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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America's only rare earth producer announces $500M agreement with Apple

Digging In

MP Materials, which runs the only American rare earths mine, announced a new $500 million agreement with tech giant Apple on Tuesday to produce more of the powerful magnets used in iPhones as well as other high-tech products like electric vehicles.

This news comes on the heels of last week’s announcement that the U.S. Defense Department agreed to invest $400 million in shares of the Las Vegas-based company. That will make the government the largest shareholder in MP Materials and help increase magnet production.

Despite their name, the 17 rare earth elements aren’t actually rare, but it’s hard to find them in a high enough concentration to make a mine worth the investment.

They are important ingredients in everything from smartphones and submarines to EVs and fighter jets, and it's those military applications that have made rare earths a key concern in ongoing U.S. trade talks. That's because China dominates the market and imposed new limits on exports after President Donald Trump announced his widespread tariffs. When shipments dried up, the two sides sat down in London.

The agreement with Apple will allow MP Materials to further expand its new factory in Texas to use recycled materials to produce the magnets that make iPhones vibrate. The company expects to start producing magnets for GM's electric vehicles later this year and this agreement will let it start producing magnets for Apple in 2027.

The Apple agreement represents a sliver of the company's pledge to invest $500 billion domestically during the Trump administration. And although the deal will provide a significant boost for MP Materials, the agreement with the Defense Department may be even more meaningful.

Neha Mukherjee, a rare earths analyst with Benchmark Mineral Intelligence, said in a research note that the Pentagon's 10-year promise to guarantee a minimum price for the key elements of neodymium and praseodymium will guarantee stable revenue for MP Minerals and protect it from potential price cuts by Chinese producers that are subsidized by their government.

“This is the kind of long-term commitment needed to reshape global rare earth supply chains," Mukherjee said.

Trump has made it a priority to try to reduce American reliance on China for rare earths. His administration is both helping MP Materials and trying to encourage the development of new mines that would take years to come to fruition. China has agreed to issue some permits for rare earth exports but not for military uses, and much uncertainty remains about their supply. The fear is that the trade war between the world’s two biggest economies could lead to a critical shortage of rare earth elements that could disrupt production of a variety of products. MP Materials can't satisfy all of the U.S. demand from its Mountain Pass mine in California’s Mojave Desert.

The deals by MP Materials come as Beijing and Washington have agreed to walk back on their non-tariff measures: China is to grant export permits for rare earth magnets to the U.S., and the U.S. is easing export controls on chip design software and jet engines. The truce is intended to ease tensions and prevent any catastrophic fall-off in bilateral relations, but is unlikely to address fundamental differences as both governments take steps to reduce dependency on each other.

Houston energy tech platform Molecule closes series B funding

energy software

Houston-based energy trading risk management (ETRM) software company Molecule has completed a successful series B round for an undisclosed amount, according to a July 16 release from the company.

The raise was led by Sundance Growth, a California-based software growth equity firm.

Sameer Soleja, founder and CEO of Molecule, said in the release that the funding will allow the company to "double down on product innovation, grow our team, and reach even more markets."

Molecule closed a $12 million Series A round in 2021, led by Houston-based Mercury Fund, and has since seen significant growth. The company, which was founded in 2012, has expanded its customer base across the U.S., U.K., Europe, Canada and South America, according to the release.

Additionally, it has launched two new modules of its software platform. Its Hive module, which debuted in 2022, enables clients to manage their energy portfolio and renewable credits together in one scalable platform. It also introduced Elektra, an add-on for the power market to its platform, which allows for complex power market trading.

"Four years ago, we committed to becoming the leading platform for energy trading," Soleja said in the release. "Today, our customers are managing complex power and renewable portfolios across multiple jurisdictions, all within Molecule.”

Molecule is also known for its data-as-a-lake platform, Bigbang, which enables energy ETRM and commodities trading and risk management (CTRM) customers to automatically import trade data from Molecule and then merge it with various sources to conduct queries and analysis.

“Molecule is doing something very few companies in energy tech have done: combining mission-critical depth with cloud-native, scalable technology,” Christian Stewart, Sundance Growth managing director, added in the statement. “Sameer and his team have built a platform that’s not only powerful, but user-friendly—a rare combination in enterprise software. We’re thrilled to partner with Molecule as they continue to grow and transform the energy trading and risk management market.”