

We need to get more capital flowing to bring these new energy technologies through to fruition.

We need more venturing to incubate new technologies that can actually drive the transition.

I'm Rob West. I run Thunder Said Energy, we're a research consultancy into energy technologies. We help to answer the question, what would you invest in if you wanted to drive the energy transition forwards and how can you make a return doing it?

What is the energy transition?

The energy industry is going through its greatest period of change. It's all driven by technology. We refer to this period of change as an energy transition, but it's actually five energy transitions all happening at the same time. These are not billion dollar opportunities. These are trillion dollar opportunities. Really, these opportunities are the only way that the energy transition is going to happen. Let me explain what I mean by that.

If we take the energy system that we have today, we need to transform it, we need to get rid of all the carbon and the technologies that do that are going to have to do various things. The first thing is they're going to have to make energy better for consumers than it currently is because nobody's going to get behind technologies that make their lives worse. The second thing is they have to be economical because this is an industry that spends $2 trillion a year. If you can't compete for capital in this industry, it's just not going to move the needle.

The third part is about technical readiness. Technologies, people always joke that technology means something that doesn't work yet, but it has to be close enough to working but within an investable timeframe, you can actually put meaningful amounts of capital into it and make a return on that capital. There's a well-known scale, which we have which is called technical readiness level or TRL. Worth going through this just up front because it might come up later in the conversation.

You should think about this is like the Richter scale of assessing technical readiness. TRL0 is a glimmer in the eye of a scientist. TRL9 is something that's fully ready, fully commercial, and you can buy from industrial conglomerate off the shelf. When we do all our work on energy technologies, we're looking for things that meet those criteria. It's got to be better energy. It's got to be cleaner energy, it's got to be economical and it's got to be TRL7 or above to really get excited.

Why is decarbonization so difficult?

Why is decarbonization so difficult? It's because of the size of the energy system. This is an energy system that consumes 63,000 terawatt hours per year. To put that in perspective, this is like a small kitchen toaster running 24 hours a day, seven days a week, 365 days a year for every single man, woman and child on the planet. It's enormous.

Not only that, the energy is used in ways that can just be so hard to see as a consumer. We think about driving passenger cars as a big source of emissions, it's14%. It's the biggest source but it's only 14 and actually, if I was going to add up all of the components of the entity system that are more than 1% of global emissions, I would have 35 different things on that list. It would include things like cement, which is 8% of emissions or agriculture, which is about 13 or making metals, which is about 10%, or making things like ammonia in order to make fertilizers.

If we end up without enough energy, actually, it's in the stuff that we're going to see problems. We're going to see big inflation in the prices of stuff that really matters to the seven and a half billion people in the world. It's the size that makes it difficult to decarbonize. It's the hiddenness of it. Finally, it's the fact that energy demand is still growing.

We have this two-tiered energy market. We have the developed world with 1.3 billion people who consumes 60% of all the world's stuff. We have the developing world, which is almost six and a half billion people who consume the other 40. Just to put that in perspective relative to the oil market, in oil, the developed world, there's 13 barrels per person per year. In the developing world, it's three barrels per person per year.

As those three barrels go to four barrels by 2050, not to the 13, we have in the developed world, but just from three to four, and as populations in the emerging world go from six and a half billion to eight and a half billion, we're going to end up in a world where there's 60,000 terawatt hour energy system becomes 120,000 terawatt hour energy system. Really, efforts to stop that, they might not be the route to decarbonization, they might end up being the route to real devastating consequences. We need to get more energy into the world but we need to completely clean up and decarbonize this energy industry as we do it, and technology is the only way.

What is wrong with the divestment movement?

I think divestment is absolutely not the right way forward to achieve energy transition. Really, the first way to think about it is just logically, if we want to improve global healthcare, or life expectancies, nobody thinks this would be achieved by pulling out all of the capital from the pharmaceutical industry. If we want to improve education, nobody thinks this is going to be done by cutting funding for underperforming schools. There's general principle that in order to affect meaningful change, we need to divert capital into things not away from them. We'll talk a bit more about how that pertains to energy as we go.

Really, the point that scares me the most about this divestment debate is that if we do this and we pull capital away from the energy system, what's actually going to happen? Let's go through that chain of logic. The idea is, well, we have companies that are investing in fossil fuels. What we're going to do is we're just going to restrict capital access until they can't invest in fossil fuels until the supply goes down. Then when the supply goes down, the price will have to go up to the point that somebody is going to get priced out the energy system.

Again, if you're talking about the one and a half billion people in China or over a billion people in India or even a billion people in Africa, and your solution to climate change is we're going to price these people out of the market. I don't think you have a route to decarbonization, I think you have a route to war. What we need to do is, as I'm saying earlier, get better energy into the system that can meet the energy needs while decarbonizing at the same time.

What is better energy?

Renewables are a huge part of the shift to decarbonize the energy system but it would be remiss to say that they are the whole part. This is actually not so much an argument around opinions, this is an argument just around simple arithmetic. We talked about how the energy system by 2050 is likely to be 120,000 terawatt hours per year. We're currently growing renewables at a pace of 270 terawatt hours per year. 120,000 total, and we're going to build renewables interface of 270 per year, this is going to take 400 years.

My [indiscernible] is I have new technologies improving renewables to attract more capital, I think we can grow about double the historical rate. Even then, we're only going to get to 15% of the world's energy by 2050 on that cadence and that trajectory. This is clearly not going to be the whole picture. You end up in a position where other things are needed.

There are other aspects of renewables that mean it can be hard for them to substitute for very, very energy dense forms of energy, like planes or industrial heating. We could talk a bit about that too. I'll give you an example that I think makes this clear. I was doing some numbers on could you run a Boeing 747 on batteries powered with renewables?

The answer is, you could, but you could only fly the Boeing 747 90 miles before half the land again. This is just that the realities of running a combustion vehicle with batteries at 200 watt hours per kilogram of energy density compared to jet fuel that's about 12,000 watt hours per kilogram of energy density. These are the things where if you want to power a jet plane or a glass furnace at 1500 degrees centigrade, you're going to need fossil fuels in these energy makes, and so this brings us on to the question of, okay, so how do we decarbonize these fossil fuels?

Cleaning up dirty energy.

Let's go back to this 2050 energy system. Let's talk about the CO2 intensity of it. Right now around the world, we're emitting 40 billion tons of CO2 per annum. By 2050, if we do nothing, we're going to be at 80 billion tons of CO2 per annum and so we've got to fix this. We talked about renewables and how renewables can take out 15% of that total and decarbonize it.

What are the other options? Well, one is nuclear. I have small growth in nuclear coming through these numbers, but nothing game changing in terms of technology I can build into a model yet. We've just gone through 20 next generation nuclear technologies, and there are some really exciting things happening here. They're currently at TRL4 and 5, not stuff that you have a physical, commercial demonstration plant running that you could see reason to build it into a model. There's a tiny sliver of help there, but not much to really change the picture.

Then we get into the biggest opportunity on current technologies, which is natural gas. Burning natural gas is 30% to 50% less carbon than other fossil fuels. On my numbers by 2050, we got to turn down coal, especially turn down carbon emitting coal and we got to meet as much of the fossil fuel needs as possible with natural gas. Actually, on my numbers, natural gas trebles in terms of the total demand between now and 2010, it should be the fastest growing energy source.

If we do this, this shift away from the current mix of fossil fuels towards gas takes out 20% of the total emissions of that 80 billion ton per year energy system. On my numbers, on today's technologies, the shift to gas can have a bigger impact on total CO2 than all of renewables. This is just a key reason why we need to engage with the energy industry and get this shift to happen rather than just pulling out and leaving it to its own devices. That's the first component.

Now let's talk about oil. I mentioned earlier that oil is going to go from 100 million barrels a day to 130 million barrels a day on the current trajectory because of population growth in the emerging markets and rising oil consumption per person. Now, with all the technologies we've looked at this year, I think you can take out about 45 million barrels a day total oil market. To say that again, on current technologies, we put into that130 million barrels a day, we can take out 45, which is equivalent to all of the developed world oil consumption but we'd still be left with 85 million barrels a day.

This is equivalent to 1000 barrels of oil being burned every second. This is stuff like the Boeing 747 example that is just really difficult to substitute. What do we do about this? You know that there's an answer that's becoming clear to me, which is we have to take this oil consumption and make it as low carbon as we possibly can. This is doable.

I think we can take out 20% of all the oil industries carbon, and here's how. If you take the average barrel in the industry today, it's about 60 kilograms of CO2 to find it, develop it, produce it, ship it, refine it, and commercialize it. The whole chain, there's an enormous skew. Some of the barrels in the market today have 100 to 200 kilograms of CO2 per barrel, because they're very, very heavy oil, or they're in countries that can't control their flaring or they're in countries that are not overseen by efficient companies with Western standards, and we need to drive that oil out of the market, and a way to do it is to scale up the low carbon oil.

What is the low carbon oil? Well, the best new fields being developed today have something in the range of 20 to 30 kilograms of CO2 per barrel all in. You've just seen a huge, fantastic field startup in Norway called [indiscernible]. It's got the lowest emissions per barrel of any field ever to upstream component, it's just one kilogram per barrel. New developments should be trying to replicate this standard and this is where the bar should be set for new developments in the Gulf of Mexico or in say Guyana as a leading oil major tries to ramp up there.

The one that excites me most of all from all the technologies we've been screening is the capability for enhanced oil recovery using CO2. Today, we get extra recovery factors out of these oil fields by flooding the field of water and flooding the field of gas. CO2 and principle is a much better fluid to do enhanced oil recovery. The problem is we haven't had the supplies of CO2 to actually do it at scale. This is changing.

This is changing because of combustion technologies that release CO2 much more purely so we can use it. Particularly in the Permian Basin, one of the most exciting areas we've just been through 350 technical papers in the shale industry from the summer of 2019. On what we're seeing, shale productivity continues improving at a phenomenal pace. There has been a slowdown in what's being announced in quarterly earnings by companies, but this is a blip. The underlying technology is better and better and better.

One of the biggest areas of growth has been around enhanced oil recovery. The number of papers into this literally doubled year over year. In the past, it was we're using natural gas. Now, most of these studies are using CO2 and I think these enhanced oil recovery processes in the Permian are going to increase oil recovery by two to three times with a breakeven below $40 a barrel and we're going to end up sequestering around 20,000 tons of CO2 per well. If that's right, the Permian can actually end up as the lowest CO2 barrels in the whole market.

If this is right, like extinction rebellion should not be going around asking people to ban fracking, they should be going around asking people to do more fracking because the fracking is going to be like the lowest CO2 oil in the market. I'm probably going to get in trouble for having said that. This is the stuff that we have to be looking at. If you take the oil industry as a whole, we have 2 billion tons of CO2 from the oil industry and scaling up the low carbon barrels and kicking out the high carbon barrels, I think we can take out one quarter of all that CO2, so 500 million tons.

This brings us to other industries. I have this conversation with energy companies about where is their moral responsibility for driving decarbonization. One thing I sometimes hear in the press is people say, well, oil and gas and coal account for basically all of the world's emissions, except for things like agriculture. As a result, it's the fault of the oil companies and the gas companies and the coal companies. Now, I don't want to give these companies a free pass, these companies need to change, they need to improve but this logic is a bit like saying all meat consumption is the fault of cows.

Yes, they comprise a lot of the meat consumption, but I'm not sure the moral responsibility for eating meat rests with the cow. The same thing is true of energy. As investors, I think we need to get our oil company to do everything they can to lower their emissions within oil. Once that oil leaves the oil industry and starts getting used in trucks or in industry, I think we need to go to the truck industry or to the industrial consumers and ask them, what are they doing to lower their emissions? This is not something that oil companies can control.

You don't go to the dentist and criticize your dentist that they're not also a cardiologist. Everywhere else in the world, we allow that people sit in their silos and only control the things in their silos. I think this is where we need to go in our ESG debate with the energy industry is that we need to have every sector, we need to start thinking what is their strategy to take the emissions out and reduce them and if we can lead the way in oil by taking up 25% of ours, then I think others will follow.

How will investment drive the energy transition?

We're a lot of the way there now, we're a lot of the way towards finishing the decarbonization bridge. Remember, we had 80 billion tons a year of CO2, we took out 15% of it by going to renewables, 20% of it by ramping up natural gas, and 15% of it, again, can come from efficiency improvements in industry, like the ones we just talked about within oil. We need to do that industry, by industry, by industry and get investors on board to drive those changes. You can add up, we're only at 50%.

What do we do about this? Actually, this is why energy technology is so important, because to do that other 50%, we do not currently have the technologies there ready to go in commercial to actually deliver this remaining portion. All of what we looked at so far will only offset the growth in emissions as the emerging world ramps up. The solution that I think we need to think about is venturing, we need to get more capital flowing to bring these new energy technologies through to fruition.

We should talk about where that capital is going to come from. Where is the capital going to come from to scale up new energy technologies? Well, so we need more venturing to incubate new technologies that can actually drive the transition. There's a huge precedent for this, because almost all of the listed energy majors have internal venture funds.

In fact, when you go to these companies, and you talk with them about allocating capital to renewables, something comes up again and again, which is to say, we would love to be spending more money in renewables but we can't get the capital away. Because if there's a wind farm going to be built over here, and we just go and we outbid an Australian pension fund and ends up being our name on the wind farm, if no incremental wind farms are built, we just end up getting worse