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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Why Exxon Is Still Going Big On Oil

For many years, Big Oil has been chided for its outsized role in climate change and even pilloried for trying to burnish its green credentials with half-hearted attempts at clean energy investments. The recrimination appears well deserved, considering the sector dedicates a minuscule amount of its capital spending to renewable energy despite its operations being responsible for 15% of greenhouse gas emissions. America's largest public oil company, ExxonMobil Corp. (NYSE:XOM), remains guilty as charged, with the oil giant earlier this year eschewing a "beauty match" on carbon emissions at a time when European rivals have set out firm climate change targets.

Indeed, Exxon's investment roadmap remains as 'dirty' as ever even after the company recently indicated that it might write down its oil and gas assets by a staggering 20%.

According to Bloomberg, Exxon Mobil's current investment plans imply that it's likely to remain one of the globe's top emitters, with its plans putting it on course to increase its CO2 emissions by as much as the output of Greece.

In other words, it's probably going to be business as usual for Exxon, the ongoing climate change furor notwithstanding.

Rising emissions

Bloomberg's analysis reveals that at a time when the likes of BP Plc (NYSE:BP) and Royal Dutch Shell Plc (NYSE:XOM), are moving to curb oil and zero-out emissions,. Exxon, by its own admission courtesy of internal documents, plans to invest $210 billion in fossil fuels that will see its yearly emissions increase 17% by 2025.

Exxon has never made a clear commitment to lower its oil and gas output or even attempted to set a date by which it will become carbon neutral. In fact, the latest revelation suggests that Exxon has carefully assessed the direct emissions from its seven-year investment plan that will essentially see it pump an additional 21 million metric tons of CO2 per year.

That level of emissions would effectively cancel out its current efforts to reduce pollution using various means, including renewable energy investments as well as deploying carbon capture technology.

Related: Natural Gas Offers Lifeline For Distressed Gulf Oil Giants

Indeed, some of Exxon's best and most publicized efforts at lowering its greenhouse gas (GHG) emissions appear questionable at best.

About a decade ago, Exxon, Chevron (NYSE:CVX), Shell, and BP hyped up algae biofuel as the fuel of the future, pumping hundreds of millions of dollars into the emerging industry with promises of decarbonization and energy innovation. A decade later, the algal biofuel dream has remained just that--a dream--with virtually all big players but one--Exxon--pulling the plug on their expensive projects.

In 2009, Exxon entered the algae biofuels race with a bang, teaming up with unicorn biotech startup Synthetic Genomics Inc., and outlining plans to invest more than $600M in the clean energy project. Exxon had lofty ambitions to produce algae biofuel within a decade but later pushed back the ETA in 2018 by saying it planned to produce 10,000 barrels of algae biofuels per day by 2025.

Exxon now stands as the only oil and gas supermajor that is still pursuing algae biofuels in a big way, with the company claiming on its website to have invested ~$250M in biofuels research over the past decade.

However, it's going to take some serious feats of financial engineering for Exxon's algae biofuels to compete in this era of $30-$40/bbl oil or for the company to convince its critics that this is not just another attempt at greenwashing.

The Future of Energy?

To be fair, algae biofuels are not such a terrible idea.

Algae does have some clear advantages over other biofuel candidates, mainly because these photosynthetic microorganisms are super-efficient at converting sunlight into biomass; they have high lipid content of up to 80% for some varieties and are more versatile than, say, corn, a common biofuel crop. Indeed its ancient algae lipids, not fossilized dinosaurs, are responsible for the crude oil that these companies pump. From a technical standpoint, the oil-company-funded efforts to turn algae into fuel were largely successful. However, it's proven really hard to make the economics of algae biofuels competitive with those of crude. 

Mind you, oil was at ~$100/barrel at the height of the algae biofuel craze, with even government agencies ponying up funds for algae research. But it's becoming increasingly clear that we could have entered the era of "Low Forever" with oil prices set to remain depressed for years if not decades. Indeed, an employee of algae-based bioproducts firm Cellana has told BI that crude would have to be around $500/bbl for algae biofuels to compete successfully.

Related: Colombia Struggles To Overcome Its Oil Curse

Several scientists have questioned the economics of Exxon's algae biofuels and termed the prospects of commercial algae biofuel within the next decade unrealistic. Others have labeled Exxon's algae efforts a PR charade.

Others have swung to the furthest end of the pendulum.

A couple of years ago, Exxon published an article on the New York Times website titled "The Future of Energy? It May Come From Where You Least Expect" where it touted its algae biofuels advances. However, this was viewed as just another example of Exxon's evolving climate denialism and landed the oil giant in trouble.

Massachusetts Attorney General Maura Healey quickly filed a lawsuit against Exxon Mobil, alleging that Exxon's marketing of "green" petroleum products under flagship brands like Mobil 1 and Synergy was a thinly veiled attempt to mislead consumers about the role of its products in climate change. The AG said that Exxon's frequent use of the New York Times editorial section was meant "...to shift public perception and was among the most significant and longest regular — in this case, weekly — uses of media to influence public and stakeholder opinion in modern U.S. history."

Healey took issue with the fact that Exxon failed to mention that 10,000 barrels of algae biofuels constituted a mere 0.2 percent of the company's refinery capacity.

Energy Transition Companies?

Although the oil majors are roundly lambasted for their lack of clear commitment to clean energy, some are more guilty than others. Notably, European energy leaders Shell, BPand Total SA (NYSE:TOT) appear more committed while their U.S. brethren Exxon and Chevron still appear to be engaging in hand-wringing.

A few years ago, Royal Dutch Shell CEO Ben van Beurden told investors that the company was no longer an oil and gas company; rather, an energy transition company. Shell has been vocal about the shift to renewables, frequently issuing the clarion call for the industry to switch to cleaner energy sources. In 2016, Shell set an ambitious goal to invest $4bn to $6bn in clean energy projects by 2020 though the Guardian recently reported that it was unlikely to meet that target.

Actually, BP was the clear leader in the space before the Deep Water Horizon oil spill forced it to close most of its green energy projects valued at about $8bn to $10bn.

Source: The Guardian

Still, that's more than you can say for Exxon, which has only invested in algae biofuels and carbon capture technology but lacks a budget or time-scale planned for future projects, or Chevron, which has launched a Future Energy Fund but set aside only $100m to invest in 'breakthrough technologies that will lower carbon emissions.' In other words, these U.S. supermajors have only committed to cutting greenhouse gases from their own operations.

But becoming successful energy transition companies such as Shell aspires to is not going to be a walk in the park for these lumbering giants. 

Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing whether it's worthwhile to at least partially reinvent themselves as renewables businesses. 

Most renewable ventures, like solar and wind projects, tend to churn out cash flows akin to annuities for several decades after initial up-front capital expenditure with generally low price risk as opposed to their current models with faster payback but high oil price risk. With the need to generate quick shareholder returns, some fossil fuel companies have actually been scaling back their clean energy investments.

But soon enough, that option might be taken out of their hands.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Pekka Lehtikoski on October 07 2020 said:
    I the goal is CO2 emission, it would be effective to go after the consumers, not the producers. This can be simply done by a 200-400% tax on all energy and would affect significantly and very quickly. There will be a negative impact on the economy, and the government who does this will not be popular. But that cannot be helped.

    Going after produces is simply useless (from a climate standpoint). Even if --save the world-- project succeeds to kill all western big oil, nothing has been accomplished. OPEC and Russia will simply pump that much more. And since they can also dictate world energy prices, the business will be not bad at all.

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