There’s a looming threat facing the oil and gas sector, but it doesn’t involve Iran, Saudi Arabia or missile-bearing drones.
The brazen attack on Saudi Arabia’s top hydrocarbons processing plant this week has focused minds on rising tensions in oil’s Middle East heartlands, sending barrel prices soaring 15%.
That’s bad news for a stuttering global economy, and it’s understandable how the focus of the oil and financial media is on how fast Saudi Aramco can recover.
Yet long-term, the industry is facing a profound challenge — a foe it has been locked in guerrilla warfare with for nearly 40 years: climate change.
Despite its immense wealth, controls on global levers of power and PR blitz, it appears ill-equipped to deal with this existential threat.
Big oil’s Plan A has failed. After decades of funding climate denial, reality is coming home to roost for most of the oil barons.
From fires in the Amazon, heatwaves in Europe, hurricanes in the Caribbean, Greenland’s crumbling ice sheets: climate impacts are biting at home and abroad.
It hasn’t stopped many big companies maintaining the pretence of business as usual, but it’s clear to all but the most diehard they’re on a busted flush.
Plan B was to throw coal under a bus and promote oil and gas as a bridge to a cleaner future.
In part it succeeded. The coal sector looks in terminal decline, despite the best efforts of China, Japan and South Korea to prop up demand in South East Asia.
Meanwhile gas and oil demand is still rising. As the Carbon Tracker Initiative revealed earlier this month, oil majors invested $50 billion in new reserves since 2018. They’re feeling bullish.
Yet cracks are starting to appear in the masterplan and the assumptions that underpin it.
For one, it’s not clear that demand for their goods will continue to soar through the 2030s.
Earlier this year, consultancy McKinsey predicted global energy demand could stop rising in the next decade, due in part to the use of renewables that operate at higher levels of efficiency.
In July, major French bank BNP Paribas chucked another spanner into the oil and gas machine.
By the mid 2020s, it predicted, oil will need to trade at $20 or less per barrel of oil to be competitive with renewables give the projected sharp rise in electric vehicles.
That puts about 40% of oil demand at risk from a cheaper, cleaner energy that is locally sourced and easier to transport.
That’s energy that doesn’t contribute to toxic air in our cities, fumes that exacerbate breathing problems in children and contribute to 4.2 million premature deaths.
It’s early days, but coverage of the 2019 Frankfurt Motor Show was unequivocal: electric vehicles are not only here to stay, they’re also front-and-centre of the big carmakers’ public pitch.
The Greta effect
Then there’s another factor that’s worrying big oil: people.
In June this year, Mohammad Barkindo, Secretary General of oil cartel OPEC said climate campaigners are “perhaps the greatest threat to our industry going forward.”
It was an odd comment from a man who from 1995–2010 was Nigeria’s climate envoy to the UN — rooted in a past where scientists were at best ignored, at worst trashed.
It was a comment that ignored the 2015 Paris Agreement, which offered a sense that fossil fuels would — one day — face extinction.
And it was a comment that ignored the 2018 IPCC 1.5C climate science report, which warned we now have 11 years to cut emissions 45% to have a decent chance of limiting warming to levels that will not obliterate coral reefs, drive up sea levels and super-heat the planet.
Anger at the way big oil ignored warnings from its own scientists about climate impacts, funded climate denial and lobbied against climate policies is now close to fever pitch.
It’s not just Greta Thunberg who’s asking questions of BP, Exxon and Shell. AGM season now promises annual doses of pain for CEOs.
This year Exxon faced a shareholder rebellion over its climate stance, while BP shareholders demanded company managers report by May 2020 how new investments are aligned with Paris.
Meanwhile the New York Times dropped its longstanding association with the Oil and Money conference in London, citing climate fears. Days later the conference dropped ‘oil’ from its title.
It’s not clear what Plan C looks like. Oil PR teams pump out conflicting messages.
If it’s not Exxon adverts for magic algae in the daily Politico round-up, it’s BP lauding its methane strategy on twitter or Shell tweeting about its energy efficient data centres.
Next week oil CEOs meet in New York next week for the latest Oil and Gas Climate Initiative gathering — a sleek and well-oiled PR front launched in 2014.
The theme of this year’s event is “Scaling Up Action: Aiming for Net Zero Emissions” — suggesting they’re banking on new and widespread carbon capture technologies (that’s the ‘net’).
“We are part of the CCUS revolution — I hope that, as a mother, we will be telling our grandchildren that we were persistent, we were passionate and we were successful, for them” said Prati Marangara, OGCI CEO earlier this week.
That’s a big ask, given CCS development is well behind schedule and comes with a vast price tag, one the well-padded oil majors seem reluctant to cough up for.
And the question is, would you trust a secretive sector that has lost control of methane leaks with keeping a lid on carbon dioxide?
Some CEOs are already questioning old assumptions.
BP’s management team appears to be considering quitting its most carbon-intensive projects — ranging from tar sands to deep sea exploration.
“We are certain we’ve got a path, it may not be linear, to being consistent with Paris goals,” Dudley told JPMorgan’s head of European oil research Christyan Malek, in quotes reported by Bloomberg.
“There are going to be projects that we don’t do, things that we might have done in the past. Certain kinds of oil, for example, that have a different carbon footprint.”
Shell too is shifting: on September 9 it won a place on the US Solar Energy Industries Association’s board of directors.
“This is an ideal time to join the Board of Directors at SEIA as Shell continues to participate in the global drive to provide more and cleaner energy solutions,” said Boris Schubert, General Manager of Renewable Power Development at Shell New Energies.
The danger for the planet from oil major slothness is evident. For every Shell making small moves towards renewables, there’s an Exxon adding 4.5 billion barrels to its reserves.
The IPCC is pretty clear about the risks posed to humans and nature from continued rises in emissions.
The danger politicians worry about more — economic meltdown — is also an increasing reality due to oil and gas investments becoming giant white elephants.
It has fast become Bank of England governor Mark Carney’s favourite topic, warning of a ‘Minsky moment’ that could see a financial collapse if carbon-heavy businesses fail to prepare.
“As financial policymakers and prudential supervisors, we cannot ignore the obvious risks before our eyes,” he wrote in April 2019, urging greater efforts to ensure an orderly transition’ to a low carbon economy.
Signs are, we may not have to wait long to see if he’s correct.
Coal-killing natural gas-fired power plants face being undercut renewable power and big batteries by the 2030s, a newly released study from Rocky Mountain Institute reveals.
“Over 95% of gas use in proposed gas-fired power plants across much of the eastern United States could be economically offset by clean energy by 2035, reducing the utilization of proposed new gas pipelines by between 20% and 60%,” write the authors.
In a world awash with oil, where fossil fuel diplomacy still dominates, it’s hard to see how this great game ends.
Still, long touted for their midas-touch, there’s a sense — however marginal — that oil CEOs are finding their licence to operate diminishing annually.
Technology is shifting away from oil. People are waking up to the grip the sector has had on the global economy.
It’s just possible politics won’t be far behind.