If you’re in the oil business, you might think your best days are in the rear-view mirror. Oil is selling for rock-bottom prices. Your product is blamed for destroying the planet. And here’s what the leader of the free world thinks of oil.
“We’ve got to accelerate the transition away from old, dirtier energy sources. Rather than subsidize the past, we should invest in the future,” said President Obama during his recent State of the Union address.
To state the obvious though, if you’re an oil company, you produce oil. Energy economist John Reilly at the MIT Sloan School of Management says companies like ExxonMobil and Chevron are facing a classic business challenge.
“Could the horse and buggy manufacturers become automobile producers? Or is some other company going to because they’re more innovative, or not bound by what they’re already doing?" asks Reilly.
But before we pity the poor oil companies, remember, these are the richest companies in the world.
“Most of them have lots of cash. And so, if there’s a successful alternative, if they don’t develop it, they probably can acquire those companies and transition that way,” says Reilly.
I reached out to several oil companies to ask about their long-term strategies — Shell, BP, Hess, Chevron and ExxonMobil. None agreed to an interview. But Statoil in Norway did.
“We welcomed the interview because we believe we are in the energy business and the climate is a very integrated part of the energy business. And it holds the potential to transform the energy business,” says Bjørn Sverdrup, the company’s senior vice president for sustainability. "We embrace this change."
He says Statoil, one of Europe's largest oil companies, is looking beyond oil by investing in renewable energies like off-shore wind.
“We’re already involved in wind farms producing energy for more than 600,000 households. Going forward we will continue to deepen that position.”
I told him I found this interesting because when I hear the name Statoil, I think of oil, not wind. I asked if he envisions a time when Statoil could have no oil in its portfolio, or is that not realistic?
“The energy transition will take a long period of time” says Sverdrup. “We need to change the infrastructure of societies. Only last year we sold 70 million vehicles.”
It’s actually now closer to 90 million cars and trucks sold worldwide, vehicles mostly fuelled by oil. Translation: oil isn’t going away anytime soon. Still, many oil and gas companies are investing in other fuel sources like cleaner-burning biofuels.
Paul Simpson, the CEO of CDP, a non-profit that helps companies measure their environmental impacts, says oil companies are making progress toward a lower-carbon future. But they still have a lot further to go. CDP grades companies on how they’re confronting climate change.
“The oil and gas companies are really largely getting a C or a D,” says Simpson. “C is kind of doing some of the right things, but not good enough yet.”
Ten oil and gas companies have formed an organization — the “Oil and Gas Climate Initiative” — pledging to battle climate change. But their platform is thin on specifics. (The group also didn’t respond to an interview request.)
John Sterman, another professor at MIT’s Sloan school, says declaring a goal is great, but it needs to be backed up with action. He says oil companies are acting like a grossly overweight person whose doctor has just told them they’re risking their life.
“And so they declare they’re going to lose 100 pounds. But you don’t change your diet, and you don’t exercise more,” says Sterman. “So the goal without action doesn’t mean much.”
Oil companies face a tough reality though: they hold valuable assets, oil underground, but simply can’t keep drilling.
“In order to limit (global) warming, those assets cannot be utilized, that carbon cannot be burned,” says Sterman. “If they do burn it, it destroys our economy and it destroys human welfare. So it will have no value because as the CEO of Unilever Paul Pullman says, ‘You can’t make any money on a dead planet.’”
And those are the words of a professor of management. Sterman says he’s not merely presenting an ethical argument here; he’s making a business case, too.
Readers, do you think oil companies could transform themselves into energy companies that eventually do not sell oil? Let us know in our comments section.