My Reaction To Oil And Gas Industry On Climate Change At World Petroleum Congress
Originally published on Forbes.com on December 12, 2021
At higher company levels the role of the oil and gas industry in addressing climate change seems incomplete.
A glide path of lowering oil and gas production, and greenhouse emissions, while cheaper wind, solar and battery sources replace conventional power plants, take their place in decarbonizing the world.
The 23rd World Petroleum Congress assembled in Houston last week. Climate change was high on the agenda and oil and gas leaders addressed this. An insightful summary provides key points made by some speakers at the Congress.
In this response, I try to add balance where significant parts of the climate story were omitted. The authors Myles McCormick and Justin Jacobs, labeled “M and J” below, wrote the original article in the Financial Times. My responses are labeled by “IP”.
M and J: “ExxonMobil’s Darren Woods set the new tone on the conference’s first day, calling climate change ‘one of the most important conversations of our time’”.
IP: Exxon Mobil’s climate position has changed since 2017 when they bought the Bass family holdings in the Permian and then in 2019 announced a goal of 1 million boepd (barrels of oil-equivalent per day) by 2024. In 2021, three new members were elected to the company’s board that had transition experience. And on December 6, Exxon Mobil stated they would achieve net-zero greenhouse gas (GHG) emissions in the Permian by 2030. But Exxon Mobil are not on the current World Bank list of 49 oil companies that have endorsed zero routine flaring by 2030.
M and J: “It was part of a broad recognition—long resisted in the industry—that the sector’s fortunes are now inextricably tied to the pace and course of the global transition to cleaner fuels”.
IP: The broad recognition is due to several factors: government goals and mandates (e.g. new methane emission rules in the EPA); banks and investment houses (e.g. BlackRock: “companies that don’t act on climate change are an investment risk”, World Bank’s goal to stop routine gas flaring by 2030); activists like Chris James submitting transition-friendly candidates for Exxon Mobil’s board; growing public sentiment in favor of climate action; climate progress in other countries like Denmark, Norway, and states of Australia.
M and J: “Yet the oil industry’s vision for the energy transition is at odds with what is being advocated by climate scientists and activists. The bosses at WPC see the oil companies themselves—not the Teslas or renewables powerhouses such as the Orsteds of the world—continuing to play the starring role.
IP: The chief issue is whether to divest from oil and gas production and instead develop renewable energies. An argument to divest is that oil and gas contributes 57% of the world’s energy but also 50% of GHG emissions. European-based companies like bp, Shell, and TotalEnergies are doing this. But US companies are planning to keep up their oil and gas production, and instead find alternate ways to reduce GHG by reducing gas flaring and methane leaks and by using renewable energy to pump their fracs. The result would have to be an enormous growth of a carbon capture and storage (CCS) industry needed to bury the GHG generated by continual burning of oil and gas products. But an analysis shows that such a scale up of CCS looks massive, expensive and impractical to manage.
M and J: “Woods said that the world ‘needs our industry’s expertise and experience to successfully reduce emissions while preserving economic prosperity’. Chevron’s boss Mike Wirth claimed that ‘no industry is better positioned’ to tackle climate change than the oil industry.”
IP: This is a hopeful assertion but needs a deeper look. If they mean by this oil and gas companies who, like bp, reduce emissions by divesting in oil and gas and investing in renewables (e.g. offshore wind), then yes the statement stands. But if, more likely, big oil in the US means to continue full oil and gas production while greening their operations and then burying, via CCS, the leftover GHGs from burning their products, then this won’t work – see previous IP comment.
M and J: “Wind, solar and electric vehicles were rarely mentioned as part of the transition. Rather, the oil executives put the emphasis on the importance of technologies such as carbon capture and storage, hydrogen and biofuels—which many in the industry are placing their bets on, but that have yet to prove themselves as meaningful tools to combat climate change.”
IP: Carbon capture and storage will not save the oil and gas industry if it continues running at full production, although it may serve to remove a portion of GHG leftovers by 2050.
Rystad predicted that liquid hydrogen and derivatives will be only 7% of energy in 2050—in the form of aviation and shipping fuel, and manufacture of metals and chemicals (fertilizers and plastics). Although hydrogen is expensive now and prices will come down over time, it seems a case of too little too late for other than niche applications.
M and J: “Exxon’s Woods, for instance, warned that jettisoning fossil fuels too soon could send the energy transition into a ditch. ‘Narrowly focusing on taking action on one aspect of the challenge could potentially lead to significant unintended consequences,’ he said.”
IP: The words ‘Narrowly focusing on taking action on one aspect of the challenge’ are unclear. If Woods means suddenly stopping production of all oil and gas, that would be a disaster and we would all starve. If he means don’t stop any production of oil and gas, which seems to be the position of US companies relying on escape hatches like CCS, this solution is impractical. The result would be a world heading toward a date around 2100 when the earth’s temperature and CO2 concentration will be higher than they have been in a million years – a twilight zone. The answer lies in the middle – a glide path of lowering oil and gas production, and hence GHG emissions, while wind, solar and battery sources that are now cheaper than new-build conventional power plants, take their place in decarbonizing the world.
M and J: “Saudi Aramco’s boss Amin Nasser, meanwhile, was the talk of the conference after warning that the world was ‘facing an ever more chaotic energy transition, centered on highly unrealistic scenarios and assumptions about the future of energy’. Admitting oil and gas was here to stay would be ‘far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high and seeing net zero commitments by countries start to unravel, he told delegates.”
IP: Hisham Zubari, Senior Advisor, National Oil and Gas Authority, Bahrain, said one of the problems is that making a transition to renewables entails 7-10 years to pay back investment. This is too long for profit-driven companies. “A balance needs to be sought between investment recovery and climate action. We [the world] don’t have a model for this,” he said.