The oil industry is starting to feel the pressure of climate change.
Oil executives, by and large, have not been swayed to change their business practices despite years of warnings about the climate crisis. However, they are beginning to listen to shareholders who are demanding change, while also seeing policy risks looming just over the horizon.
The annual IHS CERAWeek Conference in Houston is usually a gathering of oil titans who meet to celebrate their business. A backslapping affair, the event doesn’t spend too much time worrying about climate change.
This year is a bit different. There has been palpable anxiety about the future. Shareholders are putting pressure on companies to report their risks and exposures to climate change. At the same time, oil executives are worried that shifting technologies, pushed along by government policy, will threaten future oil sales.
Norway’s Equinor sounded the alarm. Eldar Saetre, CEO of the Norwegian oil company, said that the industry faced a “crisis of confidence,” and that companies were not doing enough to plan for the epochal change that is beginning to unfold. “We need to drive this as an industry, to be part of the solution and not be dragged into a low-carbon future,” Saetre told the Wall Street Journal. Some companies are taking action, but “there is definitely denial within companies and in boardrooms, as well as ignorance and an unwillingness to act.” Related: Is A Crisis Looming For Canadian Oil?
Last week, Norway’s $1 trillion sovereign wealth fund proposed a divestment from oil exploration companies, an event that may turn out to be a significant moment in history, marking the beginning of a difficult chapter for the oil industry.
But it wasn’t just Equinor. BP’s CEO also said that the industry needs to change if it wants to adapt. “We need to demonstrate that we share the common goal of a low-carbon future and that we are in action toward it,” Bob Dudley told the audience at CERAWeek in Houston. He even said that oil companies should engage with backers of the Green New Deal. “But we can only fully play our part if we have the trust of society and the confidence of our shareholders. That means engaging more with the young people who will take to the streets on Friday,” he said, referring to planned protests.
Those are soothing words, but they reveal that the industry is beginning to feel serious pressure on from both shareholders and broader society pushing for change. At the same time, the FT reports that BP “lobbied intensively to weaken US rules on methane emissions even as the energy group cast itself as leading a campaign to cut the release of the potent greenhouse gas.” So, perhaps it’s still business as usual?
Nevertheless, other oil companies are willing to play ball. EOG Resources has reportedly agreed to limit methane emissions, bowing to shareholder pressure. That comes after aggressively fighting such measures in the past.
Related: The EIA Cuts U.S. Oil Output Projections
Royal Dutch Shell has arguably gone further, setting compensation packages with links to emissions reduction targets. “How would we be a successful energy company in 2040 if we’re not really good at providing our customers with low carbon energy?” Maarten Wetselaar, director of integrated gas and new energy at Royal Dutch Shell, told the WSJ. “If you want to be a winner in this industry 20 years from now, that’s the game.”
On Tuesday, another Shell official directly voiced support for federal regulations in the U.S. on methane emissions. “It is a big part of the climate problem and frankly we can do more,” Shell’s U.S. Country Chair Gretchen Watkins said in a Reuters interview, referring to methane. “We don’t usually tell governments how to do their job but we’re ready to break with that and say, ‘Actually, we want to tell you how to do your job.’” She went on, urging the EPA “to put in a regulatory framework that will both regulate existing methane emissions by also future methane emissions.”
ADVERTISEMENT
The Trump administration has done the opposite, proposing to roll back methane regulations. While that may seem like a gift to the oil and gas industry, oil executives increasingly see the policy pendulum heading in the other direction and want to get ahead of the brewing storm.
By Nick Cunningham of Oilprice.com
More Top Reads From Oilprice.com:
- The Billionaires Battling It Out Over Biofuel
- Pakistan Aims To Become A Natural Gas Hotspot
- The Small Asian Nation With Big LNG Plans
When the industry can not use all the gas produced from oil wells as associated gas, and when they do not have gas pipelines they will flare it, destroying resources and "saving" some capital for pipeline and facilities required.
When the industry can use gas injection to increase oil production they not only use all the gas they produce and re-inject it, but they by gas from other companies, and they have invested on pipelines. If oil companies can find cheep CO2 they drill wells produce it and they compress and inject it on EOR project.
So every activity from oil companies is governed by profit, and this of-course is a good practice, because if they do not have a profit then they cannot re-invest and grow the business, make money for shareholders and create jobs. If there is no profit then may be worse, the business bankrupt. No one benefit from this.
The life so has on one side businesses and the government plus peoples inter-related, interest-investment, new jobs, develop resources, protect environment and regulation. These relations are everywhere and if the government will push hard on new regulations, this will imbalance the equilibrium and this will effect jobs, create or lose jobs, but may bankrupt many companies.
For this reason companies want reasonable regulations and more than these they want better technologies that can improve the industry. Here on the first place are companies, because this is technical field, and after we have the government institutions and universities where new technologies are subsidized. Both sides on the gas management, from leaking to flaring and gas use on these hundred years the industry exists have big progress, but many things are not solved. The industry has progress on decreasing leaking, increasing the gas use for business need and they are well behind on a solution that will satisfy all, and this solution is on reducing on minimum intentional gas flaring from oil wells.
As the oil and gas industry is increased every year, so has done and the gas flaring on total, it is different that on percentage we see many time improvement, these improvement are man made and probably many time not realistic.
The problem on gas flaring is really big and this is worldwide problem. The bad thing is the industry is unable with technologies they know to manage the problem because many time when they try what they know well, the gas injection they damage the production of oil because the gas breakthrough. In fact this problem is manageable, the gas oil industry if flaring everywhere can very well be used on re-injection and the gas breakthrough controlled. This can be done with new technologies, and do not need many investment. The good thing is that if companies will apply the technology then they will increase the oil and the additional oil will be very profitable.
Oil industry must learn to do this themselves, or collaborate with each other, things that they do every day, and if they want this fast then they can collaborate with outside parties who can solve the problem, not who promises to solve the problem.