Back in 2021, when everybody became an overnight expert on energy
Our Take, With Doug Sheridan
Doug SheridanDoug Sheridan • 1st • 1stEnergy, Economics & Policy | Research • Analysis • Commentary • OpinionEnergy, Economics & Policy | Research • Analysis • Commentary • Opinion3h • Edited • 3 hours ago
Back in 2021, when everybody became an overnight expert on energy and simply “knew” oil was soon to be replaced by renewables, the great minds at the City of Houston, Greater Houston Partnership and other city organizations got behind the slogan, “Houston—The Energy Transition Capital of the World.”
Of course, there was no factual basis for the claim. It was just easy to say, so they said it. In reality, nothing could have been farther from the truth—no city in the world had more to lose from a transition away from oil and gas than Houston. Anyone who stopped to think about it had to have known this. But stopping and thinking wasn't in vogue in 2021.
Even today, there’s an effort to position Houston as some clean energy investment mecca. We doubt the claim would stand up to scrutiny. For one, we'd wager half the investments labeled “clean energy” are just typical energy technology investments, the kind companies in Houston have been making for decades. Of the other half, we'd guess a material proportion won’t be commercially viable.
Contrast that with what’s going on with oil and gas in the city. By 2025, both of America’s two largest oil and gas companies, ExxonMobil and Chevron, will have moved their headquarters to Houston. Virtually every decent-sized petroleum entity in the world has a presence in the city, including supermajors Shell, BP, and TotalEnergies, as well as large NOCs like aramco. Houston today is as much an oil town as ever.
No doubt city leaders, many of them liberal, will attempt to pitch the presence of these oil and gas majors as just more money and expertise to invest in what they habitually like to claim is some big shift to clean and green energy. But that’s not true either. None other than the International Energy Agency (IEA) recently posted a chart showing just how little oil and gas companies are investing in clean energy. For once, the IEA hits on the truth.
Do you know why these oil and gas companies aren’t investing in green energy? The official line is that renewables aren’t part of their core competencies. And that’s true, in so far as companies like to stick to their knitting. But the real reason, and don’t say it out loud, is that these companies understand renewables are inferior forms of energy that can’t cover their cost of capital. And to real managers, businesses that can’t cover their cost of capital should be avoided—not pursued.
Houstonians should welcome with open arms the arrival of ExxonMobil, Chevron and other oil and gas companies. And its leaders should stop pretending Houston will, or should, transition away from oil and gas anytime soon. As Alex Epstein stresses, oil and gas are essential to human flourishing. Houston should embrace its role in sustaining and improving the lives of literally billions of people globally each day. It's a legacy worth standing up for... even celebrating.