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Expert: Houston is the energy capital of the world now — but can it stay that way?

Can Houston stay a leader in the future of energy? Scott Nyquist weighs in. Photo via Getty Images

Houston has a legacy in in the energy industry — but can it remain the energy capital of the world? In short, yes.

That may sound counterintuitive, given that the energy system is transitioning — slowly, but inexorably — away from the city’s strengths in oil and gas. But that is the point: to an extent that may be overlooked, the O&G industry is critical to the transition, in two ways. Houston is well placed to take the lead on both.

First, there is the simple fact that oil and gas are essential, and will be for decades to come. About 99 percent of vehicles on the road right now use fossil fuels, and there are no readily available substitutes for their uses as feedstock for other industries, such as chemicals. Oil and gas account for almost 70 percent of US primary energy demand.

I do believe that their influence will diminish, as the energy system transitions to cleaner, lower-emission sources. McKinsey’s most recent Global Energy Perspective projected demand for oil will peak by 2027 and for gas a decade later. The International Energy Agency (IEA) sees the same evolution, but somewhat more slowly. Even after demand peaks, whenever that is, oil and gas will still be used, just not as much. I don’t see any reasonable scenario in which oil and gas disappears or is left in the ground for decades to come.

Second, and more interestingly, the O&G industry itself is essential to the goal of reducing greenhouse-gas emissions. If that sounds counterintuitive, too—well, it is. But bear with me. Under almost all emissions-reduction scenarios, carbon capture and storage (CCS), including direct air capture, and hydrogen play huge roles--accounting for more than 20 percent of future cuts in the IEA’s projection, for example. The Intergovernmental Panel on Climate Change also sees a big role for CCS, while noting that “global rates of CCS deployment are far below those in modelled pathways limiting global warming to 1.5°C or 2°C.” In other words, it matters, and there’s not enough of it. Hydrogen has been many people’s favorite technology of the future since at least the 1990s; the World Energy Council says it could account for as much as 25 percent of total final energy consumption by 2050, though likely less.

Let’s consider CCS first. This refers to reducing carbon-dioxide (CO2) emissions, particularly from industry, by capturing it on-site and then storing it underground: it is therefore never released into the atmosphere. Direct air capture sucks out carbon from the atmosphere, and then stores it. There is more than enough storage capacity, according to the IEA, and the technologies work.

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Credit: Global CCS Institute

The problem has been regulation and economics—CCS is relatively expensive. About half of US emissions come from power generation and industry, such as cement; carbon capture works for both. And that is just what is possible now. Eventually, captured CO2 could be used to make a wide array of products, including building materials, carbon fiber, synthetic fuels, and plastics.

The Biden Administration is allocating $3.5 billion for direct air capture projects and $8 billion for hydrogen; those are not huge sums, given how costly large-scale energy projects are, but it just might be the beginning of bigger things. In addition, companies that have committed to net zero are beginning to put serious money behind carbon capture—almost $2 billion so far this year, compared to just $50 million in the past.

All this is relevant to Houston because Texas is the largest single US producer of both oil and gas, and these are the only players that now routinely use CCS, for gas processing and enhanced oil recovery. Houston is, by far, the national leader in carbon capture. Moreover, CCS can help to scale up “blue” or lower-emissions hydrogen, which could be an even bigger opportunity.

Hydrogen is not a source of energy, but a carrier of it. Once the hydrogen is produced—that is, separated from other elements, such as the oxygen in water—it can be stored and then released, either through combustion or via a fuel cell that converts hydrogen into electricity. Hydrogen could be used in a wide variety of ways, including powering vehicles, heating buildings, and fueling industry. Indeed, its potential is so broad and deep that the Hydrogen Council (with help from McKinsey) estimated late last year that hydrogen could contribute more than 20 percent of emissions abatement to 2050. The Council is a trade group and may therefore be a little optimistic (or a lot), but no one questions the potential of hydrogen in cutting emissions.

Right now, the primary use of hydrogen is in oil refining, which is one of Houston’s major industries. In addition, O&G companies are already looking into the conversion of methane in natural gas to hydrogen as well as the possibility of blending hydrogen into natural gas to lower the carbon content.

The Houston region already produces and consumes a third of the nation’s hydrogen, and is home to most of its dedicated hydrogen pipelines; its massive and efficient pipeline and transport system for gas can be adapted to move hydrogen. For the production of “green” or very-low emissions hydrogen, Houston also has a significant—and growing--renewable energy infrastructure. Indeed, if Texas was a country, it would be the world’s fifth-largest generator of wind power, and it is second in solar in the United States.

In short, when it comes to hydrogen, Houston is well ahead of the competitive pack, not only in physical terms, but in the human expertise that will count most of all to turn hydrogen from boutique to big. According to a recent report by the Center for Houston’s Future, Houston-based hydrogen assets could abate 220 million tons of carbon emissions by 2050, or more than half of Texas’s current emissions. Plus, it could create $100 billion in economic value.

The bottom line: there is no practical emissions reduction on the scale that the United States has committed to—net zero by 2050—without the development of CCS and hydrogen. And the O&G industry is leading the way in both these technologies. That puts Houston in an enviable position to both be part of the transition and to benefit from it. All told, according to the Houston Energy Transition Initiative, which includes 17 major energy-industry players, the region could gain up to 400,000 jobs in an accelerated scenario of adopting lower-carbon technologies. (McKinsey helped with this research, too.) To use a term beloved of consultants, that looks like a win-win.

Houston calls itself the “energy capital of the world”—and this isn’t a case of all hat and no cattle. The city is home to a critical mass of capital, innovation, expertise, and entrepreneurship. To continue to deserve that title, however, will require Houston to embrace the challenge of the energy transition: providing the reliable energy the world needs while also reducing emissions.

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Scott Nyquist is a senior advisor at McKinsey & Company and vice chairman, Houston Energy Transition Initiative of the Greater Houston Partnership. The views expressed herein are Nyquist's own and not those of McKinsey & Company or of the Greater Houston Partnership. This article originally ran on LinkedIn.

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A View From HETI

U.S. LNG is essential to balancing global energy markets for the decades ahead. Photo via Getty Images

The debate over U.S. Liquefied Natural Gas (LNG) exports is too often framed in misleading, oversimplified terms. The reality is clear: LNG is not just a temporary fix or a bridge fuel, it is a fundamental pillar of global energy security and economic stability. U.S. LNG is already reducing coal use in Asia, strengthening Europe’s energy balance, and driving economic growth at home. Turning away from LNG exports now would be a shortsighted mistake, undermining both U.S. economic interests and global energy security.

Ken Medlock, Senior Director of the Baker Institute’s Center for Energy Studies, provides a fact-based assessment of the U.S. LNG exports that cuts through the noise. His analysis, consistent with McKinsey work, confirms that U.S. LNG is essential to balancing global energy markets for the decades ahead. While infrastructure challenges and environmental concerns exist, the benefits far outweigh the drawbacks. If the U.S. fails to embrace its leadership in LNG, we risk giving up our position to competitors, weakening our energy resilience, and damaging national security.

LNG Export Licenses: Options, Not Guarantees

A common but deeply flawed argument against expanding LNG exports is the assumption that granting licenses guarantees unlimited exports. This is simply incorrect. As Medlock puts it, “Licenses are options, not guarantees. Projects do not move forward if they are unable to find commercial footing.”

This is critical: government approvals do not dictate market outcomes. LNG projects must navigate economic viability, infrastructure feasibility, and global demand before becoming operational. This reality should dispel fears that expanded licensing will automatically lead to an uncontrolled surge in exports or domestic price spikes. The market, not government restrictions, should determine which projects succeed.

Canada’s Role in U.S. Gas Markets

The U.S. LNG debate often overlooks an important factor: pipeline imports from Canada. The U.S. and Canadian markets are deeply intertwined, yet critics often ignore this reality. Medlock highlights that “the importance to domestic supply-demand balance of our neighbors to the north and south cannot be overstated.”

Infrastructure Constraints and Price Volatility

One of the most counterproductive policies the U.S. could adopt is restricting LNG infrastructure development. Ironically, such restrictions would not only hinder exports but also drive up domestic energy prices. Medlock’s report explains this paradox: “Constraints that either raise development costs or limit the ability to develop infrastructure tend to make domestic supply less elastic. Ironically, this has the impact of limiting exports and raising domestic prices.”

The takeaway is straightforward: blocking infrastructure development is a self-inflicted wound. It stifles market efficiency, raises costs for American consumers, and weakens U.S. competitiveness in global energy markets. McKinsey research confirms that well-planned infrastructure investments lead to greater price stability and a more resilient energy sector. The U.S. should be accelerating, not hindering, these investments.

Short-Run vs. Long-Run Impacts on Domestic Prices

Critics of LNG exports often confuse short-term price fluctuations with long-term market trends. This is a mistake. Medlock underscores that “analysis that claims overly negative domestic price impacts due to exports tend to miss the distinction between short-run and long-run elasticity.”

Short-term price shifts are inevitable, driven by seasonal demand and supply disruptions. But long-term trends tell a different story: as infrastructure improves and production expands, markets adjust, and price impacts moderate. McKinsey analysis suggests supply elasticity increases as producers respond to price signals. Policy decisions should be grounded in this broader economic reality, not reactionary fears about temporary price movements.

Assessing the Emissions Debate

The argument that restricting U.S. LNG exports will lower global emissions is fundamentally flawed. In fact, the opposite is true. Medlock warns against “engineering scenarios that violate basic economic principles to induce particular impacts.” He emphasizes that evaluating emissions must be done holistically. “Constraining U.S. LNG exports will likely mean Asian countries will continue to turn to coal for power system balance,” a move that would significantly increase global emissions.

McKinsey’s research reinforces that, on a lifecycle basis, U.S. LNG produces fewer emissions than coal. That said, there is room for improvement, and efforts should focus on minimizing methane leakage and optimizing gas production efficiency.

However, the broader point remains: restricting LNG on environmental grounds ignores the global energy trade-offs at play. A rational approach would address emissions concerns while still recognizing the role of LNG in the global energy system.

The DOE’s Commonwealth LNG Authorization

The Department of Energy’s recent conditional approval of the Commonwealth LNG project is a step in the right direction. It signals that economic growth, energy security, and market demand remain key considerations in regulatory decisions. Medlock’s analysis makes it clear that LNG exports will be driven by market forces, and McKinsey’s projections show that global demand for flexible, reliable LNG is only increasing.

The U.S. should not limit itself with restrictive policies when the rest of the world is demanding more LNG. This is an opportunity to strengthen our position as a global energy leader, create jobs, and ensure long-term energy security.

Conclusion

The U.S. LNG debate must move beyond fear-driven narratives and focus on reality. The facts are clear: LNG exports strengthen energy security, drive economic growth, and reduce global emissions by displacing coal.

Instead of restrictive policies that limit LNG’s potential, the U.S. should focus on expanding infrastructure, maintaining market flexibility, and supporting innovation to further reduce emissions. The energy transition will be shaped by market realities, not unrealistic expectations.

The U.S. has an opportunity to lead. But leadership requires embracing economic logic, investing in infrastructure, and ensuring our policies are guided by facts, not political expediency. LNG is a critical part of the global energy landscape, and it’s time to recognize its long-term strategic value.

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Scott Nyquist is a senior advisor at McKinsey & Company and vice chairman, Houston Energy Transition Initiative of the Greater Houston Partnership. The views expressed herein are Nyquist's own and not those of McKinsey & Company or of the Greater Houston Partnership. This article originally appeared on LinkedIn.

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