Originally published in The Impact, 18th May, 2021
As the fossil fuel industry sunsets how are oil companies thinking about the transition? (Image: Zbynek
You, surely, are interested in energy solutions that succeed as fossil fuels wind down. I know I am, along with the others at The Impact. But what of oil execs? Don’t you want to know what they’re now saying about the end of oil?
Are they clinging to the past-its-prime idea of fossil fuels as imperative for economic growth? Are they engaged in more greenwashing? Or are they starting to embrace economic growth in post-fossil solutions?
Short answer: at least some oil execs are talking about life after oil. Can we believe them?
So, in early May, I joined a live panel discussion on energy security from a leading Washington think tank, CSIS. The idea of the session was to have energy (= fossil fuel) executives and analysts talk about the next few years, particularly to focus on the question of whether big firms are spending enough money, new capital investment, to keep the USA going?
Many questions focused on whether spending on oil and gas production would be high enough (a shockingly outdated question, surely)?
The fossil fuel executives’ answers mostly spoke to keeping their businesses vibrant in the context of an energy transition away from oil and gas. They described capital spending peaks on oil and gas production. They didn’t push back on the need to transition beyond fossil fuels.
Let’s immediately note: beware greenwashing.
Is this just more of the same? Remember when BP (formerly British Petroleum) put out ads with beautiful green landscapes and clear skies and the nifty slogan “Beyond Petroleum”? It was nice, and all, but BP kept on investing in Canadian tar sands, drilling new wells, and stayed involved in coal mining. It presided over the Deepwater Horizon oil disaster in the Gulf. BP is not the only oil and gas firm to use attractive PR genuflections in front of the need for a cleaner, greener world to deflect attention from an unchanged mission to drill, baby, drill, never mind the consequences – Greenwashing.
Passing a peak?
The assertion that capital spending on oil and gas production has already peaked and won’t ever go back is not as intriguing as it seems: the boom in shale oil production, fracking and so on, a few years ago, rode on the back of a one-time, quick burst in capital spending that has faded.
Nonetheless, “Peak Oil” – the idea that oil will reach a high point and then fade, is here in detail. First, there’s a peak in spending on production assets – and that seems to be already history. Then there’s a peak in demand. And then, finally, a peak followed by a long-term decline in production. The peak in ‘upstream’ spending – capital investment in wells and oil reserves – is, they say, behind us already.
European firms, pushed by governments, seem to be leading in moving into the transition. The CSIS bash featured Gretchen Watkins, head of Shell US and with roles including global leadership in unconventional fuels and renewables. Shell includes liquified natural gas on that list; a fossil fuel with a somewhat lower carbon footprint than oil, but still. Asked specifically about Shell’s capex and cash flow, she ignored the question and spoke about the goal that Shell has announced – to have an entirely carbon-neutral business by 2050. Not only its own operations, but that its business in carbon sequestration and renewables will make its entire energy business carbon-neutral. She said her own compensation is – in part – tied to helping Shell get toward carbon neutral.
Scott Sheffield, CEO of a shale-oil giant, Pioneer Resources, speaking in classic Texan oilman drawl, delivered similar messages: shale oil spending is past its peak; it’s time to return cash to investors and not plow more into capital; oil companies have to work hard to slash methane emissions; Saudi Aramco’s dividends are, in large part, intended to drive the country’s transition from fossil fuels.
Can we believe them, this time?
Here’s a meeting of oil leaders, and they’re talking the talk: the end of oil is on its way. But these are hard-nosed executives, focused on cash from their businesses. Oil and gas companies have a long, long history of lying about climate change (and other environmental and societal damages). Trust, oft broken, returns slowly. Will they walk the walk, this time?
This is where I get very uncomfortable. The arc of the meeting was: CSIS asks oil and gas exec about investment in oil; exec responds about transition to a post-fossil fuel era; CSIS asks no questions about that. There’s no attempt to create a narrative of accountability: how will the USA’s or the world’s energy needs be met in transition? Who is holding anyone’s feet to the fire to make sure both that the transition occurs in a timely manner and that energy supplies are there?
That’s a key omission. CSIS, and the community at large, including us, must do better. Oil companies can – and, as public companies and as vital ingredients of the economy surely must – declare how they intend to transition. Share the models, the assumptions. How much do they think solar power will cost in 10 years? What prices for carbon sequestration are they assuming? How well will these support meeting climate goals?
Why did not the analysts from CSIS (and Boston Consulting Group) push on these? Until we see the spreadsheets, the raw data, and the commitments – to investors and to the world at large – it’s easy to assume that we’re just seeing greenwashing. And until CSIS and BCG get to sharp questions, their credibility and those of fossil fuel firms saying they’ve seen the light, all remain in doubt.
Some details
The host of this meeting was CSIS – the Center for Strategic and International Studies, a large, Washington, D.C., think tank, focused on many issues of strategic importance for the vitality and success of the USA. Yes, it’s got a heavy dose of corporate and big-military thinking and, yes, its affiliates include Henry Kissinger. Expensive suits and silk ties. And ties, of a different sort, to the US Department of Defense and intelligence community. What better place, then, to listen to voices from another side?
You can see the CSIS discussion HERE and read about Shell’s Net Zero assertions HERE