Will Big Oil Use High Oil Prices To Go Green?

Estimate-beating profits and solid cash positions were marks of the first half of the year for Big Oil majors and for their smaller rivals, too. A strong rebound in fuel demand pushed oil prices so high that clean energy proponent President Joe Biden had to reach out to OPEC+ to ask for more oil. According to Wood Mackenzie, this is the best time for Big Oil to accelerate its decarbonization efforts. "It's incredibly rare for an industry to get decades-long notice that its business is under threat," the consultancy wrote in a report titled CO?mmit and CO?llaborate: Squaring the carbon circle for oil and gas. "Firms cannot ignore the inevitable; the only strategic dilemma is timing and pace," the authors of the report added.

That oil and gas will continue to be around for years and probably decades to come is clear for anyone with a realistic view of the future. Yet, according to most forecasts—and government plans—demand for these fossil fuels would be much lower than it is now, and demand for coal would be dead. The latest boom in coal demand that pushed prices to the highest in years may provide grounds for doubt, but there is no doubt that with enough pressure on consumers, oil and gas demand will decline. And Big Oil needs to be prepared for that moment.

The Wood Mac report, like other similar documents, acknowledges that oil companies are already working towards a lower-carbon future, under the combined pressure of shareholders, environmentalist groups, and governments. But, also like similar documents, the Wood Mac report concludes that this is not enough.

Noting the recent verdict by a Dutch court against Shell that obliges the supermajor to reduce its emission footprint sharply by 2030, Wood Mac analysts said the only way this can be plausibly done is through massive divestments. But there is a problem with massive divestments, and it is one that Shell CEO Ben van Beurden noted in a statement following the verdict: selling oil and gas assets does not make these assets vanish. Whoever owns them will continue to emit methane and carbon dioxide.

Related: Iran’s Huge Caspian Gas Find Is A Geopolitical Gamechanger So, analysts propose another more consistent path towards decarbonization for Big Oil: "There are two key components to any viable strategy for oil and gas companies: (1) commit to faster decarbonisation and (2) collaborate across the industry, with government and with other stakeholders to deliver innovative solutions that spur more rapid decarbonisation in line with the aims of the Paris Agreement."

This sounds—and is—pretty general. The report's authors go into more detail further on, noting things like diversification into renewables, turning carbon capture and storage mainstream, and shifting production from oil to gas, for example. The focus is on reducing so-called Scope 3 emissions. These are the most abundant ones, which come from people using Big Oil's products, and which are the hardest to reduce. Expanding into wind and solar is mentioned as a no-brainer and a fast one, at that, as "wind and solar are happening at scale now, with huge growth potential."

Indeed, Big Oil is being quite active in all these directions, especially in building its presence in renewables. While U.S. supermajors may have been a lot slower in acting, European Big Oil is being very active in wind and solar, and in setting itself net-zero targets for 2050.

In fact, the oil industry has been so active, an argument could be made it could become the big winner of the energy transition. With its technical expertise, experience in spotting and taking opportunities, and—perhaps most importantly—having the cash to take these opportunities, Big Oil could indeed own the energy transition. Some are already accusing supermajors of undermining wind and solar developers because they have the cash to offer higher bids in new capacity tenders.

Accusing Big Oil of everything is something of a sport these days. While many of the accusations are well deserved, accusations alone won't do the job the accusers want them to do: force Big Oil to green up. But the promise of new revenue streams and the literal sustainability of their business could do the job and probably will. This is when, in all probability, Big Oil will be accused of stealing the energy transition. Related: Semiconductor Shortage Puts World’s Largest Automaker At Risk

Supermajors are pouring billions into wind and solar, hydrogen, and electric vehicle charging. They are covering all bases, it seems. Just look at this statement by BP's executive VP for gas and low carbon, following the company's announcement that it planned to spend $14 billion on turning Aberdeen into its global offshore wind hub.

"Through our bid we aim to do far more than only develop offshore wind – we believe it can help fuel Scotland's wider energy transition," Dev Senyal said. "We want to harness the clean power from Scotland's offshore wind and use our capabilities as an integrated energy company to accelerate the country's EV charging network, build its hydrogen offering and strengthen its supporting infrastructure, including ports and harbours." 

So Big Oil is changing with the times, partly voluntarily, a much bigger part involuntarily, but it is happening. According to the authors of the Wood Mac report, it needs to change faster to make a real difference. But maybe not everything is set in stone, and Big Oil does not want to move too fast in case oil demand sticks around despite passionate attempts to kill it.

By Irina Slav for Oilprice.com

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