Oil Industry Pushback

Great to see O&G companies wanting more O&G.

Big Oil is back with a bang, thumbing its nose at predictions demand will peak this decade



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Royal Dutch Shell's Prelude floating liquefied natural gas facility. Picture: Bloomberg

• 3:14PM OCTOBER 29, 2023

London’s annual Oil & Money conference has a new name: Energy Intelligence. But a slick rebrand isn’t enough to fool climate campaigners at Fossil Free London, who blocked access to the InterContinental hotel on Park Lane this month with a noisy protest. Climate-change warrior Greta Thunberg was arrested and charged with public disorder, while the demonstrations outside were so large that Shell boss Wael Sawan could not get in. He had to address the conference via Zoom.
Even as campaigners vented their fury at an industry they accuse of a callous disregard for the planet, thousands of miles away in San Ramon, California, executives at the energy giant Chevron were putting the finishing touches to a $US53bn ($84bn) deal to buy US rival Hess. The tie-up, unveiled last week, is the second oil mega deal in less than a month, following Exxon’s $US60bn acquisition of shale driller Pioneer.
Big Oil is back with a bang — and thumbing its nose at predictions just last week by the likes of the International Energy Agency (IEA), that demand for oil will peak this decade. But as the rows over climate and oil intensify, what do these deals tell us about the state of the industry? And who is right about when the world will hit “peak oil"?

Chevron, for one, does not believe demand will dry up. Chief executive Mike Wirth, an oil man so tough he wakes every day before 4am for a 90-minute workout, declared recently that the IEA’s forecast was not “remotely right”.
Exxon chief Darren Woods – paid nearly $US36m last year – believes oil will still be in high demand in 2050 in industry and aviation, even if every new car in the world is electric. OPEC, the cartel of oil-producing nations, predicts rising demand until at least 2045. It has also warned of “economic chaos” if the world does not invest in new oil.
The oil industry has been fattened by soaring demand since the end of the pandemic and the invasion of Ukraine; collective profits more than doubled last year to $US220bn. The strength of their sharemarket performance has allowed Chevron and Exxon to cut “paper” deals with their targets, offering to pay Hess and Pioneer in shares, not cash.

For chief executive John Hess, it’s the end of an era for a company founded in 1933 by his father, who started out delivering fuel by truck around New Jersey. For Chevron, Hess’s real value today lies in its shale oil assets in North Dakota, and offshore fields in Guyana.
Hess summed up the view of many last week when he said oil and gas would be needed for decades to keep the lights on while countries find lower-carbon power. Oil and gas were, he said, “key to an affordable, just energy transition”.
For Exxon, Pioneer will double the size of its assets in the Permian basin, the vast deposit in Texas that has helped fuel the US shale revolution of the past 15 years, which has reversed a long-term decline in American oil and gas production.

Although Shell’s shares recently hit a record high, valuing it at $344bn, it lags way behind Chevron, at $426bn. Picture: AFP
Scratch the surface, though, and there are hints that Chevron and Exxon are bracing for an uncertain future.
“These are extremely strategic acquisitions,” said Tom Ellacott, vice-president of research at energy consultancy Wood Mackenzie. “They help diversify their portfolios, but also – especially with shale – you can dial back output quickly if demand drops.”
Maria Pastukhova at the think tank E3G, added: “I think it shows these companies don’t want to risk exploring new reserves; they would much rather buy proven reserves from others.”
In effect, these US giants have thrown down the gauntlet to European rivals to cut deals of their own.
“The pressure is now on for BP and Shell to think about how to beef up,” said Professor Jeff Colgan of Brown University in Rhode Island.
Although Shell’s shares recently hit a record high, valuing it at £180bn ($344bn), it lags way behind Chevron, at $US270bn ($426bn). Little wonder the deal-making in America has set tongues wagging about possible combinations involving Shell in Europe, even if a merger of BP and Shell might hit competition problems. Shell’s Sawan said earlier this year he had no plans for “large inorganic” acquisitions in the next couple of years – it remains to be seen whether he holds this line.
In recent years, the Europeans have been more receptive to the idea of moving to green energy than their US rivals. They have also been more willing to discuss peak oil: BP reckons this could happen in the 2030s while Equinor of Norway has forecast it could be as soon as 2028.
France’s Total is forging ahead in wind and solar, while Equinor has sunk money into wind farms; it switched on the world’s largest, Dogger Bank, off the coast of Yorkshire, earlier this month. In part, this push has been driven by tougher environmental targets in Europe. In 2021, a Dutch court ordered Shell to go further in cutting emissions by 2030, although the company will appeal against the ruling next year.
Yet as oil demand has rebounded since the pandemic, this green conversion has undergone a rethink. BP, under ex-boss Bernard Looney, had promised to cut back fossil-fuel production this decade, but watered down its targets earlier this year. Shell has scrapped plans to reduce oil production every year this decade.
Speaking at the Energy Intelligence summit, Shell’s Sawan said: “The hard reality is that for many companies … the alternatives for lower-carbon energy are very expensive and will put them out of business.” His shift away from green has sparked unrest among Shell’s rank and file. An open letter by staff in his renewables division this summer expressed “deep concern” about the strategy.
For all the talk by European oil companies about going green, the sums they are shovelling at clean energy are still dwarfed by the capital put into new oil and gas. The IEA found that the industry’s spending on clean energy was less than 5 per cent of what it splashed on fossil fuels last year.

For all the talk by European oil companies about going green, the sums they are shovelling at clean energy are still dwarfed by the capital put into new oil and gas. Picture: AFP
While wind and solar energy have made rapid progress in the past decade, there are signs that inflation and higher interest rates are piling on the pressure: the last offshore wind licensing round in the UK failed to attract any bidders, because companies claimed the price offered was too low to cover their costs. Last week, shares in Siemens Energy dropped after reports it was seeking a bailout from the German government to plug losses in its wind-turbine division.
Investors are also divided on how best to push Europe’s oil companies towards a greener future without surrendering all the juicy returns they have enjoyed from fossil fuels. Mark van Baal, of pressure group Follow This, has tabled a string of shareholder resolutions at company meetings; he says these have pushed major firms to grudgingly acknowledge net-zero targets. He has corralled support from major investors, including HSBC, which has voted for his resolutions at BP and Shell over the past two years. “If you don’t vote for change, then they will use your vote as an excuse to continue causing climate breakdown,” he said.
Others believe the recent pullbacks by oil companies from their already modest climate commitments make it impossible to remain invested. The Church of England Pensions Board sold out of Shell this year. “We concluded that an industry with such a short-term focus was working against the interests of a long-term pension fund. We need an orderly climate transition and companies that are going to delay or are working against that becoming a reality aren’t ones we can invest in,” said Adam Matthews, chief responsible investing officer at the CofE. He believes a more fruitful approach is to back firms trying to reduce oil demand – by developing electric cars, for example.
The question of peak oil has dogged the sector since 1956, when M King Hubbert, a geologist working for Shell in Texas, forecast that global consumption of oil and gas would peak in the year 2000. Hubbert was preoccupied with the idea that oil reserves would run out; those concerns have diminished as new deposits have been found, from the North Sea to west Africa.
From peak supply, the debate has now shifted to “peak demand” – the point when countries, industries and individuals start reducing consumption by choice. But the whole concept remains conjecture.
“The forecasts vary wildly, from business-as-usual scenarios put out by the likes of OPEC, to scenarios where we hit net zero, which are highly aspirational,” said Krista Halttunen, a climate-finance researcher at Oxford University.
The IEA, while predicting a peak in all fossil-fuel use by 2030, forecasts a very shallow decline in demand over the coming decades, based on current policies. The ball is in the court of governments that can affect change, particularly in the electrification of transport, which accounts for two-thirds of US oil use.
For now, the oil majors are sticking to what they do best: drilling for oil. Indeed, not everyone in the industry believes these companies have the right expertise to be leaders in green energy. This job may fall to newer players, including those enticed by the $US369bn on offer for green tech in Joe Biden’s Inflation Reduction Act. As Exxon’s Woods put it earlier this year: “At the end of the day, we’re a molecule company, not an electron company.”
That sort of talk will guarantee a return visit by protesters at London’s next big oil conference.