Thanks to a surging post-pandemic economy and the Ukraine invasion, fossil fuel producers doubled their profits in 2022 to a record $219 billion. Big Oil can swagger today, but like railroad companies a century ago, new technology is nipping at its heels. Global CO2 emissions rose by less than 1% last year, with increased coal and oil production offset by a surge in renewables, EVs, heat pumps, and energy efficiency measures. Add in the prospect of windfall taxes, stranded assets, and a younger generation sneering at its products, and the future of the oil, gas, and coal industry doesn’t look quite so rosy. So what’s next for Big Oil? Should oil wells simply be plugged and refineries shuttered, or can the biggest corporations the world has ever known even help humanity’s biggest industrial and social transition?
• • •
Nope. They’re Dinosaurs
1. Don’t just divest, destroy. Over 1550 institutions have announced their divestment of fossil fuel stocks, to the tune of over $40 trillion—the biggest such organized sell-off in history. But not so fast, warns Tom Johansmeyer in the Harvard Business Review. Selling off an asset requires someone else to buy it, and that can breathe new capital into the very assets activists are trying to choke. “There’s another approach: running those assets into the ground,” he writes. “By holding onto fossil fuel assets, investors can resist efforts to improve their output and extend their lives… and ultimately have more of an impact than if they simply washed their hands and dumped these investments.” This process, called running off, is already being trialed: Harvard University divested most of its fossil fuel investment, but has kept 2% to be run-off.
2. You can’t trust an addict. Despite oft-repeated claims of corporate responsibility and vows to transition from fossil fuels, Big Oil remains hooked on carbon. BP recently scrapped a plan to cut production 40% by 2030, reports the New York Times, setting a new target of just 25%. And Shell said it would leave its renewable energy spending at 2022 levels rather than continue the company’s expansion in wind, solar and biofuels.
3. Managed decline. California has just passed a law that places a profit cap on its oil refineries. If oil companies enjoy too big a windfall, they will face a “price gouging penalty.” More importantly, the state is now in the process of preparing an equitable refinery transition plan, which could potentially include using the facilities for sustainable fuel or hydrogen production. According to Energy Intelligence, eight U.S. refineries have already announced conversions to produce renewable fuels. By 2025, these facilities could displace 238,000 barrels per day of fuel—mostly diesel.
• • •
We Can Use Their Giant Skeletons
to Build Some Cool Stuff
1. They’ve got the money we need to prove climate tech. As polluters with deep pockets, fossil fuel companies are uniquely placed to develop the carbon capture and storage (CCS) technologies that other industrial sectors will need in the years ahead. Although The Institute for Energy Economics and Financial Analysis notes that many CCS projects have underperformed so far, few others have the wherewithal to test and deploy these systems at scale.
2. They’ve got the skills we need. Transitioning society to renewable power is a massive undertaking requiring the kind of large-scale, integrated engineering pioneered by the oil industry. In Louisiana, shipbuilders that once served off-shore rigs are now constructing vessels to enable off-shore wind farms. And workers who once built drills to seek fracked oil are now at the forefront of a move to dig deeper still, in search of geothermal energy that could be exploited almost anywhere around the world.
3. A defunct coal plant still has value. The Department of Energy wrote a comprehensive report last year explaining how new zero-carbon nuclear power stations could rise from the ashes of old fossil fuel facilities. Re-using the transmission lines and even the steam systems, could knock tens of millions of dollars off the price-tag of new nuclear generation—and help workers transition to the new energy economy. In a similar vein, old coal mines are being considered as sites to sequester carbon dioxide extracted from the atmosphere using CCS and direct air capture technologies.
Source: Could the Nation’s Coal Plant Sites Help Drive a Clean Energy Transition? Office of Nuclear Energy.
• • •
What To Keep An Eye On
1. The hidden pain of stranded assets. The demise of Big Oil may or may not be inevitable, but don’t expect it to be painless. Researchers last year traced the ownership of 43,439 oil and gas production assets through a global equity network of 1.8 million companies to their ultimate owners, including major Western institutions. You might want to check your mutual funds. With up to $1 trillion dollars of oil and gas at risk of being left in the ground—so-called stranded assets—there could be turmoil in developed countries if pensions and markets plummet.
Source: Semieniuk, G. at al. 2022. Stranded fossil-fuel assets translate to major losses for investors in advanced economies. Nature Climate Change.
2. The job market. The concept of a just transition puts communities and workers at the heart of society’s move away from fossil fuels. The Just Transition Initiative is a collaboration of labor and environmental groups, but it’s an idea that’s gaining ground globally. Last decade, the Scottish government invested £12 billion ($10 billion) in retraining oil and gas workers to work in renewables, and the country now enjoys a low unemployment rate, says Greenpeace. This could be just the start of a renewables job boom.
3. Greenwashing. Now that they can’t credibly deny that climate change is occurring, oil companies are turning to greenwashing. All but one major CCS project built in the U.S. to date involves fossil fuel companies trapping carbon (great) and injecting it into underground wells (even better) to extract yet more crude oil (not good), reports The Washington Post. Exxon Mobil is even boasting that one such system has “captured” more CO2 than any other facility in the world.
Image: ©Anthropocene Magazine