U.S., European oil companies make opposing bets on future

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American and European oil companies are taking vastly different approaches in the face of low oil prices and growing concerns about climate change.

BP, Royal Dutch Shell and French major Total are shifting their businesses away from fossil fuels, looking to reinvent themselves as renewable energy leaders. London-based BP, in particular, has moved aggressively, selling its petrochemical business and acquiring wind farms to meet an ambitious goal of becoming a net-zero carbon emissions company by 2050.


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On the other hand, Exxon Mobil and Chevron have doubled down on oil and gas, betting that the world’s growing population will continue to rely on affordable and abundant fossil fuels. Irving-based Exxon Mobil is investing heavily in offshore Guyana while California-based Chevron is snapping up Houston-based Noble Energy in a $13 billion deal to increase its position in West Texas and the Eastern Mediterranean Sea.

“It’s very striking to see the difference,” said Daniel Yergin, an energy policy expert and vice chairman of research firm IHS Markit. “European companies exist in a different political and social context. They’re under different pressures from investors and from society around them, and I think that’s had a big impact in how they see the world and where they think things are going.”

These two perspectives underscore a growing debate over how quickly the industry should alter business models to prepare for tougher climate regulations and wider use of renewable energy. In Houston, the future for thousands of workers and hundreds of companies on both sides of the divide could depend on which forecast proves to be most accurate.

Some oil majors, including BP and Royal Dutch Shell, believe oil demand may never fully recover from the coronavirus pandemic as the global energy mix shifts from fossil fuels.

Shell this week announced plans to lay off as many as 9,000 workers by 2022. BP plans to lay off 10,000 workers and Chevron plans to lay off 6,000 workers by the end of the year. Exxon, the Irving-based oil giant, is conducting a country-by-country review that it said could result in the reduction of management positions, and earlier changed its performance review process to be more stringent.

In addition, many oil majors already are slashing budgets, writing down billions of dollars of assets, cutting shareholder dividends and consolidating companies. Rystad, a Norwegian energy research firm, estimates oil companies will need to sell $111 billion worth of oil and gas assets in response to low oil prices and weakening outlook for fossil fuels.

The societal shift to clean energy is well underway. Amazon, Facebook and Google last month pledged to reduce their carbon footprints, while California announced plans to phase out sales of new gasoline-powered vehicles by 2035. Major automakers from Ford to Volkswagen are rolling out more electric vehicles. Several major investors have pulled funds from the oil and gas sector in response to public pressure. Renewable wind and solar power last year were the fastest-growing energy sector.

“Everybody agrees we’re in a period of energy evolution, but we don’t know if it’s going to happen next year or in 30 years.” said Bernadette Johnson, vice president of market intelligence for energy research firm Enverus. “If you’re an oil major, you need to be planning decades out, but this is a really hard market to make a decision in.”

High stakes

Some analysts and investors fear that America’s largest oil companies could be left behind in the energy transition, just as IBM missed the personal computer revolution or Kodak failed to capitalize on digital cameras.

The stakes are high for oil companies to time the transition right. Exxon, the world’s most valuable company just seven years ago, missed the start of the shale boom in the 2000s, and has since invested large amounts on projects in the Permian Basin. It also is spending heavily to drill off the coast of Guyana. But after two oil busts in five years, the company’s market value has plunged by more than 65 percent to $145 billion from $418 billion in 2013.

“If (oil companies) defer making meaningful deep bets on that future, that window may close,” said David Rabley, the managing director of Accenture’s energy, strategy and consulting group.

In a sign of Exxon’s weakening influence, the Irving company was recently removed from the the Dow Jones Industrial index, a group of 30 key stocks that serves as a benchmark indicator of the U.S. stock market. Exxon’s exit left Chevron as the only energy stock on the Dow.

BP and its European peers also have been challenged by recent market downturns and they risk transitioning to renewables too quickly, well before the technology is commercially viable and scalable. Wind and solar technology is becoming cheaper and more abundant, but large-scale battery technology to store power during cloudy and windless days is still being developed.

“You can’t just be reliant on renewables,” Mike Sommers, president of the American Petroleum Institute said. “Those renewable technologies can’t keep up with demand when the wind doesn’t blow and the sun doesn’t shine. You need fossil fuels, particularly natural gas, to back up those systems.”

Beyond oil

Exxon and Chevron predict that global demand for oil and gas will grow substantially over the next two decades as the middle class expands in India, Brazil and Africa. .

They also believe that many industries, such as commercial aviation, will continue to use fossil fuels because alternatives such as hydrogen or biofuels are not ready yet for large-scale use. Other industries will likely take longer to transition away from fossil fuels. For example, it would take decades to replace more than 2.2 billion gasoline fueled vehicles worldwide, according to global consulting firm Accenture.

“The fundamentals have not changed,” Neil Chapman, Exxon’s senior vice president, told investors in July. “The population will continue to grow. Economies will continue to grow. This relationship between societal progress, human development and energy consumption is absolutely clear, and the demand for energy by all third parties is going to be up 25 percent by 2040.”

While their rivals have moved quickly to invest in renewables, Exxon and Chevron have made incremental investments in alternative energy. Chevron has helped finance solar and electric vehicle charging stations. Exxon has put its money into biofuels, particularly algae. Both are working on carbon capture technology to filter carbon dioxide from the air.

This stands in contrast to their European counterparts, which believe the world is moving beyond oil and gas. BP forecasts show oil demand falling by as much as 80 percent over the next three decades if net-zero policies are adopted worldwide to combat climate change. It expects that gasoline and diesel demand could peak during this decade with the rise of electric vehicles.

BP and Shell have made sweeping commitments to cut back oil and gas production to reduce carbon emissions. BP in August said it plans to cut oil and gas production by more than 1 million barrels a day, or about 40 percent, by 2030, and accelerate its investment in renewables and biofuels by tenfold to around $5 billion per year by 2030. Shell is reportedly looking to cut as much as 40 percent of its upstream oil and gas operations as it shifts business away from fossil fuels.

Analysts attribute the differences to political leadership and public sentiment.

The United States’ standing as the world’s biggest oil producer has kept energy prices low, offering no reason to change the status quo, said Ed Hirs, a petroleum economist with the University of Houston. President Donald Trump withdrew the U.S. from the Paris climate agreement of 2015, which set targets to reduce carbon emissions and keep temperatures from climbing higher.

“Although the vast majority of public opinion is in favor of reducing greenhouse gases, our political leadership is unwilling to step up and impose cost on consumers,” Hirs said. “The surefire way to lose re-election is to raise prices at the pump or the meter.”

European countries, which import much of their oil and gas, have stuck with the Paris deal and have imposed higher fuel and carbon taxes to spur a shift toward renewables. In Norway, the government subsidizes electric vehicles and leads the world in EV adoption, said Tore Guldbrandsoy, senior vice president of Rystad, a Norwegian energy research firm.

“The fundamental difference is there is an environmental awareness among people in Europe,” Guldbrandsoy said. “We’ll need oil and gas for a long time, but to be competitive moving forward, you need to be cost efficient and think about the environment. It’s the new license to operate.”



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