Signs of progress within the oil industry

There are signs that the oil and gas industry may be undergoing a historic transformation. Or is this history being made only on the other side of the Atlantic?

BP has generated headlines recently with efforts “to reinvent itself as an energy company in the age of climate change,” as The Washington Post’s Steven Mufson put it. “The company is shrinking its oil and gas business, revving up offshore wind power and developing solar and battery storage. It is even considering installing electric car charging kiosks at its gas stations, part of a drive to eliminate or offset its carbon emissions to a net zero level by 2050.”

BP's plan will "start with a five-year sprint to dramatically boost wind and solar power," according to Bloomberg. By 2025, the company intends to have approved more than 20 gigawatts of renewable energy projects, an eightfold increase from 2019.

In its annual outlook paper, the company’s new CEO, Bernard Looney, said that “the world is on an unsustainable path and its carbon budget is running out.”

Royal Dutch Shell is planning similar steps. As Reuters’ Ron Boussa reported, “the review, which company sources say is the largest in Shell’s modern history, is expected to be completed by the end of 2020, when Shell wants to announce a major restructuring. Other European-based giants--Eni of Italy, Total of France, Repsol of Spain and Equinor of Norway--are also on the bandwagon. 

“European oil executives have said that the age of fossil fuels is dimming and that they are planning to leave many of their reserves buried forever,” The New York Times’ Clifford Krauss wrote. “They also argue that they must protect their shareholders by preparing for a future in which governments enact tougher environmental policies.”

You may recall that BP tried a transition in the late 1990s and early 2000s under the leadership of John Browne, then chief executive. But financial results from renewables were disappointing, and the company eventually dropped its moniker “Beyond Petroleum.”

In an interview with The Post’s Mufson, Browne said this time would be different. “There are many more voices now,” he said, adding that the Paris agreement was a watershed, the economics of renewables have improved, and investor pressure was building.

U.S.-based oil and gas majors take a different view, however. They publicly agree with their European counterparts that climate change is a threat and that they must play a role in the kind of energy transition the world last saw during the industrial revolution. But the urgency with which the companies are planning to transform their businesses could not be more different, Krauss wrote.

A key factor for the majors as they assess the urgency of shifting focus is the trajectory of demand for oil. Daniel Yergin, whose newest book is The New Map: Energy, Climate, and the Clash of Nations, believes that the world won’t reach peak oil demand for another 10 to 12 years. “Then when we hit the peak it's not a plummet and collapse, it just starts to decline,” he told Politico’s Ben Lefebvre. “Just one number to keep in mind is that the average car in the United States now stays on the road for 12 years, so those cars aren't going away. But it is a time of uncertainty. A big uncertainty is how the world will change when Covid is behind us.”

Chevron and Exxon Mobil, Krauss reported, “are doubling down on oil and natural gas and investing what amounts to pocket change in innovative climate-oriented efforts like small nuclear power plants and (carbon capture technology).”

“Despite rising emissions and societal demand for climate action, U.S. oil majors are betting on a long-term future for oil and gas, while the European majors are gambling on a future as electricity providers,”  David Goldwyn, a top State Department energy official in the Obama administration, told Krauss. “The way the market reacts to their strategies and the 2020 election results will determine whether either strategy works.”

Maybe it’s time for ExxonMobil and its American brethren to think more creatively. This summer the energy sector became the smallest component (just 2.3 percent) of the S&P 500-stock index, and ExxonMobil, once the world's biggest publicly traded company, was dumped from the Dow Jones industrial average. The oil giant’s market value is now about a third of what it was in 2008. 

 Concerned about the financial threats that climate change poses, the Commodity Futures Trading Commission (CFTC) conducted research to determine how such risks could be met and issued its findings September 9. “Financial markets today are not pricing climate risk,” wrote Bob Litterman, a leading national authority on risk management and chairman of the subcommittee that produced the report. (He is a member of our Advisory Board.) 

One promising way to accelerate the transformation of the oil industry is to put an honest price on carbon dioxide emissions. The CFTC report recommended that Congress take such action, and in its annual outlook paper, BP wrote that “a rapid and sustained fall in carbon emissions is likely to require a series of policy measures, led by a significant increase in carbon prices.” Without tax-driven increases in carbon prices, oil and gas use will continue to rise, the report said. “Delaying these policies,” BP observed, “may lead to significant economic costs and disruption.”

THE OIL INDUSTRY IS EVOLVING

The oil industry is evolving. Royal Dutch Shell intends to build a vast wind farm off the coast of the Netherlands. Meantime, the oil giant has decided to delay new fields in the Gulf of Mexico and the North Sea.

BP’s CEO, Bernard Looney, said this month that he planned to increase investment in low-emission businesses like renewable energy by tenfold in the next decade to $5 billion a year, while cutting back oil and gas production by 40 percent. By 2030, BP aims to generate renewable electricity comparable to a few dozen large offshore wind farms. “What the world wants from energy is changing,” Looney said, “so we need to change, quite frankly, what we offer the world.”

Investors applauded BP’s latest moves. The afternoon of Looney’s announcement, his company’s shares jumped more than 7.8 percent, outpacing smaller gains among other oil companies.

 “Prodded by governments and investors to address climate change concerns about their products,” The New York Times’ Stanley Reed reported, “Europe’s oil companies are accelerating their production of cleaner energy — usually electricity, sometimes hydrogen — and promoting natural gas, which they argue can be a cleaner transition fuel from coal and oil to renewables.”

For some executives, Reed wrote, “the sudden plunge in demand for oil caused by the pandemic — and the accompanying collapse in earnings — is another warning that unless they change the composition of their businesses, they risk being dinosaurs headed for extinction. This evolving vision is more striking because it is shared by many longtime veterans of the oil business.”

Reed suggested that “the bet is that electricity will be the prime means of delivering cleaner energy in the future and, therefore, will grow rapidly.” He wrote that this could be the year that oil giants, especially in Europe, “start looking more like electric companies.” Claudio Descalzi, the CEO of the Italian oil company Eni, said he wants to build a business increasingly based on green energy rather than oil. “We want to stay away from the volatility and the uncertainty,” he told The Times.

All of Europe’s large oil companies have now set targets to reduce the carbon emissions that contribute to climate change. Most have set a ”net-zero” ambition by 2050, a goal also embraced by governments like the European Union and Britain. American oil companies have moved more slowly, partly because they face less government and investor pressure.  

Environmentalists and analysts described Looney’s statement that BP’s oil and gas production would decline in the future as a breakthrough that would put pressure on other companies to follow.

BP’s move “clearly differentiates them from peers,” said Andrew Grant, an analyst at Carbon Tracker, a London nonprofit. He noted that most other oil companies had so far been unwilling to confront “the prospect of producing less fossil fuels.”

“To make a switch from a global economy that depends on fossil fuels for 80 percent of its energy to something else is a very, very big job,” said Daniel Yergin, the energy historian who has a forthcoming book, The New Map, on the transition now occurring in energy. But he noted, “These companies are really good at big, complex engineering management that will be required for a transition of that scale.”

Oswald Clint, an analyst at Bernstein, forecast that the large oil companies would expand their renewable-energy businesses like wind, solar and hydrogen by around 25 percent or more each year over the next decade.

Americans, especially younger ones, increasingly see the industry in a negative light, Rebecca Elliott reported in The Wall Street Journal. One result: A career in oil and gas was unappealing to 44 percent of 20- to 35-year-olds, according to a 2017 survey by Ernst & Young LLP. An even greater portion of 16- to 19-year-olds, nearly two-thirds, held that sentiment.

“There’s a mentality out there that oil and gas is finished,” said Jeff Spath, who leads Texas A&M University’s petroleum-engineering department, adding that there is “a growing disdain” for the industry. To reverse this trend, U.S.-based oil giants must speed their transition to clean energy. Putting an honest price on carbon dioxide emissions would be one sure way to prod them.

Future flooding likely to surge beyond coastal communities

If your house sits along a coastline, you know you are in harm’s way and that, thanks to climate change, the odds against your home’s survival are growing by the day.

But if your property is inland, don’t think you’re entitled to be smug. As The New York Times’ Brad Plumer reported recently, a study published July 30 found that as oceans rise, powerful coastal storms, crashing waves and extreme high tides will be able to reach farther inland, putting tens of millions more people and trillions of dollars in assets worldwide at risk of periodic flooding.

If the world’s nations keep emitting greenhouse gases, and sea levels rise just 1 to 2 more feet, the amount of coastal land at risk of flooding would increase by roughly one-third, the research said. In 2050, up to 204 million people currently living along the coasts would face flooding risks. 

“Even though average sea levels rise relatively slowly, we found that these other flooding risks like high tides, storm surge and breaking waves will become much more frequent and more intense,” said Ebru Kirezci, a doctoral candidate at the University of Melbourne in Australia and lead author of the study. “Those are important to consider.”

USA Today’s Doyle Rice wrote: “Floods that occur once every 100 years could now occur once every 10 years in 2100, the research showed, mainly as a result of sea-level rise.” The study was published in the journal Scientific Reports.

Areas at highest risk, CNBC reported, include southeast China, Australia’s Northern Territory, Bangladesh, West Bengal, Gujurat in India, and the U.K. In our country, the threat is particularly acute for North Carolina, Virginia, and Maryland.

This flooding could cause serious economic damage, Plumer wrote. The study found that people currently living in areas at risk from a 3-foot rise in sea levels owned $14 trillion in assets in 2011, an amount equal to 20 percent of global G.D.P. that year.

There are already signs that periodic flooding is wreaking havoc along coastlines. A July analysis from the National Oceanic and Atmospheric Administration (NOAA) found that high-tide flooding in cities along the Atlantic and Gulf Coast has increased fivefold since 2000, a shift that is damaging homes, imperiling drinking-water supplies and inundating roads.

Plumer pointed out that the new study’s authors acknowledge that theirs is a highly imperfect estimate of the potential costs of sea-level rise. For one, they don’t factor in the likelihood that communities will take action to protect themselves, such as elevating their homes, building sea walls or retreating inland. Nor did they account for any valuable infrastructure, such as roads or factories, that is at risk. A fuller economic accounting would require further research, Kireczi said.

The research is the latest evidence that forceful national action by our federal government makes economic sense. The likely losses are staggering. Most economists say that a tax on carbon emissions is the fastest, most efficient, and least expensive way to slow climate change. Please join us in urging Congress to take such action.

Two-thirds of Americans Want the Federal Government to Do More on Climate

Nearly two-thirds of Americans believe the federal government should do more to combat climate change, and almost as many say the problem is already affecting their community in some way, according to a recent survey by the Pew Research Center.

In addition, the nationwide survey of 11,000 adults conducted from April 29 to May 5 found that 60 percent of Americans consider climate change a “major” threat — up from 44 percent about a decade ago, said Alec Tyson, the Pew Research Center’s associate director for science and society. Pew obtained the views of 11,000 adults between April 29 and May 5.

As The Washington Post’s Brady Dennis reported, the wide difference between the views of Republicans and Democrats remains: “88 percent of Democrats describe climate change as a grave threat, while only 31 percent of Republicans feel the same.”

Dennis wrote that the  mounting desire for the federal government to do more “comes, perhaps not surprisingly, as its effects touch more lives in the United States. Seven in 10 Americans who live within 25 miles of a coastline say that climate change is already affecting their community. But even among those who live 300 miles or more from the reach of rising seas, 57 percent of respondents say they have witnessed at least some impacts.”

Opinions about the local impact of climate change vary sharply by party. A large majority of Democrats (83%) say climate change is affecting their local community a great deal or some. That compares to just 37 percent for Republicans. Most Republicans (62%) say climate change is affecting their community not too much or at all.

What action should the federal government take? Should corporations pay a tax based on the amount of carbon emissions they produce? Yes, said 73 percent.

The survey also found that 79 percent of Americans say the more important priority for the country is to develop alternative sources, such as wind and solar; far fewer (20%) say the more important energy priority is to expand the production of oil, coal and natural gas. 

On balance, most U.S. adults see a role for government in shifting energy use toward renewables. Almost 60 percent say that government regulations are necessary to encourage businesses and consumers to rely more on renewable energy. Fewer (39%) think the private marketplace will encourage the use of renewable energy, without the need for government intervention.

Consistent with past Pew Research Center surveys, younger Republicans place a higher priority on alternative energy development – and are less supportive of expanding fossil fuel sources – than older Republicans.

The government action that was supported by the largest percentage of respondents (90%) was planting a trillion trees to absorb carbon dioxide. The Trump administration also supports that initiative, championed by the World Economic Forum. 

In addition, 84 percent of U.S. adults support enactment of a business tax credit for carbon capture technology that can store carbon emissions before they enter the atmosphere. Democrats (90%) and Republicans (78%) back this proposal, which House Republicans rolled out earlier this year.

Pew offered respondents two other options for government action, and both earned majority support. Most Americans favor tougher restrictions on power plant emissions (80%) and tougher fuel-efficiency standards for automobiles and trucks (71%). 

Americans Worrying More about Climate Change's Impact on Health

Will heat stroke caused by extreme heat waves become more common in your community because of climate change? A newly released survey found that 57 percent of Americans think so, up from 37 percent just six years ago.  

That was one of a number of problems and risks that respondents believe will be on the rise over the next 10 years if nothing is done to address global warming. The rate of increase was eye-opening, strongly suggesting that Americans not only acknowledge that our climate is changing but realize that our health will suffer as a result.

Another: Bodily harm from wildfires, including damage caused by smoke inhalation, up from 26 to 54 percent.

A third concern: Bodily harm from severe storms and/or hurricanes, up from 34 to 57 percent.

The study was conducted by Yale and George Mason University researchers who study public opinion on climate, working with the pollster Ipsos. They compared the results of a survey taken in April with the results of one undertaken back in October 2014. More than 1,000 people took part, and the margin of error is plus-or-minus 3 percent.

Other findings included:

Asthma and/or other lung diseases: Up from 37 to 54 percent.

Diseases caused by insects: Up from 33 to 54 percent.

Bodily harm from flooding: Up from 27 to 52 percent.

Illness caused by food/water containing bacteria/viruses: Up from 32 to 51 percent.

Pollen-related allergies: Up from 38 to 51 percent.

Severe anxiety: Up from 27 to 44 percent.

It’s little wonder that our fellow citizens are increasingly concerned. The World Health Organization believes that the changing climate’s wide-ranging impacts contribute to at least 150,000 deaths around the globe every year. Climate change, WHO fears, could “undermine decades of progress in global health.”

In the United States, heat caused at least 10,000 deaths between 1999 and 2016. As of June 20, the mercury in Phoenix had soared above 100 degrees on 16 days, hitting 112 degrees on June 4. Yearly heat-related deaths have more than doubled in Arizona in the last decade, reaching 283. 

A new review of 68 studies has found that pregnant women exposed to air pollution and high temperatures are more likely to give birth to preterm, stillborn or underweight children. The review, published in JAMA Network Open and summarized by The Hill’s Abigail MiHaly, examined more than 32 million births and found an association between climate change effects such as heat, ozone and fine particulate matter, and adverse pregnancy outcomes. Researchers also found that minority women, particularly black mothers, were affected the most.

Another recent report on climate change and human health was issued by Columbia Journalism Investigations and the Center for Public Integrity and co-published in partnership with The Guardian. It observed: “In contrast to a viral pandemic, like the one caused by the novel coronavirus, this is a quiet, insidious threat with no end point.” 

Many states, cities, and businesses are taking steps to counter climate change. The federal government, however, is lagging. Congress needs to take this problem seriously, and one important part of the solution is an honest price on carbon emissions. That is the fastest, cheapest, and most efficient way to combat climate change.  Please urge your senators and representative to support such action.