Fossil Foolish
'Bad days' for Big Oil may be worse for the climate
Recent weeks have brought landmark victories for climate activism. At least that’s the claim. “Watershed defeats,” they have been called, against an existential enemy: the oil industry. No other industry is felt to be such a nemesis to a non-carbon future.
Most of the relevant battles relate to shareholder demands for speedier progress on emissions. Exxon was forced to give up three seats on its board to climate activists. Chevron and ConocoPhillips were called to reduce emissions faster than planned. A similar reduction was demanded of the French firm, Total, which was also advised to adopt a new name, TotalEnergies, given its promise to adopt renewables. A Dutch judge ordered Shell to cut its own emissions 45% below 1990 levels by 2030.
Taken together, these acts have been described as “crushing blows” for Big Oil. They have led to jubilant celebration in activist quarters and eager commentary in media outlets. But are they in fact the victories or defeats so loudly proclaimed? Not really. At best, they exaggerate. At worst, they negate their own good intentions.
Consider the context. How will oil companies reduce their emissions quickly, at major scale? Will they kill production, plug all wells, remove equipment, and walk away? Not likely. Oil/gas fields are assets; they will be sold. A savvy buyer will do a thorough technical review, perhaps apply new recovery methods, raise and extend production. A less savvy purchaser will do a cursory review, invest little, run things hard, ignore emissions, leaks, spills, as the field degrades.
Here’s something else. In Exxon’s case, management has been anticipating the shareholder move, even as company officers have worked to stall change. This may appear a double-sided game. Insiders know that Exxon has pursued a strategy of quiet preparation in order to prevent exactly the kind of “crushing blow” said to have occurred. While the company does believe oil and gas will remain major sources of energy in 2050, putting itself at odds with European oil/gas firms, it has not been blind to the rise of the divestment movement nor to shareholder pressure for lower emissions in various industries.
The Shell decision, meantime, will be appealed and quite possibly overturned. As for the other two examples, they are more in the way of endorsements for what Total and, to a somewhat lesser extent, Chevron, have been considering. They have seen the momentum grow for fossil fuel divestment. They already understood that the time for SOS (same old shit) is over.
But they also know that world demand for oil and gas will not shut off like a light. Both sources will remain important (though no longer dominant) in 2050, even in a scenario of rapid decline (see below). The key to the future for major oil companies is flexibility and diversification. And for these companies, this is geriatric news.
The Bigger View
Which brings up an even more fundamental factor.
“Big Oil” is indeed the traditional vernacular we employ for these entities. But in a realworld sense, they are no giants. None are close to being $1 trillion firms, like Big Tech firms Apple, Microsoft, Alphabet, Amazon. Exxon was even dropped from the top 10 of the S&P 500 in 2019—a true “defeat”—due to declining performance and high debt. A year later, it was even dropped from the Dow, after 92 years among blue chip stocks. That seems more like a “negative landmark.”
But never mind. Big Oil is small for another reason. Exxon, BP, Shell, et al. are smelt compared to the orcas of Saudi Aramco, Rosneft, and Iraq National Oil Company. I’m not talking in terms of revenue but instead total value, actual ownership of oil and gas reserves, and also levels of production. It is national oil companies (NOCs)--monopolies who respond to the dictates of autocrats, few of whom appear to lose sleep over emissions—that hold the vast majority of the world’s hydrocarbon resources and produce the overwhelming majority of them. Eliminate all the IOCs, and you will remove around 15% of global oil production, no more.
Some NOCs (OPEC, Russia) may themselves celebrate as IOCs shed assets and become less of a presence on the global stage. Some of them are international, too, and may think about buying some of the inventory that IOCs put up for sale, including refineries and petrochemical plants. All NOCs need the expertise and technology that Exxon et al., and mid-sized IOCs too, can bring to any project. Large parts of the world with new discoveries—offshore Africa (many nations), South America, the Eastern Mediterranean (new discoveries for Israel, Lebanon, Egypt, Cyprus), among others—depend on western oil companies to develop their reserves.
Nearly the entire periphery of sub-Saharan Africa, from Senegal round the cape to Kenya, is now known to have oil and gas. You won’t be shocked to learn that none of these countries plan to abandon these resources. Poor as many of them are, and recent as the discovery of their hydrocarbons is, they tend to view their newfound oil/gas as close to treasure. After the rapine of colonialism, there is no justice in blaming them. Were western companies kept from aiding development of reserves, it wouldn’t stop anything. It would, however, leave things in the hands of firms that might care less about worker safety, minimizing impacts, gas flaring, emissions, corruption, etc.
Believe it or not, Big Oil has Renewable Plans
So the claim of “landmark” victories against Big Oil and the kingdom of carbon has a hollow sound. No less, there is truth in the declaration that a major part of the “enemy” has not only left the field of battle but now gives support to the other side.
Every major European IOC--BP, Shell, Total, Equinor (Norway), Eni (Italy), Repsol (Spain)—have plans underway to reach net zero emissions by 2050. All have launched programs to become “multi-energy” providers. In nearly every case, this means direct investment in renewable generation.
BP, Equinor, and Total are particularly assertive about their long-term strategies in this regard. The first has plans to cut (sell off) 40% of its oil and gas production by 2030, but also to build at least 50 GW of renewable capacity. Such includes a partnership with Equinor for erecting two offshore wind projects along the northeast coast of the U.S.
Offshore wind, despite its higher potential, is barely a whisper in the U.S. (one small group of 7 turbines off Block Island, Mass.). That the technology will gain a major boost from Big Oil may seem like a page torn from the Book of Alternate Truth. A decade ago, it was. Today, no—not for European oil firms anyway. The EU, with its New Green Deal (ignore the name’s originality), has announced it will be moving aggressively in non-carbon directions. Equinor has responded with offshore wind efforts in the Baltic, North, and Norwegian seas. BP recently paid a high premium to enter the renewables market in its own front yard, the UK.
Total’s plan is like BP’s, to combine renewable assets with the selling non-carbon power. Its near-term goals are larger: in February, it announced a 2030 goal of 100 GW renewable capacity. Eni, too, has a program of this kind, though with smaller targets (15 GW capacity by 2030, 60 GW by 2050). Repsol entered the U.S. solar market in 2020, planning to invest up to $6.6 billion between 2021 and 2025..
Shell, meantime, sees a different path forward. Unlike its relatives, it does not see owning renewable assets as profitable as acting as a seller of electricity itself. Meantime, its production of oil peaked in 2019 and will continue to decline. The company has built over 60,000 charging points for EVs in Europe and will install many more. Its plan aims at profiting from changes in consumer demand, the increasing role of electricity in transport most of all.
Less well-known are the investments some IOCs, esp. Eni and Chevron, are making in nuclear. For these companies, ‘nuclear’ means fusion, not fission, and their involvement is not large, some $tens of millions compared to the $billions that BP, Equinor, Shell, and Total are putting into renewables. Fusion, however, counts as a long-term prospect though making real strides.
[Given this, it would make good sense for IOCs to support next generation fission reactors, now on the verge of commercial expansion. A focus on start-up companies with plans for advanced small modular reactors (SMRs) would be worth pursuing when so much cash is going to wind (a far weaker non-carbon source). I’ll be covering this and much more in an upcoming post on nuclear.]
Most of the IOCs are now devoting some of their profits toward hydrogen, carbon capture and storage, and direct air capture (of carbon) as well. As I said earlier, they are in the business of the future, and this means energy-related R&D in many forms.
How do these companies see the Future?
One very interesting note. Each of these companies put out a yearly report (online, for free download) that discusses their view on the future of energy, in terms of possible scenarios. Using computer modeling, economic forecasts, and political trends, each report offers a data-rich look at what the next several decades might bring.
This kind of forecasting is something major oil companies have been doing internally for a long time. Now they are making it publicly available in a summarized form. Of course, any big company with a depleting asset is in the business of the future. For IOCs, this has meant the global future.
Striking today is how these reports all accept the need for depletion in another sense—declining oil use to reduce emissions. Reading through each report, which I do yearly, shows a shift since the Paris Agreement (2015). Using BP, Shell, and Equinor as examples, they now agree on putting climate change at the center of everything.
This means measuring the future in terms of emission scenarios, e.g. “business as usual,” “rapid decarbonization,” and “net zero by 2050.” Some reports, BP’s for example (shown below), forecast a truly rapid fall in global oil demand for the “net zero” scenario, reaching -70% by 2050, compared with 2018. Others propose a drop of around 50%. Only Exxon sees a future where oil demand actually grows.
Enemies or Allies?
For more than a few, all of this arrives as unwelcome and unacceptable news. In the end, aren’t these companies, at their core—like their smoky brethren, the coal monger—a final foes of a decarbonizing world? Must we be fossil fools, persuaded by all these pretend amendments in favor of climate action? Isn’t it all just propaganda?
Not all of it. In some cases, not at all. To be rational for a moment, each of these firms is a collective of vast scientific and technological capital, innovative force, and experience in all major aspects of energy-related R&D. To consider this irrelevant is immensely, harmfully naïve. They are not foolish enough to remain rigid, welded to the past, when survival means change. The tactics of an Exxon are not those of everyone—it was, I believe, Walter Teagle, the man who ruled that same company for the first half of the 20th century, who said it is “always better to help build the future than to deal with it when it comes.”
IOCs have enormous capability to help create the non-fossil era ahead, and to do so in their own interest . It is fair to say they understand something that those who wish their demise might learn: hunting enemies rather than breeding allies is the mark of a self-destructive strategy.
Moreover, the reason for oil’s dominance among all energy sources isn’t on the supply side. It is demand that drives the system. For all the reasons given above, oil companies are stand-in symbols of a problem that begins with the consuming public and the energy culture they grow up in. It has long been a theater of the absurd that Americans love to hate oil companies even while driving the biggest, heaviest, most fuel inefficient vehicles on the planet.
For some, nothing that these companies do at this point in their history—should they even close their doors forever and transform their assets into a renewable energy fund under separate management—could absolve them of the evil they now personify. Nothing can take or bring them to the haloed side of the good. They are far too useful as the malign embodiments of our soot-stained past.
I say this not to defend the IOCs of the world. Nor would I argue (in Shakespearean mode) that while the evil that firms do lives on, the good is often interred with their bones (or, in this case, profits). Some companies, such as those with two x’s in their name, have done much to earn our informed animosity and suspicion—the effort and equity spent to weaken the truth of climate change in the public mind over decades.
But the view today tends to be that all oil companies are more or less the same, equal members in a shared malevolence. They are, and will always be, the mandarins who rule the kingdom of carbon. As such, any gestures they make toward the domain of the non-carbon count as exactly that—mere smiles and nods.
The movement for punitive divestment has done, and will do, little for lowering demand in the US and the world. It will satisfy the minor gods of vengeance, however. Its imagery and symbolism may well appear worthy. But rather than seek to demonize and impoverish these firms, wouldn’t it be far better to further their involvement in the Energy Transition?
The truth also includes the inarguable fact that the world still needs some of what they now offer. Fossil fuels are essential to building and installing renewable technologies. While this will decline with time, it will not happen quickly and it will not be complete for many decades. Those who cannot make peace with these realities are probably not themselves ready for a non-carbon world.