In November 2021, U.S. Energy Secretary Jennifer Granholm tasked the National Petroleum Council (NPC) with exploring the large-scale implementation of low- and zero-carbon hydrogen energy across various sectors, including power generation, industrial processes, and transportation. Established by President Harry Truman after World War II, the NPC has served as a crucial link between the oil and natural gas industry and the federal government. Although the NPC’s focus broadened in 1972 to include a wider array of stakeholders, it continues to play a vital role in facilitating dialogue between the oil and gas sector and government entities.
In response to Granholm’s directive, the NPC published a “working draft” in April 2024 titled Harnessing Hydrogen: A Key Element of the U.S. Energy Future. As the title indicates, the report presents a favorable perspective on hydrogen as an energy source. The Executive Summary opens with a compelling statement: “Hydrogen can play a key role in reducing U.S. carbon emissions, particularly in . . . hard-to-abate sectors, at a lower cost to society than alternative abatement methods.”
The Executive Summary outlines four primary themes, the first being a reiteration of the initial statement. The second theme emphasizes the urgent need for actions beyond existing policies to unlock various low-carbon-intensity hydrogen demand sectors, essential for achieving the U.S. goal of net-zero emissions by 2050. One of the NPC’s key recommendations under this theme, labeled “Recommendation 1,” urges the administration to collaborate with Congress in establishing a comprehensive carbon pricing framework before current incentives, like 45V, expire.
Surprisingly, the oil and gas industry supports a carbon pricing mechanism! Many might assume that the public is unaware of this stance, and it’s likely that most would be taken aback to learn about it. However, this proactive endorsement aligns with sound business strategy principles. The NPC highlights a critical characteristic that any effective carbon pricing system should possess: it must be “well-designed to provide predictable signals for decisions about long-lived capital investment” (emphasis added).
Predictability is a fundamental aspect of the business landscape, and its importance is often taken for granted. Upon reflection, it becomes clear that predictability is valuable, particularly for companies that strategically plan for the future. In contrast, businesses that focus solely on immediate gains may not recognize the significance of forecasting future trends.
Future forecasting can take various forms, from budgeting to workforce planning. Strategic planning, arguably the most demanding type of future-casting, operates on the premise that a comprehensive understanding of the forces shaping future business conditions can help organizations capitalize on market opportunities and mitigate competitive risks. However, the benefits of a strategic plan can vanish if the business environment shifts in unforeseen ways. In a stable environment, potential rewards are realized; in an unpredictable one, the consequences can be severe. The current challenges facing offshore wind development in the northeastern U.S. exemplify this phenomenon.
At this juncture, skeptics might wonder why an industry would advocate for a policy that could increase product prices. Basic economic principles suggest that higher prices lead to lower demand.
This observation holds true. However, oil and gas companies are staffed with technically adept managers who grasp the intricacies of climate change, from molecular physics driving atmospheric warming to the complex feedback loops within the geosphere. Beyond academia, few entities are as well-positioned to understand climate change’s trajectory as these companies. (The literature supporting this assertion is extensive; for instance, a 2023 article from the Harvard Gazette titled “Exxon disputed climate findings for years. Its scientists knew better.” is illustrative.) Thus, with a grounded awareness of climate change (despite public communication that sometimes obscures this knowledge), oil and gas executives are presumably motivated to seek a prudent path forward for their industry—one that is “phased-in and coordinated to minimize adverse impacts on energy security, reliability, and affordability,” as articulated in Recommendation 1.
The recognition that a fossil-fuel-dependent energy economy is unsustainable can actually serve as an advantage for oil and gas companies. Historically, companies that lose their market dominance often do so due to an overestimation of how long current conditions will last.
Oil and gas firms are acutely aware that their business models must evolve in the face of impending changes. Nevertheless, they remain resolute in their focus on the future. Armed with robust strategic planning capabilities and extensive resources, these companies are prepared to adapt and respond to any disruptions that may arise.
In summary, the oil and gas sector is well-positioned to thrive in a predictable business climate, driven by their proactive stance toward strategic planning. By staying ahead of emerging trends, these companies are gearing up for a future that may differ significantly from the present landscape. With a forward-looking perspective, they are ready to embrace transformation and tackle any challenges that lie ahead.
