WASHINGTON - Hardly a week goes by without a large oil company declaring its concern about the millions of barrels of petroleum it sells onto the world market each day.
Whether its support for carbon taxes or getting to net zero greenhouse gas emissions, oil executives at companies including BP and Exxon Mobil increasingly like to talk about climate change and being good global stewards, trying to keep pace with their counterparts in the tech, finance and automotive industries, for whom sustainability has moved beyond buzz word to corporate necessity.
So far, they are not talking about actually cutting back oil production — at least not openly — but their recent spending indicates they could be heading in that direction, according to a new report by the Institute for Energy Economics and Financial Analysis, which is funded by members of the pro-climate action Rockefeller family.
With oil prices low right now, investors are already demanding oil companies cut back on the big exploration projects and keep cash flow in the black — after years in the red during the early fracking boom.
And the oil majors are getting line. Capital spending at the five largest U.S. and European firms, Exxon, Chevron, BP, Shell and Total, is down almost 50 percent since 2013 to $88.7 billion last year, according to the report.
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Less exploration now means less oil and gas production in the future.
Oil executives maintain the future for oil is bright, with not only energy demand increasing in the decades ahead, but also demand for petroleum-based plastics. But considering the increasing visibility of climate change worldwide - even Republicans are calling for cutting emissions - that scenario is far from certain.
Were oil demand to level off or even fall, as Shell CEO Ben van Beurden has predicted, holding a bunch of new oil wells could leave executives struggling to explain themselves to investors.
“The industry is experiencing a convergence of factors that have placed a brake on the fast-paced (capital) spending of decades past,” read the IEEFA report.. “The convergence suggests the industry has reached a mature and declining phase, with a weak financial outlook.”
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More than a 160 years since wildcatters in Pennsylvania drilled what is believed to be the first commercial oil well, extracting petroleum from underground is only getting more difficult, requiring deeper and deeper wells that can cost hundreds of millions of dollars to develop.
The danger of such projects was made clear in December when Chevron announced a $10 billion write down on a number of its projects, including shale gas fields in Appalachia and the Big Foot deepwater field in the Gulf of Mexico.
And investors are taking note.
“I’m done with fossil fuels ... they’re just done,” CNBC personality Jim Cramer told his audience earlier this month. “You’re seeing divestiture by a lot of different funds. It’s going to be a parade. It’s going to be a parade that says, ‘Look, these are tobacco and we’re not going to own them.’”
Well aware of their perception problem on Wall Street, oil executives have increasingly talked up their non-oil related businesses. Low-carbon biofuels are of particular interest, as an alternative to electric vehicles for industries where lithium-ion batteries’ weight and energy capacity are likely impractical. Think airlines and shipping.
On HoustonChronicle.com: Will BP’s stance on carbon price lead industry shift?
But so far spending on those technologies lags far behind oil and natural gas. Profits on renewable energy range from six to 12 percent, compared to more than 20 percent for oil and gas, according to Institute for Energy Economics and Financial Analysis
“The large oil companies are struggling to understand how their business models can support renewable energy initiatives,” the organization’s report read.
james.osborne@chron.com
Twitter: @osborneja
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