Two weeks ago, Big Oil suffered a string of board and court defeats at the hands of radical climate activists.
Exxon Mobil lost three board seats to No. 1 engine, a militant hedge, in a stunning proxy campaign. Engine # 1 indicated to Financial Time that Exxon will need to reduce its production of fossil fuels in order for the company to position itself for long-term success. “What we’re saying is, plan a world where maybe the world doesn’t need your barrels,No. 1 engine leader Charlie Penner told FT.
No less than 61% of Chevron shareholders voted to cut emissions further at the company’s annual investor meeting a week ago, pushing back the company’s board of directors who had urged shareholders to reject it.
In the meantime, a Dutch court has ordered Royal Dutch Shell reduce its greenhouse gas emissions harder and faster than previously anticipated. Never mind the fact that Shell had already pledged to reduce GHG emissions by 20% by 2030 and to net zero by 2050. The Hague court determined that was not enough and demanded a 45% reduction by 2030 from 2019 levels.
And now Big Oil is starting to react.
CNBC reported that Shell is considering selling its stakes in America’s largest oil field, worth up to $ 10 billion.
The Anglo-Dutch supermajor would assess the sale of all of its 260,000 acres (105,200 hectares) in the Permian Basin, located mainly in Texas, according to media reports.
A week ago, Shell CEO Ben van Beurden pledged to “rise to the challenge” of its transition to cleaner energy and pledged to accelerate plans to reduce greenhouse gas emissions following the court order last month.
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However, a subsequent social media post gives us a better insight into how van Beurden actually sees the situation:
“Imagine that Shell decided to stop selling gasoline and diesel today. This would certainly reduce Shell’s carbon emissions. But that wouldn’t help everyone at all. The demand for fuel would not change. People will fill their cars and delivery trucks at other gas stations“van Beurden wrote on LinkedIn last week.
He goes on to say:
“Society must take urgent action against climate change. But a court ordering an energy company to reduce its emissions – and the emissions of its customers – is not the solution. I think Shell should work with our customers and their industries to help them find their own ways to achieve net zero emissions. This will help increase demand for new low carbon products. For companies to invest successfully, they also need bold, clear and consistent government policies and regulations. Greater collaboration between governments, businesses and customers will enable us and others to grow our low carbon energy business in the fastest way.. “
Shell Big Oil peers might agree with van Beurden’s point of view.
Reduce emissions, do not eliminate fossil fuels
Shell’s plans to sell prime real estate and expand its low-carbon investments, including providing customers with electric vehicle recharges, hydrogen, wind and solar power, and biofuels, will not only reduce its oil production, but also support the demand for renewable energy.
However, Shell peers have come up with a very different strategy: cut emissions without necessarily reducing oil and gas production.
Speaking at this year’s CERAWeek by IHS Markit energy conference, the dominant theme that emerged at the conference was that Big Oil wants to focus not so much on reducing oil and gas production. as on the mitigation of the impact of its carbon and greenhouse gas emissions.
According to Exxon Mobil CEO Darren Woods and Vicky Hollub of Occidental Petroleum, reducing carbon emissions from fossil fuels and not the actual use of fossil fuels offers the best way to fight climate change..
Interestingly, the two CEOs pointed out that the world still needs oil and gas, and governments need to focus on mitigating global warming using technologies such as carbon capture and storage (CCS). instead of attacking fossil fuels.
Still, even the biggest hardline supporter of them all, Exxon Mobil, has changed its tone significantly from just a few years ago.
On the company’s 2021 Investor Day, CEO Darren Woods outlined the company’s energy transition strategy, including plans to reduce production growth and increase cash flow in a bid to support a growing dividend. Exxon has revealed that it plans to keep production stable from 2020 to 2025 at 3.7 million boe / day, down 26% from the estimate of 5 million boe / day for 2025 published just over a year ago.
Still, Exxon plans to continue increasing production in the Permian basin and Guyana, with Permian production averaging 400,000 boe / day this year before reaching 700,000 boe / day by 2025. Exxon sees Guyana is also quickly becoming a key cash cow, but has indefinitely suspended other major projects such as Mozambique’s $ 30 billion LNG export project.
Woods has announced plans to increase investment in carbon capture and storage to around 3% of new spending, an improvement from the 1% he previously earmarked for CCS, but still far from double-digit levels European majors Total SE and Royal Dutch Shell, Woods urged governments to stop picking winners and losers, but instead build carbon markets in order to “ensure that we use market forces to try to reduce CO2 emissions as effectively as possible. “
However, investors with deep pockets don’t buy it.
The 145-member coalition for a Responsible Exxon that oversees $ 2.5 billion in assets said Exxon Mobil needs to change direction and not just name new candidates to the board. Then, of course, Engine # 1 drove the nail in with even more force.
Occidental Petroleum’s Vicky Hollub echoed Darren Woods’ views:
“What I think people don’t understand is that we shouldn’t be talking about phasing out fossil fuels. What we really need to talk about is eliminating emissions and if we can deliver and we will. Net zero carbon oil is what the world needs and the world cannot meet the goals … of the Paris Agreement without the help of the oil industry. We can be leaders in this area. “
Hollub said OXY’s goal is not only to become a net-zero oil producer, but also to help other companies reduce their carbon footprints:
“We are going to build what will be the largest direct air capture facility in the Permian and partner to do that with United Airlines, as they also have a commitment and are focused on the goal of achieving net zero of by 2050.. “
Hollub revealed that Occidental was committed to scavenging carbon from two ethanol plants and a steel plant in Colorado and sequestering it in the Permian Basin.
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Last week, Occidental Petroleum announced that its Oxy Low Carbon Ventures The subsidiary plans to build and operate a pilot bio-ethylene plant that will apply technology using human-made carbon dioxide instead of raw materials from hydrocarbons.
Bio-ethylene is currently produced from bioethanol mainly obtained from sugar cane. The pilot plant is expected to come into operation in 2022.
OXY is also against a carbon tax:
“A carbon tax would be bad for a large part of the industry, a carbon tax would be bad for consumers and especially for the most economically disadvantaged consumers,“The CEO of OXY said at a virtual summit of the Texas Independent Producers and Royalty Owners Association.
OXY became the epitome of a merger and acquisition deal that went awry after its $ 55 billion acquisition of Anadarko left it in huge debt.
OPEC, Russia the biggest winners
However, not all parts of the fossil fuel industry are alarmed by the growing wave of climate activism or Shell’s decision to cut oil production.
Indeed, OPEC and the major national oil companies (NOCs) are reveling in the schadenfreude following Big Oil’s latest woes, seeing it as a great opportunity to grab more business and market share.
Exxon, Chevron and Shell defeats in boardroom and courtroom are sweet music to the ears of Saudi Arabia’s national oil company Saudi Aramco (2222.SE), Russia Gazprom (GAZP.MM) and Rosneft (ROSN.MM) as well as Abu Dhabi National Oil Company. who seek to capitalize by filling the void that will remain if these companies start cutting oil production in an attempt to pacify investors.
“Demand for oil and gas is far from peaking and supplies will be needed, but international oil companies will not be allowed to invest in this environment, forcing national oil companies to intervene,Amrita Sen of consultancy firm Energy Aspects told Reuters.
By Alex Kimani for Oil Octobers
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