Can Big Oil Be Trusted Now?

Bernard Looney wants you to know he’s not your typical oil man. BP’s chief executive has his own Instagram where he promotes mental health awareness, LGBTQ+ pride and World Environment Day, and says things like: “The world’s carbon budget is finite and running out fast.” He rarely wears a tie.

When asked by The Guardian earlier this year how he sees the pandemic changing society, Looney said: “I think this will remind people of the fragility of the ecosystem that we work in; people are looking up at the skies and seeing less pollution, and I do hope that there will be an even greater appreciation for nature as we move forward, which should keep the climate at the forefront of public debate.”

The months since that bold pronouncement have been rough for the oil industry. The global economic slowdown brought on by Covid-19 which led to the collapse in air travel, combined with a poorly timed price war between Saudi Arabia and Russia, caused profits to slump at virtually every significant oil firm.

BP, which saw its profits fall by two-thirds in the first three months of the year, announced at the end of October that it plans to lay off some 10,000 workers worldwide. Shell has said it will cut roughly 10% of its workforce by 2022. At ExxonMobil, once the most valuable company in the US, some 14,000 workers are set to lose their jobs after its stock fell by 54% this year.

These latest economic pressures have hit an industry already struggling to understand its place in a changing world. Over the last decade, the renewable energy industry has grown at an impressive pace. Non-fossil fuel-based energy is now cheaper and more reliable than ever. The latest report by the International Energy Agency found that the world’s best solar power schemes now offer the cheapest way to generate electricity in history.

Helped by Tesla and “dieselgate”, electric vehicles have now become a significant threat to the internal combustion engine. As part of its Covid-19 recovery plan, the UK government is expected to announce a total phase out of new fossil fuel-powered cars by 2030 – a decade sooner than planned.

The much-touted growth in demand for plastics – long seen as the saving grace of the oil industry – is now viewed as unlikely, as governments act to curb plastic pollution. Perhaps sensing the way the wind was blowing, in June BP sold off its petrochemicals business.

Oil, in other words, is no longer the driver of the global economy, and governments no longer fear running out of it.

BP is exiting the petrochemicals business with a $5 billion sale to the U.K.’s Ineos, as major oil companies look to transition toward cleaner energy https://t.co/iZakt04gAG

— The Wall Street Journal (@WSJ) June 29, 2020

In September, BP’s influential yearly report on the future of energy found that oil demand may have peaked in 2019. The report projects that demand could now fall significantly, potentially by as much as 50% by 2040. This is important because when industries hit peak demand, prices tend to remain low and returns diminish. There is an emerging consensus in policy-making and investor circles that oil is in decline.

The key factor here is the climate crisis. It’s what’s driving all of this: motoring on unperturbed, even as the oil price fluctuates, the cost of renewable energy drops, and car manufacturers roll out new electric vehicles. The concentration of greenhouse gas levels in the atmosphere has warmed the world 1°C above pre-industrial levels. The effects of this have been easy to spot, no matter where you live in the world – and have fuelled a growing political urgency around the issue.

This urgency has also hit investors. Last year the world’s largest asset manager BlackRock announced it was divesting from thermal coal, while the world’s largest sovereign wealth fund, which is managed by the Norwegian government, moved to dump $13bn of fossil fuel investments. At the same time, numerous fossil fuel firms have faced calls from investors to be more transparent about their plans to address climate change by reducing their own emissions. For many companies, this means having to reveal the true extent of their emissions for the first time.

The election of Joe Biden in the US, plus China’s recent announcement that it will push for net-zero emissions by 2060, could create a kind of arms race within the green global economy. It’s not just that oil companies’ assets are becoming less attractive due to market forces – government action to address the climate crisis could soon wipe out even more of their value.

It’s in this context that oil companies have in recent months been trying to get ahead of the game. It’s why Equinor, Total, Shell and Eni have announced significant emission reduction plans – and why BP now refers to itself as an “integrated energy company” rather than a plain old fossil fuel firm.

A ‘complete overhaul’?

In September, Looney and his new executive team spent ten hours over three days presenting BP’s much-anticipated climate strategy to investors. They explained that the company wants to cut oil and gas production by 40% over the next decade, going further than any other firm. It intends to make up for this loss in revenue by investing heavily in renewables: the company plans to have 50 gigawatts of net generating capacity by 2030, outstripping its European competitors.

By the end of their presentation, BP’s share price had fallen to a 25-year low. As some shareholders could see, there are problems with the company’s strategy.

Just a week after revealing its plan to turn itself into a clean-energy giant, BP watched its share price drop to a 25-year low https://t.co/8ApNXOS7yY

— Bloomberg (@business) September 24, 2020

First, the company is currently not including Rosneft – by some estimates Russia’s largest oil company, and in which BP owns a 20% stake – in its emissions targets. Some analysts believe it will soon become untenable for BP to ignore Rosneft in its climate plans, as the company will make up an increasing share of BP’s emissions.

Second, BP currently lags behind its rivals on renewables investments, partly because it abandoned a drive for clean energy under its short lived ‘Beyond Petroleum’ campaign in the late noughties. In other words, achieving its stated renewables target will be very expensive for BP in the short term, as it will have to spend significantly more on clean energy to match its competitors.

Anglo-Dutch firm Shell has also made a commitment to net-zero emissions by 2050, with CEO Ben van Beurden calling for a “complete overhaul” of the business in the years to come. But while Shell’s plans have been hailed by some green investors, they’ve raised concerns amongst others. The Transition Pathway Initiative noted a lack of detail in how Shell would work with fossil fuel-dependent sectors like aviation and shipping to reduce emissions. Shell’s plans – along with those of others making ‘net zero’ commitments – also rely on carbon capture technology, which is not yet available at scale, and carbon offsets – a way for polluters to pay for their emissions to be ‘cancelled out’ without actually reducing them.

Another complicating factor for European oil companies is that their competitors in other parts of the world are doubling down on oil and gas. Exxon has bet big on the continued growth of oil demand, pushing ahead with huge new drilling projects in countries like Guyana. Chevron has also projected that oil and gas will be a key part of the energy mix for years to come.

Countries more dependent on fossil fuels are also not buying the idea that a major transition away from oil and gas is in the works. Opec, a cartel made up of some of the biggest oil and gas-producing countries, has predicted oil demand will increase steadily until 2040, while Saudi Aramco has also banked on the oil industry continuing to grow. For the likes of BP, such moves by their rivals in other countries could disincentive their own moves towards cleaner energy.

A difficult future.

Whether doubling down on fossil fuels or transitioning away from oil and gas, energy companies face a difficult future. After downplaying and denying the climate crisis for so long, investors and the public are rightly sceptical about these firms’ green promises. Attracting workers into the industry is also proving challenging, with young people reluctant to start careers in a sector that played such a key role in the crisis that will define their adult lives. 

Climate change will continue to accelerate as long as the world continues to burn fossil fuels. Whether oil production will slow is as much a question of political will as it is of economics. If governments act boldly, Exxon, Chevron and Saudi Aramco’s hopes for the future will fall flat, and the Bernard Looneys of the sector will just look like they’re playing catch up. If they don’t, and global temperatures soar past 2, 3, or even 4°C of warming, what kind of fuel powers what remains of the global economy will be the last thing on our minds.

Joe Sandler Clarke is a journalist with Unearthed, where he covers the climate crisis and the environment.

• The Climate Focus is part of Novara Media’s Decade Project, an inquiry into the defining issues of the 2020s. The Decade Project is generously supported by the Rosa Luxemburg Foundation (London Office).