Changing Oil

The oil industry is changing. as it is dragged --  kicking and screaming -- into the future. Tom Friedman writes: 

Since the 1990s, the wisest oil-producing countries and companies have regularly reminded themselves of the oil patch adage that the Stone Age did not end because we ran out of stones; it ended because we invented bronze tools. When we did, stone tools became worthless — even though there were still plenty on the ground.

And so it will be with oil: The petroleum age will end because we invent superior technology that coexists harmoniously with nature. When we do, there will be plenty of oil left in the ground.

So be careful, wise producers tell themselves, don’t bet the vitality of your company, community or country on the assumption that oil will be like Maxwell House Coffee — “Good to the last drop” — and pumped from every last well. Remember Kodak? It underestimated the speed at which digital photography would make film obsolete. It didn’t go well for Kodak or Kodachrome.

The world's largest oil company -- Exxon-Mobil -- didn't get that memo:

Today, it is no longer the biggest. As a result of its head-in-the-oil-sands-drill-baby-drill-we-are-still-not-at-peak-oil business model, Exxon lost over $20 billion last year, suffered a credit rating downgrade, might have to borrow billions just to pay its dividend, has seen its share price over the last decade produce a minus-30 percent return and was booted from the Dow Jones industrial average.

Last week, green activists finally got through to the corporate board room:

A little hedge fund called Engine No. 1 delivered an unprecedented master class in mean green using the tools of democratic capitalism. A plucky, purpose-driven investment fund, Engine No. 1 set out to force Exxon to improve its financial returns by getting much more serious about gradually transitioning — through innovation and acquisitions — into being an energy company, not just an oil and gas company.

At Exxon’s annual meeting, Engine No. 1 offered up a slate for four new members of Exxon’s 12-member board. The four represent deep energy expertise and climate solutions. The slate committed to push the oil giant to a net-zero emissions strategy by 2050, more investments in clean energy systems and more transparency about Exxon’s energy transition, with metrics and milestones, as well as disclosure of its lobbying payments and partners, suspected of undermining the science around climate change.

And darn if half the slate — Gregory Goff and Kaisa Hietala — wasn’t immediately elected by wide margins, and at least one other member might be as well when ExxonMobil finishes counting the votes from its very, very bad day.

Engine No. 1 was successful because it got three of the four biggest pension funds in America — fed up with Exxon’s relentless value destruction — to vote for its nominees. We’re talking about the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and the New York State Common Retirement Fund. Also, three of the world’s biggest fund managers, Vanguard, State Street and Black Rock, which together own more than one-fifth of all Exxon stock, each voted for part of the dissident slate.

Oil hasn't left the building yet. But it's on the way out. Have Justin Trudeau and Jason Kenney got the memo?

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The Writing On The Wall

Elizabeth May declared  this week that "Oil is dead." She makes a pretty convincing argument:

Years before the pandemic hit, major oil giants started leaving the oil sands. Many actually pointed to the fact that bitumen was the most carbon-intensive oil in their asset base. They talked about wanting to avoid being stuck with unburnable carbon; “stranded assets.” Royal Dutch Shell, Total SA, Statoil (now Equinor), Conoco Philips, Imperial Oil, Marathon Oil, Exxon Mobil and, even Koch Industries had pulled out.

With the advent of the pandemic, there is no market for Canadian bitumen:

The bitumen produced in the Alberta oil sands is both very expensive to produce and of inherently low value. To be profitable it takes two things — government subsidies and a price of $70 a barrel. Canada’s subsidies to get the oil sands in business started in earnest in the mid-1990s when oil was selling for less than $30 a barrel. Without billions of federal dollars (primarily delivered as generous Accelerated Capital Cost Allowances from the feds, and the world’s lowest royalty rates from the province) the oil sands would not have moved beyond half a million barrels a day (mbd). Today, they are approaching 3 mbd. And even at their height, oil sands contributed less than 3 percent to Canada’s GDP.

Eric Reguly wrote in the Globe and Mail on March 31: “By this week, West Texas Intermediate, the U.S. benchmark, was trading at about US$20 a barrel, down from its 12-month high of US$66. The price of some minor grades of U.S. crude, such as the thick oil used to pave roads, actually turned negative, meaning the producer was paying the buyer to cart the guck away,” adding that the strategy of the shale guys of ramping up production by record amounts until the United States surpassed Saudi Arabia and Russia to become the world’s top oil producer was bound to backfire (Canada’s rising output from the oil sands also helped to flood the market). “The triggers were the pandemic and the decision by Saudi Arabia and Russia to pump like mad to intensify the shale industry’s pain. If they hand a life jacket to the shale boys, it will be made of concrete.” As will be any life jacket for the oil sands.

This kind of thing has happened before:

More than a century ago, whale oil ceased to be the way people lit their homes, not because the industry killed all the whales but because – kerosene- wiped out demand for the product.

And, today, green energy is doing to bitumen what kerosine did to whale oil:

On Tuesday, a major study was released by the Oxford Review of Economic Policy, with lead authors, Nobel Prize winning economist Joseph Stiglitz and former Chancellor of the Exchequer Sir Nicholas Stern, advising that in re-starting the world economy after the pandemic, investments going to renewable energy and energy efficiency were the right moves for the economy. Trying to support fossil fuels would be far less effective.

The writing is on the wall.

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