Emission-Free Oil from Norway…Sort of

Emission-Free Oil from Norway…Sort of

The Norwegian oil giant Equinor, formerly known as Statoil, has come up with emission-free oil.

That is, the production of the oil will be free from emissions…the oil itself will be just as polluting as ever.

Under their plans to become emissions neutral by 2050, Equinor will try and connect their offshore oil production facilities to their mainland electricity grid. A grid which runs overwhelmingly on green energy.

You might think this is a pathetic and hypocritical virtue signalling act for an oil company. But it’s actually quite wise. Equinor knows that regulation which punishes emissions financially is coming. Offsetting or minimising your emissions from production will be part of the cost of production for oil companies soon. Going emissions neutral in production will give Equinor a cost advantage.

But will oil even be around that long? I’m not so sure. Not because of green energy and batteries, but because of what I’m going to call ‘new oil’. Next week, I’ll reveal what it is. But for now, all you need to know is that it’s free from emissions when you use it to power something. But actually making the stuff requires a lot of electricity and that’s the catch.

Back to that next week. First, let’s explore exactly why we need this new oil.

Batteries and renewable energy may well be the killer combo of the next decade. If you can generate power cleanly and store enough of it, you resolve the emissions problem.

(Never mind climate change. Pollution gives me hayfever.)

The question thus becomes how can we generate the power we need from renewables? And how can we improve battery technology to store enough of that power?

Both of those questions come down to cost. It’s not like we can’t generate the power and store it already. But can the combination of renewables and batteries provide what the economy needs at the right cost?

Well, that’s not a static matter, pun intended. We’ve made extraordinary progress on both counts — batteries and renewables.

But my contention today is that this is not the silver bullet you might think. We need a new oil that won’t upset climate change campaigners. A type of energy source that batteries and renewable energy cannot replace anytime soon.

What is that energy source — the new oil? Don’t be impatient, I’ll reveal it next week.

What makes the new oil so different to batteries and renewable energy is simple. It’s just like oil in the ways that matter.

The oil infrastructure we’ve built up is extraordinary. The power of oil allows that level of infrastructure to be worth it. Using a power source that is similar to oil in many ways will prove an enormous advantage because so much of the same infrastructure can still function in much the same way.

The electricity grid is similar. Which is why green energy looked like a solution. But power isn’t transportable and storable like oil.

Also, the grid wasn’t designed with decentralised power generation and batteries in mind. It’s a one-way system. Solar panels on rooftops create remarkable problems.

As you might recall from an earlier Daily Reckoning, the power went out in Alice Springs after a cloud passed overhead…

There were many lessons to be learned, alongside the laughs to be had. One of the lessons is that generating too much solar power in one place is dangerous to the grid.

When the cloud passed over, the solar panels on people’s homes stopped producing power at the same moment as the local solar power station did too. The supply of power on people’s roofs triggered a demand spike from their homes, just when the solar station lost its own ability to supply. The combination is a shocker, pun intended again.

The battery required in this scenario is rather large. Or there’s the need for alternative power sources which can come online very quickly. But then the cost and emissions equation goes haywire. Solar might look good, even if you include the battery cost, but when you add in having to keep the gas power plant ready for action in case of cloud cover, the whole thing looks very different.

Adding a huge amount of electricity demand to the existing equation exacerbates the problem. Electric cars, trains, boats, and planes will create such a need for large amounts of renewable power and batteries that the current equations don’t take into account.

If a cloud causes a problem in Alice Springs before the town is using electricity to power everything from water heaters to cattle trucks, imagine the problem when everything does run on electricity.

Green energy is famously unpredictable and it produces power at precisely the wrong times too. More on that next week, because it’s key to why the new oil will be so successful.

Diversification of your energy sources is one of those ideas which makes everyone nod their head. Environmentalists, nationalists, and everyone in between is happy to agree.

The modern variety of this idea is to generate power from a variety of renewable sources. If you’re French, nuclear is included in the mix. If you’re Australian, suggesting this is un-Australian.

But is making everything run on electricity really diversification? Doesn’t sound like it to me…

So, when it comes to our energy, we’re going to need something else. And my bet is that it’ll resemble oil closely. Hence calling it the ‘new oil’.

The real question left to resolve for the new oil is quite similar to the one renewables and batteries face — cost. Can we make and store the new oil in a cost-efficient way?

Yep, we can. Sort of. Thanks to green energy, strangely enough.

I’ll reveal what I mean and what the new oil is next week.

Until next time,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia