Big Oil responds

10 days ago we made some predictions through the eyes of a fictitious oil CEO on how Big Oil might respond to the “bad day”, when Shell, Exxon and Chevron lost important decisions. We didn’t have long to wait for the industry to react, and the results were generally in line with our arguments.

Credit goes to Ben van Beurden from Shell for giving the most transparent account of his thinking, via his LinkedIn post. He said that he was surprised and upset. “Imagine Shell decided to stop selling petrol and diesel today. This would certainly cut Shell’s carbon emissions. But it would not help the world one bit. Demand for fuel would not change. People would fill up their cars and delivery trucks at other service stations. Society needs to take urgent action on climate change. But a court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer.”

But he argued that the “ruling does not mean a change, but rather an acceleration of our strategy... That is likely to mean taking some bold but measured steps over the coming years.” What does van Beurden mean by this? Likely, this is code for getting the chequebook out. On previous occasions, Mundus has said that we doubt that the oil industry has the clout any longer to drive climate change, and Shell’s new intent, which now appears to match BP’s in terms of desire to spend, could be interpreted for or against our view. It would clearly have been a more robust strategy to spend more on green investments when these were cheap, not only because of the cost, but also because it would have been more credible on values and would have better positioned the oil companies for the change in political wind. This perspective says that Big Oil failed to make the leap at the right time, and now has to share the future with others – Orsted, NextEra and Tesla. The opposing view says that Big Oil is able to leverage its balance sheet to buy-in, defending its organisational future, even if it does so at the expense of shareholder value.

The American perspective was different. Exxon’s CEO Darren Woods told the Financial Times that many of the company’s 3m shareholders “supported the work that we’re doing” on climate and capital spending, but acknowledging a “desire to further these efforts”. Woods defended a climate strategy focused on reducing operational emissions and laying the groundwork for possible carbon capture and storage while continuing to invest in new oil projects. Chevron’s CEO, Mike Wirth meanwhile defended his strategy and against winding down Chevron’s oil and gas production while pivoting to cleaner fuels.

Yet further signals of how quickly things are moving in the oil patch came from Canada, where the developed of the Keystone XL pipeline gave up on the project on the same day as Canada’s oil sands producers formed an alliance to achieve net-zero emissions by 2050.

Our earlier LinkedIn post ends with the fictitious CEO wondering whether he should have started his journey a few years ago. As it now looks, most do.