No overcoming these demons

The constant demonisation of the oil industry must on occasion vex geoscientists and engineers who work in the oil sector. What seems like open season for attacks on the integrity of the oil business has to be disheartening for professionals on a personal level knowing that their work is often publicly disparaged or at best regarded as a necessary evil.

In the public domain the barrage of negativity has become a huge threat and risk factor in the strategic thinking of the big international oil companies. They are under pressure from stakeholders, governments, environmental activists and public sentiment. Arguably like never before, the legitimacy of business for profit providing what the consumer wants – keystone of free enterprise economics in an open society – is being challenged. This is not entirely unique to the oil business. The other obvious example is the apparently uncontrollable power exercised by Facebook, Amazon, Google, Microsoft et al, and the resentment this engenders, e.g., gaming the tax system, invasion of privacy, abuse of free speech, etc. These are global monopolies the likes of which we have not encountered before.

Right now, public awareness and/or experience of extreme weather events worldwide is helping to focus more than usual opprobrium on the fossil fuel industry, notably oil and coal, seen as principal perpetrators of the global warming that is said to provoke these disasters. Fortunately no one so far has been able to nail oil companies for causing the Covid-19 and Omicron pandemics. But incidents of erratic hydrocarbons supply (particularly natural gas in Western Europe), high prices at the petrol pumps and increased oil company profits have been widely reported and castigated.

Oil companies are trapped in an unwinnable public relations contest. To use a boxing analogy, only agile ring craft can keep them out of more trouble. They have to roll with the punches with rare opportunities to score points let alone win a round. And let’s be honest they are caught with their guard down a lot.

Sparring with a US Congress hearing last October is a good example of how the fight goes for the industry. The occasion was a somewhat below the belt assault by the Democrat-dominated Committee on Oversight and Reform looking into climate disinformation. The brief was to examine the ‘fossil fuel industry’s long-running, industry-wide campaign to spread disinformation about the role of fossil fuels in causing global warming’.

Four top executives from ExxonMobil, Chevron, Shell and BP America were teleconferenced into a meeting for a haranguing by committee members. It was said that the fossil fuel industry had scientific evidence about the dangers of climate change since at least 1977. Yet for decades, the industry spread denial and doubt about the harm of its products—undermining the science and preventing meaningful action on climate change. The charge sheet continued: ‘More recently, some large fossil fuel companies took public stances in support of climate, actions while privately continuing to block reforms, invest overwhelmingly in fossil fuel extraction and support efforts to extend the life of fossil fuel investments. The industry reportedly spends billions to promote climate disinformation through branding and lobbying. Moreover, they increasingly outsource lobbying to trade groups, obscuring their own roles in disinformation efforts.’

In a bit a grandstanding, California Democratic Rep. Katie Porter poured a full and more or less empty jar of M&Ms to illustrate the comparative amounts of money that Shell would spend on renewable energy ($2-3 billion,) compared with oil, gas and chemical operations ($16-17 billion plus $3 billion marketing). Shell Oil Company president Gretchen Watkins responded that there needs to be ‘both a demand and a supply of clean energy’ and the company is working with customers to increase demand. Porter dismissed this as ‘greenwashing’.

Viewed from a neutral corner, this kind of venting against the oil business – true or false – is not helpful when what is needed is constructive dialogue. It simply adds to a vilification process. As previously noted in Crosstalk, the absence of top executives representing the oil industry at the COP26 international climate change gathering in Glasgow was a huge error of judgment implying that they had nothing to contribute.

To demand that oil companies spend more on renewables is essentially a moral argument. By any measure the oil industry has had a significant role in causing the heating of the planet. Exactly when they knew this is not the point. Indeed the claims about awareness in the early Seventies of impending climate change was exactly the period of the world energy crisis in 1973. Then, the world economy was put in jeopardy, and industry and governments had more urgent issues to resolve. In any event, would anyone have listened? The newly released satirical film Don’t Look Up about two scientists trying unsuccessfully to warn the world about a meteor heading towards the world with disastrous consequences is a perfect allegory about getting the message across to governments and the media (where it rated as a down-the-order item on a daytime TV show).

Back to the moral argument. The contention is that oil companies should deploy their money and resources to help mitigate, halt, or reverse the impending climate catastrophe for our civilisation – even if it is not exactly their expertise. As an ethical issue this is hard to counter especially because outrage makes a powerful soundbite. It so easy to say ‘not enough’ to whatever practical initiative is offered.

Note that it is a separate issue to point out the hypocrisy of society continuing to benefit from the fruits of hydrocarbons exploitation knowing the downside, just as we have basically turned a blind eye to the death and deprivations associated with the operations of the coal industry or, for that matter, diamonds.

An unsympathetic attitude to oil and gas business will remain embedded in the public discourse as long as free market principles are in place. Accountable to shareholders, company spending decisions are based on return on investment and even government instruments cannot dictate investment strategy.

Rightly or wrongly, ExxonMobil and Chevron have both concluded that renewables are not profitable enough. They have therefore taken little interest in the market. Instead they are focused more on the reduction of greenhouse gas emissions as their response to climate change.

Harold Hamm, outspoken owner of Continental Oil, pioneer of the US shale oil revolution and major Republican Party funder, goes further and in the US at least is not alone. In a recent inflammatory interview in the Financial Times, he dismissed Wall Street’s enthusiasm for ESG investing as a trend that will not last, and stated climate change had ‘almost become a religion’. In his view the intermittency of solar and wind made them unreliable sources of power. He noted that on announcing its net emissions strategy BP ‘underperformed all its peers’. His conclusion: ‘companies basically cut their own throat’.

The big European-based public oil companies such as BP, TotalEnergies, Shell, Eni, Repsol and Equinor have all invested in renewables. The complaint is that the amounts are still relatively small compared with continuing investment in oil and gas projects. In addition, the companies are largely developing their renewable business in Europe, potentially widening the worldwide energy poverty gap.

IEA estimates less than 1% of the annual investment by oil and gas companies in emerging and developing economies has gone into clean energy technologies. This is because of the return on capital is not in the double-digit region to which oil companies are accustomed. It is seen as a much riskier investment than oil and gas, crucially because, unlike hydrocarbons, the product cannot be easily exported therefore restricting the size and profitability of the market.

The options for those environmentalist activists who want to accelerate green solutions are limited. For a start national oil companies in Russia, China and the Middle East are not so amenable to public pressure. It is therefore easy to identify where the noise is coming from. Major oil and gas companies in western democracies are the accessible target, abetted by a media willing to repeat stories about the big bad oil industry.

Relentless campaigning has reaped some rewards. Even ExxonMobil was forced by shareholders to take on three Board members sympathetic to the climate mitigation cause. European company commitments to net zero emissions and renewable investments have undoubtedly been influenced by vocal minority shareholders and other anti-oil propaganda.

Presumably good news for activists, the oil business is shrinking, ironically to the immense benefit of shareholders. In 2022, European firms are set to return to investors a record $54 billion in dividends and share buybacks, according to analysis by Bernstein, quoted by Reuters, while Exxon and Chevron are set to pay more than $30 billion combined. Meanwhile Rystad Energy reports that 2021 would be its worst year for oil and gas discoveries since 1946. A next stage may be a separation of oil and gas and alternative energy business, as recommended recently by former BP chairman Lord Browne and the activist investor group Third Point in the case of Shell. This would at least show just how viable the renewable and related carbon emission-free can be.

Calls for fossil fuel disinvestment also have had some impact. Anyone looking for a blueprint on how to go about this can look no further than an 81-page article in 2013 from the Stranded Asset Programme at the Smith School of Enterprise and Environment, University of Oxford which advises ‘Divestment campaigns will probably be at their most effective in triggering a process of stigmatisation of fossil fuel companies.’ No spoilers necessary to know what to expect.

‘Oil companies are trapped in an unwinnable public relations contest’

‘Oil business is shrinking, ironically to the benefit of shareholders’