Houston energy leader on why the future of fuels is more than electric vehicles

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The future of transportation fuels will be shaped by a mix of innovation, government policies, and what consumers want. Photo by Engin Akyurt/Pexels

Gasoline, diesel, bunker fuel, and jet fuel. Four liquid hydrocarbons that have been powering transportation for the last 100-plus years.

Gas stations, truck stops, ports, and airport fuel terminals have been built up over the last century to make transportation easy and reliable.

These conventional fuels release Greenhouse Gases (GHG) when they are used, and governments all over the world are working on plans to shift towards cleaner fuels in an effort to lower emissions and minimize the effects of climate change.

For passenger cars, it’s clear that electricity will be the cleaner fuel type, with most countries adopting electric vehicles (EVs), and in some cases, providing their citizens with incentives to make the switch.

While many articles have been written about EVs and the benefits that come along with them, they fail to look at the transportation system as a whole.

Trucks, cargo ships, and airplanes are modes of transportation that are used every day, but they don’t often get the spotlight like EVs do.

For governments to be effective in curbing transportation-related greenhouse emissions, they must consider all forms of transportation and cleaner fuel options for them as well.

43 percent of GHG emissions comes from these modes of transportation. Therefore, using electricity to reduce GHG emissions in light duty vehicles only accounts for part of the total transportation emissions equation.

The path to cleaner fuels for these transportation modes has its challenges.

According to Ed Emmett, Fellow in Energy and Transportation Policy at the Baker Institute Center for Energy Studies (CES);

"Airplanes cannot be realistically powered by electricity, at least not currently, and handle the same requisite freight and passenger loads"
"The long-haul trucking industry [...] pushed back against electrification as being impractical due to the size and weight of batteries, their limited range, and the cost of adoption"
"Shipowners have expressed reluctance to scrap existing bunker fueled ships for newer, more expensive ships, especially when other fueling options, e.g. biofuels and hydrocarbon derivatives-for fleets can be made available"

Finding low-cost, reliable, and environmentally sound fuels for the various segments of transportation is complex. As Emmett suggests in his latest article;

"Hovering over the transition to other fuels for almost every transportation mode is the question of dependability of supply. For the trucking industry, the truck stop industry must be able to adapt to new fuel requirements. For ocean shipping, ports must be able to meet the fuel needs of new ships. Airlines, air cargo carriers and airports need to be on the same page when it comes to aviation fuels. In other words, the adoption equation in transitions in transportation is not only a function of the availability and cost of the new technology but also a function of the cost of the full supply chain needed to support fuel production and delivery to the point of use. Going forward, the transportation industry is facing a dilemma: How are environmental concerns addressed while simultaneously maintaining operational efficiency and avoiding unnecessary upward cost shifts for moving goods and people? In answering that question, for the first time in history, modes of transportation may end up going in multiple different directions when it comes to the fuels each mode ultimately chooses."

This is why many forecasts predict that hydrocarbon demand will continue through 2050, despite ambitious aspirations of achieving net zero emissions by that year. The McKinsey "slow evolution" scenario has global liquid hydrocarbon demand in 2050 at 92mmb/d versus 103 mmb/d in 2023. With their "continued momentum" scenario, oil demand is 75 mmb/d. Proportionally, global oil demand related to GHG emissions from transportation would decline 11-27 percent. The global uptake of EVs is the primary driver of uncertainty around future oil demand. In all the McKinsey scenarios, the share of EVs in passenger cars sales is expected to be above 90 percent by 2050.

The Good News

Despite the relatively slow progress expected for reducing GHG emissions in the global transportation sector, there are solutions emerging that lower the carbon footprint tied to traditional petroleum-based fuels. Emmett highlights some of the methods under study, noting that "sustainable biofuels sourced from cooking oils, animal fats, and agriculture products, as well as hydrogen, methanol, ammonia, and various e-fuels are among the options being tested. Some ocean carriers are already ordering ships powered by liquified natural gas, bio-e-methanol, bio/e-methane, ammonia, and hydrogen. Airlines are already using sustainable aviation fuel as a supplement to basic aviation fuel. Railroads are testing hydrogen locomotives. The trucking industry is decarbonizing local delivery by using vehicles powered by electricity, compressed natural gas, and sustainable diesel. Long-haul trucking companies are considering sustainable diesel as a drop-in fuel for existing equipment, and fuel suppliers are researching new engines fueled by hydrogen and other alternative fuels."

Most of these options will require a combination of increased government incentives, along with advancements in technology and cost reductions.

McKinsey's "sustainable transformation" scenario, which considers potential shifts in government regulations as well as advancements in technology and cost, suggests there is moderate growth in alternative fuels alongside growth in EVs. Mckinsey projects;

EV demand could grow to over 90 percent of total passenger car sales by 2050
EVs to make up around 80 percent of commercial truck sales by 2050
In aviation, low carbon fuels such as biofuels, synfuels, hydrogen and electricity are projected to grow to 49 percent by 2050.

According to McKinsey, the combination of these alternatives along with demand changes in power and chemicals could reduce global oil demand to 60 mmb/d in 2050. The shift to cleaner fuels, for modes of transportation other than EVs, is underway but the progress and adoption will take decades to achieve according to McKinsey’s forecasts.

Looking more closely at EVs, the story may not be as dire globally as it seems to be in the West. While the U.S. appears to be losing momentum on electric vehicle adoption, China is roaring ahead. New electric car registrations in China reached 8.1 million in 2023, increasing by 35 percent relative to 2022. McKinsey’s forecasts have underestimated global EV sales in the past, with China surpassing their estimates, while the U.S. lags behind. It’s clear that China is the winner in EV adoption; could they also lead the way to adopt cleaner fuels for other modes of transport? That is something governments and the transportation industry will be watching in the years ahead.

Conclusion

While we are not on a trajectory to meet the aspirations to reduce global GHG emissions in the transportation sector, there are emerging solutions that could be adopted should governments around the world decide to put in place the incentives to get there. Moving forward, the future of transportation fuels will be shaped by a mix of innovation, government policies, and what consumers want. The focus will be on ensuring that the transportation sector remains reliable, secure, and economically robust, while also reducing GHG emissions. But, decarbonizing the transportation sector is much more than just EV's – it's a broader effort that will require continued global progress in each of the multiple transportation segments.

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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 on October 9, 2024.

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The layoffs could affect about 14,000 of the 140,473 workers employed by the Austin, Texas, company at the end of last year. Photo courtesy of Tesla

Tesla plans to lay off 10 percent of workforce after dismal quarterly sales

making cuts

After reporting dismal first-quarter sales, Tesla is planning to lay off about a tenth of its workforce as it tries to cut costs, multiple media outlets reported Monday.

CEO Elon Musk detailed the plans in a memo sent to employees. The layoffs could affect about 14,000 of the 140,473 workers employed by the Austin, Texas, company at the end of last year.

Musk's memo said that as Tesla prepares for its next phase of growth, “it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” The New York Times and CNBC reported. News of the layoffs was first reported by electric vehicle website Electrek.

Also Monday, two key Tesla executives announced on the social media platform X that they are leaving the company. Andrew Baglino, senior vice president of powertrain and energy engineering, wrote that he had made the decision to leave after 18 years with the company.

Rohan Patel, senior global director of public policy and business development, also wrote on X that he was leaving Tesla, after eight years.

Baglino, who held several top engineering jobs at the company and was chief technology officer, wrote that the decision to leave was difficult. “I loved tackling nearly every problem we solved as a team and feel gratified to have contributed to the mission of accelerating the transition to sustainable energy,” he wrote.

He has no concrete plans beyond spending more time with family and his young children, but wrote that he has difficulty staying still for long.

Musk thanked Baglino in a reply. “Few have contributed as much as you,” he wrote.

Shares of Tesla fell 4.8 percent Monday afternoon, hours after news of the layoffs and departures broke. Shares of Tesla Inc. have lost about one-third of their value so far this year as sales of electric vehicles soften.

Tesla sales fell sharply last quarter as competition increased worldwide, electric vehicle sales growth slowed, and price cuts failed to draw more buyers. The company said it delivered 386,810 vehicles from January through March, nearly 9 percent below the 423,000 it sold in the same quarter of last year.

Since last year, Tesla has cut prices as much as $20,000 on some models as it faced increasing competition and slowing demand. The price cuts caused used electric vehicle values to drop and clipped Tesla's profit margins.

The company has said it will reveal an autonomous robotaxi at an event in August.

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Blackstone clears major step in acquisition of TXNM Energy

power deal

A settlement has been reached in a regulatory dispute over Blackstone Infrastructure’s pending acquisition of TXNM Energy, the parent company of Texas-New Mexico Power Co. , which provides electricity in the Houston area. The settlement still must be approved by the Public Utility Commission of Texas.

Aside from Public Utility Commission staffers, participants in the settlement include TXNM Energy, Texas cities served by Texas-New Mexico Power, the Texas Office of Public Utility Counsel, Texas Industrial Energy Consumers, Walmart and the Texas Energy Association for Marketers.

Texas-New Mexico Power, based in the Dallas-Fort Worth suburb of Lewisville, supplies electricity to more than 280,000 homes and businesses in Texas. Ten cities are in Texas-New Mexico Power’s Houston-area service territory:

Alvin
Angleton
Brazoria
Dickinson
Friendswood
La Marque
League City
Sweeny
Texas City
West Columbia

Under the terms of the settlement, Texas-New Mexico Power must:

Provide a $45.5 million rate credit to customers over 48 months, once the deal closes
Maintain a seven-member board of directors, including three unaffiliated directors as well as the company’s president and CEO
Embrace “robust” financial safeguards
Keep its headquarters within the utility’s Texas service territory
Avoid involuntary layoffs, as well as reductions of wages or benefits related to for-cause terminations or performance issues

The settlement also calls for Texas-New Mexico Power to retain its $4.2 billion five-year capital spending plan through 2029. The plan will help Texas-New Mexico Power cope with rising demand; peak demand increased about 66 percent from 2020 to 2024.

Citing the capital spending plan in testimony submitted to the Public Utility Commission, Sebastian Sherman, senior managing director of Blackstone Infrastructure, said Texas-New Mexico Power “needs the right support to modernize infrastructure, to strengthen the grid against wildfire and other risks, and to meet surging electricity demand in Texas.”

Blackstone Infrastructure, which has more than $64 billion in assets under management, agreed in August to buy TXNM Energy in a $11.5 billion deal.

Neal Walker, president of Texas-New Mexico Power, says the deal will help his company maintain a reliable, resilient grid, and offer “the financial resources necessary to thrive in this rapidly changing energy environment and meet the unprecedented future growth anticipated across Texas.”

Constellation and Calpine's $26B clean energy megadeal clears final regulatory hurdle

big deal

Baltimore-based nuclear power company Constellation Energy Corp. received final regulatory clearance this month to acquire Houston-based Calpine Corp. for a net purchase price of $26.6 billion.

The acquisition has the potential to create America’s “largest clean energy provider,” the companies reported when the deal was first announced in January.

The Department of Justice approved the acquisition contingent on Calpine divesting several assets, including one in the Houston area.

The company agreed to divest the Jack Fusco Energy Center natural gas-fired combined cycle facility in Richmond, Texas; four generating assets in the Mid-Atlantic region; and other natural gas plants in Pennsylvania and Corpus Christi, Texas.

The Federal Energy Regulatory Commission, the Public Utility Commission of Texas and the New York Public Service Commission previously approved the deal. The companies can move toward closing the acquisition once the court finalizes the stipulation and order.

"We are very pleased to reach a settlement that allows us to bring together two magnificent companies to create a new Constellation with unprecedented scale, talent and capability to better serve our customers and communities while building the foundation for America’s next great era of growth and innovation," Joe Dominguez, president and CEO of Constellation, said in a news release. "We thank the Department for its professionalism and tireless work reviewing this transaction through these many months. It’s now time for us to complete the transaction, welcome our new colleagues from Calpine, and together begin our journey to light the way to a brilliant tomorrow for all."

Andrew Novotny, CEO of Calpine, will continue to lead the Calpine business and Constellation's fleet of natural gas, hydro, solar and wind generation, according to the company. He will report to Dominguez and also serve as senior executive vice president of Constellation Power Operations.

Constellation is considered one of the top clean energy producers in the U.S. Earlier this month, the company was approved to receive a $1 billion loan from the Department of Energy's Energy Dominance Financing Program to restart its 835-megawatt nuclear reactor in Pennsylvania known as Crane Clean Energy Center.

"Work to restart the reactor comes at a time of unprecedented electric demand growth from electrification and the new data centers needed to support a growing digital economy and to help America win the AI race," a news release from the company reads. "Crane will support grid stability by delivering reliable, around-the-clock electric supply."

States brace for Trump's push to make oil drilling cheap again

Energy news

A Republican push to make drilling cheaper on federal land is creating new fiscal pressure for states that depend on oil and gas revenue, most notably in New Mexico as it expands early childhood education and saves for the future.

The shift stems from the sweeping law President Donald Trump signed in July that rolls back the minimum federal royalty rate to 12.5%. That rate — the share of production value companies must pay to the government — held steady for a century under the 1920 Mineral Leasing Act. It was raised to 16.7% under the Biden administration in 2022.

Trump and Republicans in Congress say the rate reset will boost energy production, jobs and affordability as the administration clears the way for expanded drilling and mining on public lands.

States receive nearly half the money collected through federal royalties, depending on where production takes place. The environment and economics research group Resources for the Future estimates a roughly $6 billion drop in collections over the coming decade.

The stakes are highest in New Mexico, the largest recipient of federal mineral lease payments. The state could could forgo $1.7 billion by 2035 and as much as $5.1 billion by 2050, according to calculations by economist Brian Prest at Resources for the Future.

More than one-third of the general fund budget in the Democratically-led state is tied to the oil and gas industry.

“New Mexico’s impact is way bigger than Wyoming or Colorado or North Dakota,” Prest said, “and that’s just because that’s where the action is on new development.”

The effects will unfold gradually, since federal leases allow a 10-year window to begin drilling and production. Still, state officials say they're already prepping for leaner years.

“It all hurts when you’re losing revenues," said Democratic state Sen. George Muñoz of Gallup, who said lawmakers still hope to invest more in mental health care and support Medicaid, even if federal royalty payments decline. “We’ve learned that until the chicken’s got feathers, we’re not even looking at it."

The higher federal royalty rate was in place for roughly three years while leasing activity was muted, Prest said. New Mexico budget forecasters never tallied the additional income.

New Mexico's nest-egg strategy

A nearly five-fold surge in local oil production since 2017 on federal and state land in New Mexico delivered a financial windfall for state government, helping fund higher teacher salaries, tuition-free college, universal free school meals and more.

The state set aside billions of dollars in investment trusts for future spending in case the world’s thirst for oil falters, including a early childhood education fund to help expand preschool, child care subsidies and home wellness visits for pregnancies and infants.

The state's investment nest egg has grown to $64 billion, second only to Alaska's Permanent Fund. Earnings from the trusts are New Mexico's second-biggest source for general fund spending.

That sturdy financial footing shaped a defiant response to this year’s federal government shutdown, when lawmakers voted to subsidize the state’s Affordable Care Act exchange, cover food assistance and backfill cuts to public broadcasting.

But lawmakers reviewing state finances learned that predictable income fell 1.6% — the first contraction since the start of the COVID-19 pandemic.

Muñoz said matters would be worse if the state had not raised its own royalty rates this year to 25%, from 20%, for new leases on prime oil and gas tracts, while ending a sales moratorium, under legislation he co-sponsored this year.

Encouraged in Alaska

After New Mexico, the states receiving the most federal oil and gas royalties are Wyoming, Louisiana, North Dakota and Texas.

Texas, the nation’s top oil producer, shares the bountiful Permian Basin with New Mexico but has far less federal land and therefore less exposure to changes in royalty policy.

In Alaska, state officials say they are encouraged by the royalty cut, seeing potential for increased development in places like the National Petroleum Reserve-Alaska, where the massive Willow project — approved in 2023 and now under development — is viewed by some as a catalyst for further activity. The reserve is expected to hold its first lease sales since 2019.

“If reduced federal royalty rates stimulate new leasing, exploration and production, that also could increase other kinds of revenue,” said Lorraine Henry, a spokesperson for Alaska’s Department of Natural Resources.

In North Dakota, federal royalties are split evenly between the state and county governments where drilling occurs. State Office of Management and Budget Director Joe Morrissette said the industry’s future remains difficult to forecast.

“There are so many variables, including timing, price, availability of desirable tracts, and federal policies regarding exploration activities,” Morrissette said.

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