Time for a reality check, Exxon warns Europe

Lee Raymond, the chairman of Exxon Mobil, promised plain speaking to the Energy Institute Annual Dinner in London this week, and despite the protests of environmentalists who broke into the event, that’s precisely what he gave. You can have as many Kyoto protocols as you like, yet there is little merit in soft-pedalling some of the hard truths about energy, Mr Raymond began in his usual no-nonsense style.

The reality is that the combination of economic growth and population increases alone can be expected to lead to a rise in primary energy demand of 50 per cent by 2030, equal to about 100 MBD of oil equivalent, or about 10 times the current output of Saudi Arabia. More alarming still for those who worry about where on earth it is all going to come from, let alone the effect such consumption might have on the climate, this is if anything a conservative estimate. According to Mr Raymond, if energy consumers do not make wise choices and effective investments to improve energy efficiency, then the actual figure is going to be much higher.

Any notion that acceleration of conservation measures, an expansion of nuclear or the growth in renewable energy may be capable of filling the gap is just pie in the sky, according to Mr Raymond. In these circumstances, Europe and the UK need to take a reality check on attaining their environmental targets. Achieving even the quite limited targets envisaged by Kyoto is going to be extraordinarily challenging given the realities of energy supply and demand.

Exxon Mobil is still very much at the redneck end of the oil industry, always ready to call a spade a spade and, unlike its main competitors, not willing to pay even so much as lip service to the mores of the environmentalists. Mr Raymond’s quest is serving his customers and the bottom line; all else is irrelevant. Dubbed by Greenpeace as “the No 1 climate criminal”, if Mr Raymond had secretly funded Michael Crichton’s novel, State of Fear, which paints man-made climate change as an illusion cooked up by alarmist liberals, it would surprise no one. Alone in the oil industry, Exxon still funds research to challenge the established orthodoxy on climate change.

Mr Raymond’s message to European policymakers is that they are being naive, both in believing they can meet their environmental targets and in thinking that present arrangements are adequate for the Continent’s future energy needs.

So what’s Mr Raymond’s solution? Market forces, he thinks, will eventually come to everyone’s rescue. This means refraining from “damaging intervention” and “over-regulation”.

On one level he may be right about this, though not, I suspect, in the way he meant it. If there is to be ever greater demand on finite sources of energy supply, then eventually the cost of established forms of energy will rise to a level where demand begins to fall. This need not necessarily be through economic contraction, though that’s obviously a danger, but rather through the discovery of cleaner, more efficient and alternative technologies. Using less energy doesn’t have to mean giving up your car, or the American way of life.

Mr Raymond is dismissive of the advances that can be made through conservation, as he would be for he is in the business of selling as much oil as he can, yet the potential energy savings to be had from relatively small amounts of spending on insulation, more efficient boilers, more eco-friendly cars, and so on and so forth, are in fact vast.

Let’s be realistic by all means, but regrettably, realism as far as the energy market is concerned cannot mean relying on market forces to stem consumption of fossil fuels. Climate change is a classic example of market failure. Given the choice, the consumer will always buy on price, however green he pretends to be. Nor will the need for self-sacrifice on energy consumption become obvious until it is already too late.