Will Big Oil use high oil prices to go green?

Above-estimate earnings and strong cash positions were the hallmarks of the first half of the year for the big oil majors as well as their smaller rivals. A strong rebound in demand for fuel has pushed oil prices so high that clean energy president Joe Biden had to contact OPEC + to ask for more oil. According to Wood Mackenzie, now is the best time for Big Oil to step up its decarbonization efforts.

“It is incredibly rare for an industry to be warned for decades that its business is under threat,” the consulting firm wrote in a report title CO?mmit and CO?llaborate: squaring the carbon circle for oil and gas. “Businesses cannot ignore the inevitable; the only strategic dilemma is timing and pace,” added the report’s authors.

That oil and gas will continue to exist for years and possibly decades to come is clear to anyone with a realistic view of the future. Yet, according to most forecasts and government plans, the demand for these fossil fuels would be much lower than it is now, and the demand for coal would be dead. The latest boom in demand for coal that has pushed prices to their highest for years may give rise to doubts, but there is no doubt that with sufficient pressure on consumers, demand for oil and gas will decline. . And Big Oil must be prepared for this time.

The Wood Mac report, like other similar documents, recognizes that oil companies are already working towards a low-carbon future, under the combined pressure of shareholders, environmental groups and governments. But, like similar documents, the Wood Mac report concludes that this is not enough.

Noting the recent verdict of a Dutch court against Shell that requires the supermajor to sharply reduce its emissions footprint by 2030, analysts at Wood Mac said the only plausible way to do so was through massive divestments . But there’s a problem with massive divestments, and it’s one that Shell CEO Ben van Beurden noted in a statement following the verdict: Selling oil and gas assets doesn’t make those assets disappear. Whoever owns them will continue to emit methane and carbon dioxide.

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Thus, analysts propose another more coherent path to decarbonization for Big Oil: “There are two key elements to any viable strategy for oil and gas companies: (1) commit to accelerate decarbonization and (2) collaborate with industry as a whole, with government and with other stakeholders to come up with innovative solutions that accelerate decarbonization, in line with the objectives of the Paris Agreement. “

It seems – and is – pretty general. The report’s authors go into more detail below, noting things like diversification into renewables, mainstreaming carbon capture and storage, and shifting production from oil to gas, for example. The emphasis is on reducing so-called Scope 3 emissions. These are the most abundant, which come from people using Big Oil products, and which are the most difficult to reduce. The expansion in wind and solar is mentioned as obvious and rapid, as “wind and solar are now happening on a large scale, with enormous growth potential”.

Indeed, Big Oil is quite active in all these directions, in particular by strengthening its presence in renewable energies. While the US supermajors may have been much slower to act, the big European oil companies are very active in wind and solar and are setting themselves net zero targets for 2050.

In fact, the petroleum industry has been so active, a argument could be done, it could become the big winner of the energy transition. With its technical expertise, its experience in identifying and seizing opportunities and, perhaps most importantly, with the necessary liquidity to seize these opportunities, Big Oil could indeed take ownership of the energy transition. Some are already to accuse supermajors to undermine wind and solar developers because they have the money to bid higher in new capacity tenders.

Blaming Big Oil for everything is a sport these days. While many charges are well deserved, the charges alone won’t do the job the accusers want them to do: forcing Big Oil to go green. But the promise of new revenue streams and the literal sustainability of their business could and probably do the job. It is then that, in all likelihood, Big Oil will be accused of stealing the energy transition.

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Supermajors are pouring billions into wind and solar, hydrogen, and electric vehicle charging. They cover all the bases, it seems. Just look at this declaration by BP’s executive vice president for gas and low carbon, following the company’s announcement that it planned to spend $ 14 billion to turn Aberdeen into its global offshore wind hub.

“With our offering, we aim to do much more than just develop offshore wind power – we believe this can help fuel Scotland’s wider energy transition,” said Dev Senyal. “We want to harness clean energy from Scottish offshore wind and use our capabilities as an integrated energy company to accelerate the country’s electric vehicle charging network, expand its hydrogen offering and strengthen its supporting infrastructure, including including ports and harbors. ”

So Big Oil evolves over time, partly on purpose, partly much more unintentionally, but it does happen. According to the authors of the Wood Mac report, it needs to change faster to make a real difference. But maybe it’s not all set in stone, and Big Oil doesn’t want to move too fast in case the demand for oil persists despite passionate attempts to kill it.

By Irina Slav for Oil Octobers

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