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Page added on March 23, 2017
Can Big Oil Survive A CO2 Crackdown?
Over the long run, the oil business is under threat.
There are various arguments about why that might happen. Peak supply people argue we are running out of oil. Peak demanders say that market saturation, efficiency, and new technologies will cause oil demand to peak and decline. Similarly, clean energy proponents argue oil will be undercut by electric vehicles. Another variation of this argument can be found in the “stranded assets” theory, which posits that low oil prices, cheaper alternatives or strict climate regulation – or some combination of the three – will keep vast volumes of unprofitable oil in the ground.
A shrinking number of people see oil dominating the energy landscape decades from now. Or, even though it will likely still be a major source of fuel in, say, 2040, its growth is capped. Reasonable people can argue about how much oil will be consumed at what date far out in the future, but the bottom line is that there is broad consensus that oil’s days are numbered.
Even the largest oil companies in the world recognize this looming threat, and are starting to diversify their assets to hedge against a non-oil future. The investments and the commitment to diversification vary by company, but the oil majors are starting to make moves that will, over time, see them become less oily.
For example, Royal Dutch Shell has bet its future on natural gas, or more specifically, LNG. The $50 billion purchase of BG Group turned Shell into the largest LNG exporter in the world, with enormous export capacity in Australia in particular. Shell’s bet seems to be that as the world cracks down on coal in order to cut carbon pollution, it will benefit from higher gas sales. Natural gas has about half of the carbon emissions impact compared to coal. And if carbon pricing makes oil less competitive, it will be less impacted because natural gas will gain market share. Company executives have said that they see global oil demand hitting a peak by 2030.
ExxonMobil is the largest natural gas producer in the U.S., and holds the largest gas reserves in the country as well. However, that bet on gas – a $31 billion purchase of shale gas producer XTO Energy in 2009 – was not made with an eye on future carbon restrictions, but because the company had struggled to make new large oil discoveries. Exxon has had a complicated relationship with climate change, having been accused of covering up climate science and funded climate denying organizations. Officially, it supports a carbon tax, but it is still betting the future on oil and gas. The difference now, however, is that Exxon is dialing back its spending on megaprojects and is focusing on shale drilling, which cuts down on its long-term risk since shale projects can be quickly completed.
Chevron and ConocoPhillips are pursuing similar strategies, stepping up their spending on the Permian and declining to pursue major long-term projects like they did in the past. Conoco has even said that it would abandon new offshore exploration, focusing instead on comparatively lower-risk shale.
BP is going in the opposite direction, increasing spending on large-scale projects such as the Gulf of Mexico and West Africa.
So how will these companies fare 10 to 20 years from now? It’s a fool’s errand to predict what oil prices might do, but it would be a reasonably safe bet to assume that carbon restrictions tighten. The companies that drill in shale today can easily pivot at some point when that becomes less attractive – shale does not tie up cash for years and years like an offshore well or oil sands. ExxonMobil and ConocoPhillips recently took oil sands reserves off of their books and Shell said that it would sell off its oil sands assets. Instead they are focusing on short-cycle and cheaper projects.
But, the bulk of the oil majors’ production will still be oil, even if gas is a growing part of their portfolios. Their risk to low oil prices, peak demand, carbon pricing, or outright restrictions on production remain extremely high. How they deal with this is still very much uncertain. Groups like the Carbon Tracker Initiative argue that shareholders are exposed to imprudent oil investments, investments that might ultimately fail if oil is locked away in the ground.
Statoil, however, is arguably going the furthest to future-proof itself. The Norwegian state-owned oil company, which is credited with helping Norway build up an $880 billion sovereign wealth fund, just announced the results of a “stress test,” evaluating the company’s exposure to a future in which the energy industry is subjected to ever-tightening climate policy.
Statoil assessed a future scenario laid out by the IEA on its portfolio, which assumes the removal of global fossil fuel subsidies combined with a $100 per ton carbon price by 2030. Such a scenario would have reduced Statoil’s net present value by 5 percent in 2016 if it occurred. However, Statoil is planning to evolve, making large investments in renewable energy while also reducing its own carbon emissions. As a result, its net present value could rise by 6 percent by 2030, even with the carbon price.
Statoil withdrew from Canada’s oil sands in 2016, one of the dirtier forms of oil production. Statoil plans on ramping up spending on renewable energy, so that by 2030 clean energy accounts for 10 to 15 percent of its capex. Statoil already has a handful of offshore windfarms in Europe, and it recently won a lease to develop an offshore wind project off the coast of Long Island, NY.
French oil company Total is probably the other biggest renewable developer among the oil majors. Total purchased solar developer SunPower years ago, and last year the company purchased a French battery maker Saft Groupe SA. For now, Total will spend $500 million per year on renewables.
Statoil and Total might be the farthest along, but the other oil majors will likely move into the renewables space more and more. Royal Dutch Shell is starting to dip its toes into the offshore wind market, leveraging its offshore experience in the North Sea for wind power. Italian oil giant Eni says it has a series of renewable projects in Italy, Egypt and Pakistan.
Decisions made today will have an enormous impact on the financials years from now.
“We believe that we’re in a period of energy transformation over the next decade,” said Bjørn Otto Sverdrup, Statoil’s head of sustainability, according to the Wall Street Journal. “The winners in the industry will be the ones that are able to provide energy with the lowest cost and carbon footprint possible.”
By Nick Cunningham of Oilprice.com
23 Comments on "Can Big Oil Survive A CO2 Crackdown?"
Cloggie on Fri, 24th Mar 2017 2:00 am
Big Oil will survive the CO2 crack-down by re-inventing itself into Big Wind and/or Big Geothermal:
https://cleantechnica.com/2016/12/14/shell-consortium-sets-new-lowest-offshore-wind-price-700-mw-borssele-iii-iv-wind-farms/
http://www.dailymail.co.uk/sciencetech/article-3173966/Forget-drills-Shell-wants-use-GUNS-Firm-backs-plans-fire-giant-bullets-ground-reach-geothermal-energy.html
GregT on Fri, 24th Mar 2017 2:45 am
“For example, Royal Dutch Shell has bet its future on natural gas, or more specifically, LNG.”
Which both happen to produce CO2 when burned. Considering that CO2 accumulates in the environment, we either stop, or we don’t. There is no middle ground. Big wind and /or big geothermal also require more CO2 to be emitted into the environment, not only in infrastructure development, but also in the manufacture of all of the stuff that we use the electricity for.
More denial, ignorance, and sheer stupidity. This article is a complete load of tripe.
Go Speed Racer on Fri, 24th Mar 2017 3:57 am
What Greg said.
Platitudes like ‘efficiencies’ are written to
suggest that we don’t need oil anymore.
Lot of people believing that presently.
Quite a lot of the Duhh-merikans also believe
they have been abducted by space-aliens.
Boat on Fri, 24th Mar 2017 5:08 am
The world will never stop the growth of btu’s consumed as long as population continues to explode. That ain’t gonna happen until climate change thins and disrupts the herd. This is not new news.
Davy on Fri, 24th Mar 2017 5:49 am
The question should be can the global system survive CO2 crackdown? The fake green agenda of a transcendence and transition to windmills and solar is a con. I am all for renewables just not the con. The con is a delusion of affluence and progress. Overpopulation and the pursuit of affluence is killing the planet. If we wanted to make a difference we would put all our effort into lowering population and levels of affluence. We would do this with hospices and lifeboats because it means a die off. This die off might be made manageable with some effort at fairness and honesty. That is it, period. It is so simple it is complexed. This one and only solution is off the table except not off the table for nature. Our civilization is not interested in real solutions only techno fantasy and exceptionalism of a human manifest destiny of progress. Our planetary system is in decline and localized failure this will end any civilization especially our overpopulated and rich one.
7BIL people are going to be generating huge amounts of carbon even from minor home economics. Minor home economics is still massive development in the macro. Agriculture alone for 7BIL people destroys are carbon budget. I have experience with industrial agriculture and you are not going to feed 7BIL without it, period. Permaculture is a joke in this respect. If you try to downsize a growth based system it will fail. There are minimum operating levels for our growth based system.
We may bifurcate into regions post globalism. Who knows how globalism will unravel there is no historical precedence. Some of these regions may manage a transformation of sorts but not in a transcendence of affluence and progress. If there is a transformation it will be one of marginally better sustainability and resilience in decline. Basically they will be better prepared lifeboat. That is still not going to help them with the hospice part of the die off equation. That requires significant attitude adjustments.
You take a region like Europe who are focused on an alternative transition. They may achieve a transformation significantly in some sectors but overall they will likely not achieve a transition as-is and status quo. They will only achieve some of this if a global world allows it as well. Too much renewable material is globally sources with economies of scale derived from the comparative advantage of globalism. What Europeans are selling is transformation without the pain. They are selling a cake and eat it party and it is fake fest. A radical carbon free world with affluence is a delusion. There is too much to change and too many loose ends for a complete transition. There is the inconvenient truth that Europe is rich because of globalism and globalism is failing. Where and how is Europe going to get all those resources from the rest of the world? Are they going to do another 18th/19th century of nouveau colonialism?
I am picking on Europe because they are the most advanced in this green movement. They are the most likely to succeed if there is a chance. I admire them for that and wish we had more here in the US. Yet, those who claim a new world is being created in affluence and progress are full of shit. We are destroying the planet in affluence and we will not continue to progress with a destroyed planet. Any change to globalism is going to knock resulting regions down several levels of economic activity and technological complexity. You can’t drop and increase you riches especially when the drop is more than a civilization thing and it is also planetary.
Cloggie on Fri, 24th Mar 2017 6:17 am
Where and how is Europe going to get all those resources from the rest of the world? Are they going to do another 18th/19th century of nouveau colonialism?
China is participating in getting a new “Belkomur” railway line build (or rather two missing pieces) that will connect Siberia and its resources to the northern sea port of Arkhangelsk to be transported to Western Europe:
http://barentsobserver.com/en/arctic/2012/11/china-jumps-aboard-russian-arctic-bound-train-27-11
To be transported goods: coal, mineral fertilizers, oil, timber, ores, construction materials and containers.
http://www.belkomur.com/en/belkomur/1.php
It is all part of the Chinese strategy of outmaneuvering the US navy control of the Seven Seas with an Eurasian overland counter-strategy of vast railway networks.
http://www.inpraiseofchina.com/wp-content/uploads/2016/06/Map-China-New-Silk-Road-EAU.jpg
Davy on Fri, 24th Mar 2017 6:47 am
OK, clog, what happens when global trade declines? These is undeniable evidence it is declining. It is currently a rate of growth change not an actual drop but it is heading that way. Is that going to deliver the amount of product needed to drive your Europe as-is once it falls to a certain point. Are you saying a decline beyond a certain point is not possible? You have already agreed a financial drop may be in the cards in previous comments. How far can that drop go and still maintain the status quo that is a must for all the progress you are preaching? Have you thought that through? How far can it go and still maintain your yet to be built “Belkomur” railway. I doubt your one Belkomur railway is going to save your high Euro way of life. There is a lot more to an economy than one railway line. Your responses do not add up to what it takes to continue to maintain trade at the levels that allow the kind of progress you are proposing in your many comments coupled with decline. You have already admitted to a possibility of financial decline in your other comments. Your admissions are not a collapse but you at least are acknowledging a decline.
What is Germany going to sell to the Chinese? The same Chinese that have an export dominated economy. How is those trade levels going to change? I don’t see either country significantly increasing their trade levels. This trade increase is not an advantaged economic arrangement when one considers both Europe and China have developed a particular comparative advantage economies. You don’t change that kind of economic arrangement especially in decline. Those types of changes take a generation of growth. How are you going to maintain the status quo, build out a renewable transition, and a new economic arrangement? Sounds like a lot of changing ahead. When one sees what has been change and what needs to be changed then a realist scratches his head.
twocats on Fri, 24th Mar 2017 7:21 am
“Is that going to deliver the amount of product needed to drive your Europe as-is once it falls to a certain point.”
there’s a significant chance that the economy will bifurcate to where rail goods brought from china are high end luxuries or raw materials for industry for the remaining few elites and their businesses. I guess your point though is, with Chinese engineering and manufacturing being as advanced as it is, what could Germany possibly offer China in return. last remnants of gold? tall, blonde wives?
Cloggie on Fri, 24th Mar 2017 7:32 am
Netherlands Fossil Free in 2030
https://deepresource.wordpress.com/2017/03/24/the-netherlands-fossil-free-in-2030/
Cloggie on Fri, 24th Mar 2017 7:33 am
@Davy – I have no idea how prosperous Europe is gong to be in the end. What I do know is that it is a good idea to make the economy fossil free. If we succeed or not, we will only know in hindsight. I’m confident though that the conditions are such that it can be done.
Cloggie on Fri, 24th Mar 2017 7:51 am
what could Germany possibly offer China in return. last remnants of gold? tall, blonde wives?
Germany sells high end stuff to China like machines, robotics, turnkey plants, premium cars. China sends back Walmart stuff.
German trade relations:
Export:
United States….106 897 683
France………..101 447 082
United Kingdom….86 090 636
Netherlands…….79 068 808
China………….76 094 584
Import:
China………….93 786 688
Netherlands…….83 548 217
France…………65 736 178
United States…..57 880 535
Italy………….51 794 664
The only country that manages to have an export surplus to Germany is the slightly blonder the Netherlands, just saying.
Mhuhahaha.
Midnight Oil on Fri, 24th Mar 2017 8:19 am
There will be NO crackdownn on CO2. It’s all smoke and mirrors. There is no modern economy without fossil fuels, hence no modern nation States. Its like a politician espousing a crackdown on Deficit spending.
Think it’s time for another Climate summit.
Get all together and party for a few weeks to promise to do something when we are all pushing up daisies.
Sure, Trump will give a double to it.
It’s all a Show.
Davy on Fri, 24th Mar 2017 8:23 am
Great clog but you also want to trumpet a new euro empire in many of your comments. I can live with your above sober comment. When you go to makatiland is when you get irritating especially when your theme, like Makati, is the destruction of the US and the rise of your nouveau empires.
Davy on Fri, 24th Mar 2017 8:28 am
Clog numbers and figures on trade are deceptive. Do you really know what makes them up? Give me the percentage of GDP of the US and Germany. Look at the North American trade between Canada and the US. Look at the trade within trade blocks. How much does the US rely on foreign trade and internal trade. Your raw numbers are only good for consumption purposes. Try getting more selective and focuses. Again you are going to makatiland with raw binary numbers. Do you agree we are an interconnected global economy locked in comparative advantage?
Cloggie on Fri, 24th Mar 2017 9:02 am
@Davy – This is my source for trade figures:
http://tinyurl.com/mmnla2b
No idea if they are deceptive or not. It was a response to twocats who seemed to think that Germany was with empty hands vis a vis China. Which is clearly not the case. Didn’t want to make any other point.
When you go to makatiland is when you get irritating especially when your theme, like Makati, is the destruction of the US and the rise of your nouveau empires.
Of course it is irritating, just like it was “irritating” when Western European nations were told by the Americans after 1945 that the days of the European empires were over.
My message towards America is far more constructive than makati’s and is based on the observation of what is currently happening in the US: a brewing mega-conflict between “nationalists/isolationalists” (roughly Heartland white folks) and “globalists/imperialists”, who want to keep pursuing the NWO, now dead in the water. I did not invent that conflict, I can merely predict how that is going to end: secession.
My proposition of membership of the European division of a “Huntingtonian multi-polar world” is the best thing that could happen to the US Heartland, giving them the opportunity to finally become a real nation, rather than carrying that obsolete kosher-run empire further into the future.
For the rest I have less catastrophic views than the most of the rest here. The transition is possible and Europe will carry it out first and the rest of the world will follow in a matter of a few decades. Sustainable innovation aimed at refactoring the existing industrial base is a positive thing, and should replace mindless economic growth.
After the end of the US global empire, Greater Europe (including Americans) and Chinese should take the lead in setting up a global order that aims at an exchange of wealth and education from North to South in return for a birth control program. You could think of individual northern countries adopting a southern nation to that aim.
We will still have some sort of a global order; the difference is that we are going to stop mass migration and that Eurosphere will remain at the top of the pecking order. The “Southerners” will have to be satisfied with “trickle down economics”:
http://16315-presscdn-0-27.pagely.netdna-cdn.com/wp-content/uploads/2014/11/cell-phones-in-africa.jpg
Sooner or later “stuff” will reach them as well.
GregT on Fri, 24th Mar 2017 11:05 am
“Sustainable innovation aimed at refactoring the existing industrial base is a positive thing, and should replace mindless economic growth.”
Industrialism is a large part of the problem Cloggie. All industrial processes require finite ‘resources’, and create a waste stream on the land, in the air, and in the waters. From the perspective of the long term survivability of our species and all life on this planet, there is only one thing that really matters, a healthy natural environment. We cannot have our cake and eat it too, forever.
Humans are not going to stop burning fossil fuels, at least not voluntarily. As an exponentially growing population base continues to push up against increasingly dwindling resources, more states will fail. The migrations will increase as larger amounts of people find themselves unable to meet the basic necessities of life, resulting in more discrimination, segregation, violence, and conflict. Building walls and ending immigration are only temporary bandaid solutions. Eventually we will all find ourselves in the same situation, on a planet that will become increasingly inhospitable to our very survival.
Human politics, economics, ingenuity, and creature comforts, do not trump a healthy natural biosphere. We either learn to get along, and to come to some kind of cooperative agreement to take care of our one and only ever planet, or every single one of us will suffer in the end. I know, not going to happen. Our species is far too intelligent to ever do something as simple as that.
Ghung on Fri, 24th Mar 2017 11:29 am
Cloggie posted; “Netherlands Fossil Free in 2030”
So the Netherlands won’t be using plastics, concrete, steel, aluminum, copper, fertilizers, glass, chemicals,, all the other things that require fossil energy and inputs? No rare earth elements for your communications and IT systems? What will their shipping industry run on? Fairy dust?
GregT on Fri, 24th Mar 2017 11:45 am
“Netherlands Fossil Free in 2030”
The lack of medical tech and pharmaceuticals alone, will go a long way towards reducing population density in the Netherlands to more sustainable levels.
Cloggie on Fri, 24th Mar 2017 1:44 pm
So the Netherlands won’t be using plastics, concrete, steel, aluminum, copper, fertilizers, glass, chemicals,, all the other things that require fossil energy and inputs? No rare earth elements for your communications and IT systems? What will their shipping industry run on? Fairy dust?
Nitpicking Ghung. The idea is to get rid of fossil where it is possible: electricity generation, transport, space heating.
And if we need oil for “rubbers”…
https://www.youtube.com/watch?v=N1t_4RKI3YU
[1:13]
… so be it.
The lack of medical tech and pharmaceuticals alone, will go a long way towards reducing population density in the Netherlands to more sustainable levels.
Not sure why you bring this up. Most pharmaceuticals are used during the last few years of a human life anyway.
rockman on Fri, 24th Mar 2017 5:10 pm
“Netherlands Fossil Free in 2030” Is this the same Netherland that had never imported oil from the US until 2015 and imported 14 million bbls of oil in 2016? The same Netherlands that had imported no petroleum products from the US prior to 2004 and had increased those imports to 91 million bbls by 2016? The same Netherlands that imported almost no diesel fuel from the US prior to 2008but since then has averaged 1.6 BILLION GALLONS PER YEAR? The same Netherlands that has begun in 2015 to import more natural gas than it exports as a result of production cuts at the Groningen gas field, Europe’s largest NG field. A field that still produces. Groningen Field that will ultimately produce 100 TRILLION cubic feet of NG.
And the same Netherlands that has had an interesting COAL dynamic underway in recent years: Electricity production from coal in Dutch power plants increased for the fourth year in a row in 2015, according to Statistics Netherlands. In 2015 39 billion kilowatt-hours of electricity was generated using coal, a 35 percent increase compared to 2014.
Coal generated electricity reached its highest level since 1990 in 2015. While the electricity produced with natural gas dropped by 9 percent to 46 billion kWh, the lowest level since 1996. Energy consumption remained about level at 118 billion kWh.
According to Statistics Netherlands, there are several reasons for the increase in coal power. A few new coal plants opened in the Netherlands since 2013. Coal prices also dropped and in 2013 part of the subsidies for biomass power ended.
Yes: that Netherlands? Na, gotta be the Netherlands in a parallel universe. LOL.
rockman on Fri, 24th Mar 2017 9:17 pm
“Can Big Oil Survive A CO2 Crackdown?”. A “crackdown”! LMFAO. I’ve said it before and I’ll say it again…and I’m many still won’t believe: the oil patch has zero serious concern about a minor hindrance let alone a crackdown. There’s been a billion words warning against global warming, environmental damage from drilling/frac’ng, methane leakage, oil spills, con men ripping off investors, denigrating sacred lands, and on and on and on about all the evils of fossil fuel production. From noted scientists and economists, countless politicians, huge international environmental organizations, etc, etc, etc.
And where are we today: producing near records levels of oil, NG and coal. And CO2 levels rising y-o-y. And oil, NG and even COAL prices running near or above historic averages. And virtually no global authority to mandate a change in the path we’re on. And all this is happening thanks to a group with more power then the fossil fuel producers could ever fantasize having.
And that all powerful group calling the shots? The fossil fuel CONSUMERS. If anyone wants to change the path the world is following they’ll need to crack down on those consumers. And so far no one has taken that tasdk on to any significant degree. Which is why nothing I changing and nothing will until that’s done.
Just don’t try holding your breath until it begins in earnest. LOL.
Cloggie on Sat, 25th Mar 2017 4:23 am
@rockman – assuming that your figures are right… what is the point you are trying to make? So Groningen is running out and now we should import fossil fuel from all over the world until kingdom comes? Don’t think so.
There are a few new interesting developments that come together:
– offshore wind power is now cost competitive with fossil
– The Paris Accords
– The EU energy policy with the Netherlands embarrassingly behind in implementing it
– There is a global consensus that the world should “transition”
– Dutch population is very “green minded”
– The Netherlands has a part of the North Sea with shallow water very suitable for large scale deployment of offshore wind
– The Dutch were the world’s first fully fledged capitalists and have perfect sense of timing and the moment for a Great Leap Forward is now
– The liberal business party VVD that won the elections (by losing 10 seats.lol) is open for a coalition with the Greens on exactly this theme
– The Dutch government (and others in Europe like the Germans) is running surpluses, so there is money to be spent
– The Dutch love to see themselves as an example for the rest of the world and wants to be first with everything. It is admittedly a very irritating attitude, but I am afraid that the world has to live with that.lol (gay marriage, euthanasia, soft drugs, abortion, fast internet adoption and now transition)
– Big Dutch business like Shell support the transition, envisioning a big role for themselves
– The Netherlands are traditionally very good at offshore. Offshore wind would be a very lucrative addition to the product palette
rockman on Sat, 25th Mar 2017 12:39 pm
And another sign of the huge “crackdown” underway: the very environmentally focused folks in New Zealand are offering only a lousy 186,000 SQUARE MILES of onshore and OFFSHORE leases. Who knows how much would have been offered had there not been “extensive consultation with 146 iwi and hapū groups and 43 local councils”.
“Zealand Energy and Resources Minister Judith Collins has opened the Block Offer 2017 tender for petroleum exploration permits. The tender includes five offshore release areas, two onshore release areas, and one offshore/onshore release area, totalling 185,998 square miles. The launch of the tender follows extensive consultation with 146 iwi and hapū groups and 43 local councils on the proposal for Block Offer 2017,” a ministry statement said. The invitation for bids for Block Offer 2017 closes Sept. 6. The ministry expects to grant permits in December 2017.”
You can just picture the kiwi oil patch cringing and the sound of that whip cracking over there heads. LOL.