Gas prices are plummeting as fracking has unleashed a gusher of American oil. California’s cap and trade program is increasing the bottom line for petroleum producers. Meanwhile, public support for reducing fossil fuel reliance is growing, and major shareholders are divesting from oil stocks. What does the future hold for the industry?
Climate One recently gathered a panel of oil industry veterans, along with California’s top carbon cop, to discuss whether Big Oil must, in the words of H.G. Wells, adapt or perish.
Mary Nichols, Chair of the California Air Resources Board, began with the good news –from an environmental standpoint: California has been steadily decreasing its petroleum use for the last decade, and is on track to meet its goal of 50% reduction by 2030. She reports that the savings are “to the point where now Congress and the state are worried about how we're going to get the money to repair our streets and roads, because we've become dependent on gasoline taxes over the years to pay for those things.” Ironically, she adds, “more people are perhaps worrying about too little gas being sold than they are about too much gas being sold.”
No one, certainly, could be more worried than the oil companies themselves. Clearly the call to climate action has reached their boardrooms as well. How are they responding?
Angus Gillespie’s official title is Vice President of C02 for Shell Oil. But within the company, he says, he’s known as “the green guy.” He proudly admits to being an oil executive who doesn’t own a car, relying instead on public transportation and his bicycle. “I have been accused of being the internal NGO inside Shell,” Gillespie laughs.
But his company is serious about the need to face change head-on. “Shell has long woken up to the fact that we're the incumbent in an industry which there will be less production in future,” he says. “It's just a matter of what can be done and what practical basis to get us there.”
They’re often seen as the “odd man out” among oil companies, he says. “Shell, I believe, was one of the first to come out and say, "We recognize climate change….we accept the fact that the majority cause is manmade, a large part of it due to fossil fuels. There has to be a solution." What that implies, he says, is the need for a long-term energy transition – but within a commercial framework that will satisfy shareholders. “Long term is an important point here,” he cautions. “We can't rush into something as an immediate effect, but then has no legs commercially to stay in place.”
Lou Allstadt has seen the issue from all sides. Formerly executive vice president of Mobil Oil and a 30-year industry veteran, he is now a member of Citizens’ Climate Lobby, advocating for climate awareness. He sees the current downswing in prices as a short-term situation due to oversupply. “It won’t take long for the pendulum to swing the other way,” he says. “Longer term, it's going up and that means that we really should be doing all the things that were just discussed about reducing energy consumption.
“We also have to consider that renewable energy costs are coming down, coming down fairly rapidly, and they're going to put a lid on fossil fuels at some point.”
Hitting oil companies in their wallet, the panelists agree, seems to be the one thing that will get their attention – hence the current emphasis on carbon pricing. Even so, California’s cap-and-trade program has been met with resistance by the oil industry. Currently, says Nichols, California’s price on a ton of carbon is $12.50, and will rise to around $20 in the next five years. "So,” she asks, “how much does that price have to be before it's worth your while to start really promoting some alternatives or changing your product?"
Gillespie points out that Shell has set its own internal carbon price of $40 at ton. “And when the price of carbon goes up, as it’s projected to do, is when you’ll see real change within the industry,” he predicts. “Because once senior executives see the impact on the stock price, then real activity, long-term activity, really starts to take traction.”
Allstadt agrees; rising carbon prices should sound the alarm for shareholders. “$40 up to $80 is what I'm hearing,” he says. “Most of them appear to be far enough out in the future that they don't really impact project economics today.” But, “when the financial community realizes that they have to think about closer-in financial impacts, they're going to start really discounting the value of some of these fossil fuel companies.”
Putting his money where his mouth is, he adds: “I've sold all of my ExxonMobil stock, and I've been reinvesting in renewables.”
Asked to paint a picture of the future Autopia, Mary Nichols was cautiously optimistic. “We think that by about 2030 every car sold in California will have to be either a plug in, a hybrid, a very advance plug in that uses a renewable fuel…a battery electric vehicle or a hydrogen fuel cell vehicle,” she predicted. “And what we need to do is to direct the incentives and the investments in the direction of making those vehicles more viable.”
But, she added, “There’s still going to be a lot of cars using gasoline and diesel fuel out there on the roads at least until 2050. And we want to make sure that those vehicles are using the cleanest possible fuel.
“So we need the oil companies to use the tremendous technical, engineering and in-house research capacity that they have to help come up with cleaner fuels that meet the same specs as the current fuels -- but do it out of something that isn’t as polluting as petroleum.”
It remains to be seen which of the Big Oil companies will be able to adapt to a cleaner, greener world – and which of them will, ultimately, go the way of the dinosaur.