Prior to the Russian barbaric invasion in Ukraine, announcements made by the oil and gas majors seemed to imply they were engaged in energy diversification. This diversification has been typically presented as that of increasing the proportion of their assets in clean technologies while reducing the exploitation of fossil fuel reserves.
Now, with the oil and gas companies earning windfall profits linked to the Ukraine war, inflation and European urgent short-term requirements for fossil fuel sources substitutes, the real truth is coming out. High fuel prices have revealed opportunist short term thinking prevails over lofty long-term goals.
Case for diversification
The writing is already on the wall that the oil and gas industry must become diversified energy companies with corporate-wide shifting to clean energy and technologies.
In the electrical power sector, in 2021, 81% of new electrical power generating capacity installed was associated with renewables. According to the International Energy Agency (IEA), through to 2026, renewables are likely to provide 95% of new electrical supply capacity.
Three European countries are already in the 90% or near 90% renewables category, Norway at 97%, Austria 80% and Iceland at 100%. By 2040, Portugal will rely almost entirely on renewables. Bloomberg New Energy Finance had estimated that up to 90% of Europe’s power sources would stem from renewables by 2040.
For the gas industry, the impacts of the spellbinding shift to renewables was immediate because the natural market for gas depends greatly on supplying the power sector. Before the war, the liquefied natural gas (LNG) industry was in disarray with supply increasing and demand decreasing. So much so, that back in 2020, the Global Energy Monitor warned of a gas bubble, while hundreds of U.S. shale gas fracking firms were headed for bankruptcy in 2021.
Pre-war petroleum narratives too included an end of an era was around the corner.
Peak oil predictions, after which oil demand declines, ranged from happening as early as 2025, with a general consensus definitely by 2030.
Many of these predictions are based on a rapid electric vehicle (EV) transformation of the road transportation landscape would curtail oil markets. Since 60% of the global petroleum consumption is in the transportation sector, and road transport comes in at 80% of that, an EV transition becoming the “new normal” would be devastating for the petroleum industry.
Trends in the growth of the EV sales suggest the transition is in high gear.
Global EV sales captured 17% of the vehicle market in September 2022. That is double the percentage of 2021 at 8.3%.
In the largest vehicle market in the world, China, 1.7 times the U.S. market, up until September 2022, 2022 electric vehicle (EV) sales were 29% of all new passenger vehicle sales. For the month of September 2022, plug-in sales came in at 35%. Year over year, comparing September 2022 with September 2021, the EV growth rate was 148%. If the EV sales growth rate to-date continues, China’s new vehicle sales will be 80% to 100% all-electric in 2025, depending on the source of the estimates.
In Europe, for the month of September 2022, plug-ins accounted for 24% of European new vehicles sales, 16% battery electric vehicle (BEV) models. European EV sales projections are expected to come in at 50% by 2025.
In California, with a population roughly equivalent to Canada, in the first half of 2022, the Tesla Model Y was the best selling vehicle in the state, followed in second place by the Tesla Model 3. The Tesla brand was in second place, after Toyota.
Fossil fuel sector misleading information
What is the takeaway of the fossil fuel sector messaging on their emerging green economy metamorphosis? How do the short-term windfall profits stemming from the war in Ukraine, spiraling inflation and European short-term needs engender cognitive dissonance between words and actions?
The takeaway is positive green communications by the industry to mislead the public and governments, while remaining primarily focused on fossil fuels.
The U.S. House Committee on Oversight and Reform confirmed this trend, having investigated documents and internal communications from oil companies.
The industry does this by playing up unproven clean technologies that they themselves concede won’t succeed in significantly reducing emissions, such as carbon capture usage and storage (CCUS) solutions.
Exxon’s Manager of Environmental Policy & Planning, Peter Trelenberg, in an Oil and Gas Climate Initiative document, recommended that reference to the Paris Agreement, and commitments to the agreement, should not be linked.
An InfluenceMap independent analysis of industry public communications, reviewing the content of 3,421 public materials provides a clear picture of disconnection between words and actions. The analysis found that 60% of public information segments contained at least one green accomplishment. Only 23% vaunted oil and gas activities. Fittingly, typically the “About us” in their respective corporate websites do not portray these firms as oil and gas organizations.
These portraits are the inverse of reality. Only 12% of the 2022 capital expenditures of the majors reviewed by InfluenceMap is slated for low carbon business.
Worse, many of these majors plan to increase oil and gas production through to 2026.
Not a single one of the firms studied have strategies aligned with the Paris Agreement.
Corporate reactions to the InfluenceMap findings implied that their companies were investing heavily in becoming diverse energy entities, so that when the time is ripe, they will be able to make the necessary transformations.
The BP and ExxonMobil narratives that follow illustrate how the devious games are played, adjusting, just-in-time, to changes in oil and gas economics.
Before and after windfall profits
The August 2020 BP transformation plan called for a cut in its oil and gas production by 40% by 2030, compared to 2019 production levels, to 1.5 million barrels/day from 2.2 million, and not investing in oil and gas exploration in new countries. This would translate in the selling of US$25 billion in assets in the then upcoming 5 years, combined with a 10-fold increase in investments in the low carbon economy, projected to reach US$5 billion/year by 2030.
Indeed, it was quite common in 2020 for the oil and gas stakeholders to conclude dark days lie ahead.
In the second quarter of 2020, BP, Shell and Total wrote-down US$45B from the combined values of their oil and gas assets. During the same period, Shell revealed a quarterly US$18.38B loss, BP US16.8B, and ExxonMobil US$2.63B. ExxonMobil contemplated it might write off 20% of its reserves by the end of 2020. ExxonMobil’s position back then reflected its stock declined by about 50% from the previous 4 years.
In September 2020, Saudi Aramco stated it is reassessing its plans for a gas export facility in Texas.
As recently as February 2022, BP pronouncements inferred increased earnings from with windfall profits in 2021, did not deter BP from its 40% chopping of oil and gas production by 2030. As well, BP’s 2022 outlook upped its 2030 engagement to US$5.6 billion for its concept of low carbon alternatives.
Actions tell a different story. All changed with the arrival of high oil and gas prices.
Based on BP’s 2021 financial report, updated 2022 BP plans clarified that divestments in fossil fuels would be gradual and would remain flat through to 2030.
BP had changed its tune such that natural gas would come to the rescue of the European emergency requirements for substitutes for Russian fossil fuel sources. BP CEO, Bob Looney, fudged this saying the company would grow, sustain or decrease fossil fuel earnings.
As for BP’s 2022 priorities for low carbon investments, they comprise renewables, EV charging combined with convenience stores, bioenergy, hydrogen, and carbon capture, utilization and storage (CCUS).
Concerning green hydrogen, blue hydrogen and CCUS, these are greenwashing solutions.
Green hydrogen entails producing more clean energy than what comes out at the other end, a 30-40% energy loss. Blue hydrogen, which combines natural gas with CCUS, may actually increase emissions.
Pertaining to CCUS, as alluded to above, nearly all CCUS projects have failed to live up to their objectives to reduce production emissions, while being outrageously expensive. But CCUS projects offer opportunities for generous government subsidies while, where applicable, earning carbon credits. The industry knows CCUS is unproven.
CCUS empirical greenwashing evidence aside, a consortium of Alberta oil sands producers, the Pathways Alliance, will likely cash in on the Canadian government’s Budget 2022 announced new fossil fuel subsidies of up to C$5 billion by 2030 for CCUS. Also, this cash in will likely include the 30% refundable Investment Tax Credit for the capital costs of investments in energy sector clean technologies, as per the November 3, 2022 Canadian Economic Statement. Positive messaging is at the heart of the C$16.5 billion by 2030 project intended to gather captured CO2 from 20 oil sands facilities and transport the CO2 to a storage hub near Cold Lake, Alberta.
This is not to allege that the clean tech side shows are not of any significance. For EV charging, BP’s current 2030 goal is to install more than 100,000 charging points.
Shell has made even more impressive overtures on charging points. In a February 11, 2021 media release, Shell announced it would increase its global electric vehicle charging network from the 60,000 back then, to 500,000 charging points by 2025. The company is thinking of introducing charging infrastructure at its service stations.
Plastics: Compensating for impacts of renewables and EVs
Acknowledging the impacts of the migration to renewables and EVs on future markets, the oil and gas majors are refocusing investments to advance petrochemicals, plastics in particular, products which traditionally have accounted for 10% of oil consumption.
The IEA forecasted that plastic production would double by 2040 and represent the biggest growth segment of the oil industry in the coming decade, to reach half of oil demand increases by the mid-century.
Plastics also offer interesting market prospects for gas. Due to the reduced costs of associated with natural gas liquids to manufacture plastic, shale gas is emerging as the favoured fossil fuel to produce plastics. Natural gas from fracking sources brings the cost of the raw material down by two thirds. Consequently, augmenting plastic production is ideal for addressing the glut in shale gas supplies.
Wood MacKenzie’s assessment is that there will 10 million tonnes of growth/year in the petrochemicals sector, through to 2050, for plastics and other related products.
Accordingly, ExxonMobil concluded the growth of the petrochemical sector would compensate for the inevitable decline of oil and gas demand attributable to EVs and renewables.
This is the thinking behind the ExxonMobil joint venture with Saudi Basic Industries Corp, (SABIC), to create the Gulf Coast Growth Ventures (GCGV) for the purposes of setting up the humongous new plastics facility in Corpus Christi, Texas. The facility began production in January 2022.
Recognizing that plastic recycling entails positive messaging, the GCGV has characterized its Texas plant as an “advanced recycling” centre.
The problem with advanced recycling is it has failed to demonstrate that it’s recycling process works. The U.S. Natural Resources Defense Council referred to advanced plastic recycling as not being environmentally friendly.
The GCGV plant processes ethane, derived from natural gas, into ethylene. The Texas state permit allows the GCGV plant to emit 3 million metric tonnes of CO2 per year. The plant also requires huge amounts of water to operate, though water is scarce in the state.
Of the 30 advanced recycling facilities around the world, all are operating at a prudent level of production or have been closed up.
195 carbon bombs planned
Have renewables, EVs, the Ukraine war and inflation changed oil and gas industry perpetual inclinations to increase production? Not at all.
With windfall profits in the money bags, there are now at least 195 carbon bomb projects in the planning stages. These projects exceed the carbon budget scientific consensus with which the world must adhere to pre-empt irreversible climate change.
The signs of what’s to come are evident.
During the month of September 2022 alone, one-third of Pakistan was covered with water affecting 33 million people; Hurricane Fiora caused historic devastating storms in Newfoundland, Nova Scotia, Puerto Rico, Jamaica and Bermuda; Hurricane Ian proved to be a weather weapon of mass destruction in the Caribbean, Florida, South Carolina and Georgia; Typhoon Nanmadol slammed Japan, especially the island of Kyushu; Typhoon Noru flooding and winds caused deaths and colossal devastation in Vietnam and the Philippines; and the Italian Marche region experienced horrific floods within a few hours.
Recent developments include forest wildfires that spread extensively in BC, the Yukon, Southern California, Portugal and Spain; the U.S. Lake Mead Hoover Dam reservoir providing the water and electricity to 40 million Americans is now at 27% capacity; plus many more calamities.
Meanwhile
The technologies to achieve the goals of the Paris Agreement already exist.
Meanwhile, worried about pending more oil pending to come on the market, OPEP (Organization of Petroleum Exporting Countries) cut oil production beginning November 2022, to “boost” global oil prices. Russia, an OPEP alliance member, is surely pleased.
Meanwhile, the European Union has introduced a tax on fossil fuel industry windfall profits.
All the more reason why we must hope that the European Union sticks to its goal of energy independence by 2027, via a migration to a green economy.
By contrast, in Canada, during the first session of the re-elected Trudeau administration, 2021-2022, prior to the summer 2022 recess, the Canadian government balance sheet was an indecent descent on action on climate change – a 2030 Emissions Reduction Plan to negotiate a cap on oil and gas emissions with the industry, not a cap on production, nor based on science; $5 billion for CCUS by 2030, a fossil fuel sector fantasy that the sector can increase production while reducing emissions; continuing Export Development billions in subsidies for fossil fuel projects; approval of the Newfoundland Bay du Nord offshore oil project; a request to the Biden administration to complete the Keystone XL pipeline; weak electric vehicle sales targets; a Parliamentary Budget Officer report estimating $21.4 billion for the total costs of the federal publicly-owned Trans Mountain oil sands export pipeline, up from the original $7.4 billion projection, with the report indicating the pipeline would perpetually be unprofitable, all without a whimper from the current government; plus greenwashing on a methane reduction plan and plastic pollution. Not surprising, Canada is the only G7 nation not able to reduce its emissions since the Paris Agreement.
At least, the U.S. Inflation Reduction Act and Bipartisan Infrastructure Law were adopted before the mid-term elections.
Meanwhile, COP27 did not do more than “blah, blah, blah” by its closing date November 18, 2022, as per the descriptions of previous COP events by Greta Thunburg. Inclusion of a phase out of fossil fuel production was rejected, Canada among countries that did not support this clause.
