Oil companies going Green

They're scared of CO2 regulation.  But, regardless of "renewable" fancies, the demand for oil and natural gas will still be there -- and there will still be a buck in it.  And if governments legislate harshly enough to cause public inconvenience, they will be thrown out

The threat that financial institutions will refuse to lend for fossil fuel projects is a real one but China is always looking for good overseas investment opportunities so that alone will put a big hole in the bucket.  China is very hard to bully, as Mr Trump has found

Occidental Petroleum has a compelling riposte to Greta Thunberg’s signature rebuke in Davos, that “nothing is being done” about climate change.

It also has a grim warning for those of its peers in the fossil industry (a minority) that persist in thinking that business can go on as usual with just a few tweaks here and there: a slew of major oil and gas companies will disappear in the Great Disruption of the coming decade, and it says they will deserve their fate.

“We’re fighting for our industry’s life,” said Vicki Hollub, Occidental’s chief executive, speaking at the World Economic Forum in Davos.

The political landscape has suddenly changed beyond recognition and the world’s governments are about to clamp down drastically on carbon emissions, led by Europe. She said the laggards will be punished mercilessly.

Her emblematic Houston-based fossil company aims to achieve the impossible: to become net carbon negative on all its operations and the oil it sells in order to insulate itself against the enveloping climate backlash. Her premise is that financial markets will simply ‘disfund’ those companies that refuse to do likewise.

The imperative for Big Oil is to confound the critics by offering Negative Oil. “The ones that don’t get on board will be the ones that don’t survive, and I am convinced that markets will make that happen,” she said.

Lord Greg Barker, chairman of EN+ Group, has an equally surprising story to tell. He heads the biggest aluminium producer outside China, leader of a smelting industry deemed to be beyond the pale by climate activists.

Yet it is going to roll out its first sheets of carbon-free aluminium as soon as 2021. Over 95pc of the group’s base power already comes from green hydro.

The Russian-owned EN+ has developed an ‘inert anode’ technology that cuts CO2 emissions from the smelting process itself to zero, and will ultimately lead to net “negative aluminium”.

The task is to make it fully workable on a large scale. A carbon price would make that much easier by setting the global rules and drawing in billions of green funding.

Epoch change

“The 2020s are going to be very different to the last decade. People who think that is going to be just a slow continuation, of gradually getting used to the climate agenda, are in for a big shock,” he told a Davos forum.

Mark Carney, the Governor of the Bank of England, said the $110 trillion alliance of global asset managers and investors now demanding decarbonisation – or at least a proper audit of carbon risk –  had just grown to nearer $120 trillion with the Damascene conversion of BlackRock’s Larry Fink. When the world’s biggest fund manager speaks, markets listen.

"We are seeing a fundamental reshaping of the financial system. What the market will do is to pull forward the adjustment," he said in Davos.

Companies that fail to take climate change seriously will go bankrupt and it could happen sooner than widely supposed. The Governor fears a Lehmanesque “Minsky Moment” for the international system if this is not handled in an orderly fashion.

Occidental says it is already injecting 20m tonnes of CO2 each year into rock formations within the Permian Basin in Texas. “This is equivalent to taking four million cars off the road,” she said.

It is the start of a massive expansion of carbon capture and storage. Ultimately this brings into view the Holy Grail of negative emissions.

Mrs Hollub said more CO2 is sequestered in the process of enhanced oil recovery than is later burned by cars and aircraft in transport fuel. For the world as a whole it is akin to a closed loop. 

“A lot of people don’t understand how you can put CO2 into an oil reservoir and generate lower carbon oil, but you can have net negative reservoirs. The challenge we face is getting people to understand the good things that we are doing,” she said.

“The Permian Basin has the capacity to store 150 gigatonnes of CO2. That would be 28 years of US emissions. That’s the prize,” she said.

Occidental’s ‘green’ strategy will not convince those who have lost all trust in the fossil industry and wish to shut it down entirely but it does show the moral complexity of the energy debate.

The more far-sighted oil and gas companies are an integral part of the net-zero transition. They bring the world’s best engineers to the task.

Environmental Schumpeterism

Lord Barker, who used to run the UK’s climate policy as a minister, said there are going to be spectacular winners and losers over the 2020s. Climate science has raised the stakes abruptly and political patience has snapped.

“This is where the rubber really hits the road. There are going to be stranded assets; there are going to price shocks, and I think we’re going to see carbon pricing. Those companies that don’t recognise the carbon intensity of their business are going to be left on the sidelines,” he said.

Lord Barker said the old debate about whether poorer countries should be given a free pass on coal power and rising emissions had been overtaken by market forces. New renewable power is in any case cheaper in most places than new coal plants.

“We have to have an honest conversation with developing economies like India and China: you can’t keep a manufacturing model and supply world markets if it is based on coal. Either you need CCUS (carbon capture) or you accept that it will shrink.”

“Investors now thinking about where to put their money in the 2020s won’t put it in carbon-intensive in economic models that rely on coal, that is the reality of investment flows. There isn’t a future for carbon intensive industries.”

Rachel Kyte, the World Bank’s former climate chief, was brutally clear: “the 2020s are going to be disruptive. You either capture carbon or you don’t put carbon molecules up there at all. You will be regulated on that basis.”

“The current incumbents won’t be the incumbents in 2030 unless they are very smart. Some are going to make it. Some aren’t,” she said.


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