Experts say that if these companies are really going to change course, it must happen soon, or their businesses will simply fall too far behind.
“Both [sides] can’t be right,” said Andrew Logan, senior director of oil and gas at sustainability nonprofit Ceres. “Billions of dollars are being bet on the outcome.”
The European route
“Nobody in his right mind at the moment denies that this is an issue that we need to tackle urgently,” Shell CEO Ben van Beurden said last week during a panel discussion.
These moves in Europe, which follow years of criticism from the activists and shareholders, come as Wall Street is starting to hold the companies they invest in to higher climate standards. In his annual letter to executives released last week, BlackRock CEO Larry Fink asked companies to “disclose a plan for how their business model will be compatible with a net zero economy” achieved by 2050. Given that BlackRock is the world’s largest asset manager, with nearly $8.7 trillion under management, the request is significant.
Across the Atlantic
European companies are expected to use 2021 to make headway on their transformations. Some of this will be painful, given that the overhauls involve slashing nearly 20,000 jobs at BP and Shell.
They’ll also need to convince shareholders that pushing into the already-competitive renewable energy sector will pay off, and that their expertise can translate to new forms of technology.
“[There’s a] lot of skepticism around the investment community about what skills oil companies actually bring to clean energy,” Logan said.
Still, the future looks even murkier for American companies like Exxon and Chevron, which have so far resisted major changes to their business.
But this does little to bridge the expanding renewables gap with its European peers, which are making large investments to guard against a potentially existential threat.
“Europeans remain a couple of steps ahead, and this year we should expect a further acceleration,” Bernstein oil analyst Oswald Clint said.
Should governments begin to roll out even tighter emissions rules, and electric vehicles keep rising in popularity, developing new revenue streams and reducing reliance on oil won’t just look smart. It could be essential.
It comes down to demand
The political environment could make it easier for Exxon and Chevron to go in a new direction.
Such announcements come as world leaders, including John Kerry, the first special US climate envoy, prepare for a major climate summit in Glasgow in November. The meeting could produce an even bolder set of greenhouse-gas targets for the next decade.
But the divide between US oil and gas companies and their European counterparts really comes down to divergent views of where demand for crude goes once the recovery from Covid-19 gathers steam.
The pandemic has devastated earnings across the sector. A plunge in fuel prices last March, as millions of people entered lockdowns, pushed both Exxon and BP to rare annual losses after they were forced to write off billions of dollars in assets, both companies said Tuesday.
US companies are operating under the assumption that these problems will be short-lived. While they haven’t provided a timeline for the post-pandemic recovery, they see demand for oil booming for decades to come, especially as economies in developing countries like India pick up speed.
In Europe, meanwhile, there’s a growing acceptance that demand for oil could peak soon — if it hasn’t already.
“It’s too late to start in five years’ time,” Clint said. “I think [the] Europeans are right, and are following this path at a suitable [pace].”