Climate Activists Are Setting Up Oil Prices For New Boom
By Paul Homewood
The Law of Unintended Consequences!!
Climate activists celebrated landmark victories over Big Oil at the end of May, but investors should be wary of their environmental goals and the likely impact on demand for oil.
It may not be the outcome activists are hoping for.
Calls for oil companies to speed up the transition from fossil fuels to zero-carbon energy reached a crescendo at the end of May as a Dutch court ordered Royal Dutch Shell to increase its greenhouse emission cuts, Exxon Mobil XOM +0.8%, meanwhile, lost a battle – as well as seats on its board – with activist investors over its record on climate change. Chevron’s CVX +1.3% shareholders demanded an explaination how it plans to deal with Scope 3 emissions, the emissions generated by the consumers of its products.
Activist investors are turning up the heat on the oil industry after the International Energy Agency (IEA) released a bombshell report that said the world must stop investing in new oil and gas development immediately if it wants to achieve its net-zero goals.
The inherent flaw in the strategy to force the oil industry to commit suicide is that companies like Exxon, Chevron and Shell will just sell their assets to other players not subject to shareholder pressures.
It doesn’t mean the end of oil and gas production.
Indeed, national oil companies and sovereign wealth funds from Asia, the Middle East and Russia, as well as global private equity firms, would likely be the top suitors for oil and gas assets. Even banning production in the United States would only increase the value of other global deposits, including many in places with far worse environmental records than here.
Even Norway, one of the most progressive nations in Europe on climate change, understands this broader reality.
Norway has a huge renewable energy sector and is a world leader in offshore wind, but it has no plans to stop investing in its large oil and gas reserves. Oslo sees the environmental benefit of ensuring that new oil production should come from areas with sustainable practices and strong regulatory oversight, rather than countries that score poorly in these areas, including some OPEC producers like Iraq, Iran, Venezuela, Nigeria and Algeria.
And while the world doesn’t appear headed for a supply crunch in near-term, the outlook a few years from now changes dramatically if the world’s largest oil companies pull the plug on exploring for oil and gas.
The world is rapidly returning to pre-pandemic demand levels for oil thanks to aggressive vaccination programs. International benchmark Brent crude prices topped $70 a barrel for the first time since the pandemic took hold and U.S. retail gasoline prices over $3 a gallon are at a seven-year high.
If resources stay in the ground due to climate activism, there is a serious risk of a spike in energy prices unless there is a corresponding reduction in demand.
A substantive reduction in demand is unlikely.
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NOT A LOT OF PEOPLE KNOW THAT 
Wow! Great post. Thanks.
I just love the (American?) price board that seems to feel that Americans can’t handle decimal points. Seems they only do vulgar (fractions). 🙂
OMG, are USA gas-prices that high now: it used to be almost free!
The problem – as so often with climate change matters – is that the focus is on the West. But today these companies, Shell, Chevron and Exxon, are a small segment (less than 10%) of a global industry that, whatever may happen in the West, will continue to grow as billions of people in ‘developing’ countries demand cheap electricity, home heating and cooling, cars and air travel. Even if that 10% is driven out of business (unlikely), the big non-Western companies will eagerly grab their assets, move on and give the world what it wants. A huge and welcome bonus for them – and one which, if anything, will increase global carbon emissions even further. And of course those companies have lower ESG (environmental, social and governance) standards.
As you say Paul – The Law of Unintended Consequences strikes again!
Except….even Blind Freddie could see that one coming…..
All the oil and gas companies have to do is select a country with Nett Zero ambitions and
activist Courts and cut off supply. They can claim they are helping that country reach its
proclaimed goals.
When that country backs down (within a few days maximum) they can restore supply and
select a new target.
A change in the politicians “in charge” would be an additional bonus.
There may be a solution to the oil industry’s woes: “Blue Oil”.
This term has been coined to describe oil which is produced by enhanced recovery using CO2, otherwise described as Carbon Capture, Use and Storage.
Here’s a quote from one company active in this area:
Chris Kendall, Denbury’s President and CEO, commented, “We are thrilled to continue progress on our Cedar Creek Anticline EOR project in 2021. This will be one of the largest EOR projects ever undertaken in the United States, using 100% industrial-sourced CO2 to recover over 400 million barrels of oil. Additionally, the oil produced will be Scope 3 carbon negative, as the amount of industrial-sourced CO2 that will be permanently injected to produce each barrel of oil will be greater than the combined emissions associated with the development and operation of the field, including the refining and combustion of the finished petroleum products. We believe that this carbon negative oil, which we have labelled “blue oil,” will ultimately be a preferred commodity as it assists end users in reducing their own carbon footprint.”
Carbon-negative oil! Imagine the marketing; it’s greener than green!
It will be fascinating to see how this develops. For the oil companies it could be a godsend: they could get credits/payment for sequestering CO2; recovery from their oil reserves (those that are amenable) could increase; existing infrastructure would be more productive; demand for exploration would be less. Their public image would be transformed for actively removing CO2 from the atmosphere while continuing to provide energy for the world.
Cynical old me is wondering how the green lobby will go about trashing this!