Green Revolution: Not So Fast


Aug 29, 2022

Green Revolution: Not So Fast

The current global energy crisis is driving private-equity firms to highlight the critical role of oil and natural gas in the transition to renewable energies. As investors move from fossil fuels to “green energy,” the dangers of weakening U.S. production capability are becoming increasingly clear.

  • Renewable energy capacity simply will not be sufficient to reach net-zero emissions by 2050
  • Renewable power storage is not yet a reality
  • Environmental standards for oil and gas production are deficient in many other countries
  • Reliance on variable renewable energy (wind and solar) is risky, especially when backup energy sources are controlled by other nations and subject to political maneuvers
  • Grid connections for renewable energy sources can require years for approvals and implementation

Replacing Energy Sources

Wil VanLoh, chief executive of Houston-based Quantum Energy Partners, noted that a complete energy turnover has never occurred, as new sources of energy have been added gradually over time. Referring to coal, oil, and natural gas, “It’s kind of make-believe to think that we can actually replace three forms of energy this time,” VanLoh said.

Pressured by environmental activists and some stakeholders, many institutional investors are divesting fossil fuel assets and organizations. Private-equity executives are concerned about investor misperceptions about the role of fossil fuels in the over-the-horizon transition to renewables as investment is rushing to green energy. The energy transition will not be immediate, and many oil and gas will have a role to play for years to come. Domestic oil and gas companies are reducing carbon emissions and methane intensity at a rapid rate and are also primed to lead the way in green projects such as carbon capture, storage, and utilization (CCUS) and offshore wind projects.

Some private equity firms, such as Kimmeridge Energy Management, are encouraging the oil and gas industry to create its own net-zero plan. “We don’t have an oil-and-gas problem. We have a carbon-emissions problem,” said Ben Dell, a Kimmeridge Managing Partner.

Maintaining production and energy security while investing in emissions mitigation and CCUS to make American energy cleaner and greener is the best option to fill transitional energy gaps and meet long-term climate goals.

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