Exxon Mobil and Chevron, the two largest U.S. oil companies, committed to spending more than $50 billion this month to buy smaller companies, helping them produce more oil and natural gas for decades to come. .
But a day after Chevron announced its acquisition, the International Energy Agency released a detailed report concluding that demand for oil, gas and other fossil fuels could decline by 2030 due to increased sales of electric cars and the use of renewable energy. Will reach its peak.
There has never been a greater gap between what oil companies and many energy experts are thinking about the coming years.
Big oil companies are doubling down on drilling for oil and gas and processing it into fuel for use in engines, power plants and industrial machinery. And, with only a few exceptions, they aren’t spending much on alternatives like wind and solar power and electric-car batteries.
“They’re putting their money where their mouth is,” said Larry Goldstein, director of special projects at the Energy Policy Research Foundation, a Washington nonprofit that specializes in oil, natural gas and petroleum products.
Officials at the IEA, which was created by the United States and its allies during the oil crisis in the 1970s, think oil companies are making bad bets. They point to renewable energy and surprisingly sharp growth in sales of electric cars, mopeds and other vehicles – one in five new vehicles sold this year will be battery-powered, up from one in every 25 in 2020. More than.
“The transition to clean energy is happening around the world and cannot be stopped,” said Fatih Birol, the agency’s executive director.
The type of energy people and businesses use – and how they use it – will have major environmental and economic consequences over the next few decades. Most climate scholars say it is necessary to eliminate greenhouse gas emissions, caused primarily by burning fossil fuels, by 2050 to prevent the worst effects of climate change.
Oil executives rejected the IEA’s projections, saying the world would need their products for a long time to come.
“I personally disagree, key people disagree, OPEC disagrees, everybody who produces oil and gas disagrees,” said Scott Sheffield, chief executive of Pioneer Natural Resources. Which Exxon had agreed to buy two weeks ago for $60 billion. The IEA misunderstands “the demand for our products”, Mr Sheffield added.
He added: “Who will replace jet fuel? Who will replace petrochemicals? What alternatives will replace all this?”
Buying Pioneer would expand Exxon’s already huge presence in the Permian Basin, a vast oil and gas-rich region that extends into Texas and New Mexico. The deal more than doubles Exxon’s assets in the basin.
And Chevron’s proposed acquisition of Hess is a big bet on deepwater production off the coast of Guyana, the fastest-growing oil prospect in the Western Hemisphere. The deal would make Chevron a junior partner to Exxon, the field’s dominant operator.
Both deals give companies investment in areas where production costs are low and in areas that are largely stable at a time when future oil supplies from places like Russia and Venezuela are more in doubt.
Oil executives are not oblivious to growing concerns about climate change. He says consolidation will help them invest more in the relatively untested technology of capturing carbon dioxide, the key greenhouse gas, and burying it deep underground forever. They also say they intend to invest substantially in potentially clean fuel hydrogen.
“Consolidation at this point is about giving companies the scale to be more flexible to meet different priorities at the same time,” said oil historian Daniel Yergin, who chronicled mergers in the oil industry in his book “The Prize.” Wrote about previous waves. ,
Mr Yergin said oil executives were being harassed by conflicting forces. Most of their shareholders want them to keep making profits, while the Biden administration sends conflicting messages. The administration has repeatedly asked oil companies to produce more oil and gas. But it has also limited drilling on federal lands and waters, and favored electric cars and other technologies to replace oil and gas.
“This is a very complex time for oil companies,” Mr. Yergin said. “On one hand, you have an administration that is asking them to increase production, and on the other hand you have the energy transition.”
But some energy experts see risks in the recent deals for the companies. Oil prices are currently relatively high, at over $80 a barrel. If prices fall sharply, there is a strong possibility that oil companies will struggle financially, if the IEA is right about oil and gas demand.
“Barring some temporary geopolitical crisis, they are consolidating at the top of the market,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University. “Typically they consolidate at the bottom,” he said, “when stock prices are cheap, such as when Exxon and Mobil merged in the 1990s.”
“Not only are they investing at the top of the market,” Ms. Jaffe said, “they are also investing at a time when there is more uncertainty than there was in the 1990s regarding the long-term trajectory of oil demand.”
In the past, oil companies have expressed regret over some deals that were made when energy prices were high. Exxon bought natural gas company XTO for $41 billion in 2009, when gas prices had reached very high levels. After the deal closed, fracking led to a glut of gas and prices fell, causing Exxon to write off most of its investment in XTO.
The IEA agrees that some demand for oil will persist for some time, but at very low levels. This would lower prices, making it harder for many companies to compete with larger producers like Saudi Arabia, which can produce oil at much lower costs.
Oil executives agree that producing oil and gas at lower costs will be essential, and they argue that deals such as Exxon’s purchase of Pioneer and Chevron’s acquisition of Hess will help the companies become more efficient. Pioneer’s Mr. Sheffield said big European oil companies like Shell and BP will also have to go bigger soon.
“There are a lot of public companies,” Mr. Sheffield said. “It is better for independents to consolidate into larger companies. Energy security comes with big companies.”
But one thing Mr. Sheffield and other officials have no interest in is straying too far from what they know best. With the exception of a few European oil companies like BP, Equinor and ENI, most businesses in the industry are not investing much in things like electric-vehicle charging, nuclear power, wind farms or batteries.
Environmentalists such as Mark Brownstein, senior vice president of the Environmental Defense Fund, said big oil companies are missing an important opportunity to reinvent themselves.
“I see this wave of mergers and acquisitions more as players in the industry trying to squeeze the last light out of existing business models than as part of future change,” Mr. Brownstein said. “It’s more about getting the assets to continue to provide cash flow.”
