Is ‘Big Oil’ holding up the energy transition?

Major oil companies (“Big Oil”) are unpopular in many affluent nations, where many see them as opponents to an imagined rapid transition to low-emissions energy sources. Condemnations are easy to find:

• Antonio Guterres, UN Secretary-General, called for immediate global action toward net-zero emissions, which “must start with the polluted heart of the climate crisis: the fossil fuel industry.” He also said “Yet for every dollar [industry] spends on oil and gas drilling and exploration, only four cents went to clean energy and carbon capture combined. Trading the future for 30 pieces of silver is immoral.”
• “if you’re in the fossil fuel business, you’re in the fire business, which means you’re in the CO2 business, which means you’re part of the problem, aiding and abetting global climate disruption that is, right now, endangering millions of lives.”
• “ExxonMobil … [spent] decades refusing to publicly acknowledge climate change and even promoting climate misinformation — an approach many have likened to the lies spread by the tobacco industry regarding the health risks of smoking.”

Partly in response to public pressure to produce energy with fewer greenhouse gas (GHG) emissions, many oil companies invested in low-emissions energy sources over the past several years.

• BP: “We aim to be a global leader in safely developing, building, operating, and owning offshore wind farms. We’re making waves towards our aims, developing cutting-edge offshore wind farms in the Irish and North Sea capable of contributing to the UK’s 50-gigawatt and Scotland’s 11-gigawatt wind power targets by 2030.”
• Imperial Oil (majority owned by ExxonMobil) announced a long-term contract with a supplier of low-carbon hydrogen at the Strathcona refinery in Edmonton, the capital of Canadian province Alberta. The project is designed to use low-carbon hydrogen, canola oil feedstock, and a proprietary catalyst to produce approximately 20,000 barrels per day of renewable diesel, thereby reducing transportation-related emissions by about 3 million metric tonnes of CO₂-equivalent annually
• Shell has invested in new solar electrical generation projects in the Netherlands, Oman, Australia, Canada, and Spain

However, returns on many of these businesses have been disappointing, and have dragged down corporate earnings at a time when robust prices have supported oil and gas investment. This is hardly surprising, as even dedicated renewable energy producers such as Danish wind giant Orsted are facing financial challenges trying to break into new markets.

As a result, many oil majors have re-established focus on their core business – producing oil and gas.

• Wael Sawan, CEO of Shell, stated that reducing fossil fuel production risked worsening the cost of living crisis by limiting global energy supplies and pushing up bills. He also argued that poorer countries would bear the brunt of a gas shortfall if they were unable to compete for shipments on the global market.
• “What would be dangerous and irresponsible is cutting oil and gas production so that the cost of living, as we saw last year, starts to shoot up again,” Sawan told the BBC.
• Rich Kruger, chair of Suncor Energy, recently told analysts that he believes Suncor has been neglecting “the business drivers of today” in pursuit of future-focused, clean and low-carbon energy pursuits, with a “disproportionate emphasis on the longer-term energy transition.”
• While these pursuits are important, he added, they will not make money for shareholders today. “Our current strategic framework is insufficient in terms of what it takes to win,” he said. “Today, we win by creating value through our large integrated asset base underpinned by oil sands.”
• ExxonMobil chief executive Darren Woods said he aims to double the amount of oil produced from the company’s U.S. shale holdings over a five-year period using new technologies.

Oil and gas companies have spent decades building expertise in finding, developing, and producing oil and gas, and shareholders are demanding they focus on those core businesses in order to maximize returns – as dividends, rising share prices, and share buy-backs. Corporate management teams are responding by re-focusing on oil and gas while de-emphasizing non-core alternative energy investments.

Of course, this does not sit well with those who view GHG emissions as humanity’s primary issue. For example:

“To see the leader of a great Canadian company say that he is basically disengaging from climate change and sustainability, that he’s going to focus on short-term profit, it’s all the wrong answers,” Canada’s federal Minister of Environment and Climate Change Steven Guilbeault said of Suncor’s recent re-focus.

Energy security and the energy transition

But let’s think of these actions and debates in terms of a theme I have written about a lot lately – energy security. Energy security – UN Sustainable Development Goal #7 – is paramount, because humanity cannot accomplish any of our other goals including adequate food, water, security, human rights or environmental protection without access to secure, affordable energy sources. 

Energy security can be achieved only by having adequate and affordable energy sources available at all times. People in most rich nations have enjoyed energy security for decades, although some of those gains are now being lost for lower-income citizens as the result of recent price increases for oil, gas, coal, and electricity (regardless of how it is generated).

It is common knowledge that oil, gas, and coal together provide more than 80% of humanity’s primary energy needs, a proportion that has changed little in the past couple of decades despite rapid growth in low-emissions energy production. It is also well established that fossil fuel demand will continue to increase over at least the next few years.

The 21st century energy transition is thus a complex beast – not simply a shift to low-emissions fuels, but an intricate interplay of energy supply and demand, with fossil fuels playing critically important roles for decades to come. We need a variety of strong players to carry us through these times – producers of hydroelectricity, nuclear electricity, wind power, solar power, geothermal energy, new storage tech, miners to provide critical materials – but most of all, oil and gas companies to keep us alive and thriving into the foreseeable future.

Big Oil has to function as efficiently as possible to shoulder this load. We still need the support network of oilfield service companies to make things happen, and junior to mid-size explorers to create and nurture new ideas, making oil and gas production more efficient.

Big Wind, Big Solar, Big Hydro, Big Nuclear, Big Mining, Big Geothermal, Big Batteries, Big Electrical Grids, and many others must make contributions. All such organizations, big and small, are doing their best. What the world currently lacks are leaders with the wisdom and foresight to understand all these contributions, and to help facilitate constructive energy transition. There is no value in attacks or destructive commentary – humanity needs Big Team efforts.