May was arguably the worst month ever for big oil — and the best for its opponents — as courts and corporate shareholders sided with environmental activists to humble the biggest of the fossil-fuel giants, culminating in “Black Wednesday.”
On that day, May 26, three events occurred that would have seemed nearly impossible not long ago: activists angry at ExxonMobil’s climate policies won three seats on its board of directors; Chevron shareholders voted to force the company to start cutting emissions; and a judge in the Netherlands ruled that Shell must slash its emissions by 45 percent by 2030.
So what’s next for big oil? Is the game up? Have we reached peak oil?
In recent weeks, the oil industry has been ambushed by a combination of the politics of decarbonization, lifestyle changes stimulated by the pandemic, and the rapid rollout of green technologies that could make its product increasingly redundant and turn its wells into stranded assets.
The moment when the century-long advance in global consumption of oil ceased has been predicted by industry analysts for a while now. But their trend graphs always suggested peak oil would not happen until the 2030s or beyond. No longer. The coronavirus pandemic drove a 9 percent slump in oil demand in 2020 that many economists think will never be recouped.
Big-oil shareholders have been restive for a while, following a string of dreadful financial returns.
“Fallout from the pandemic may mean 2019 was the year of peak oil demand,” Mark Lewis, head of sustainability research at asset manager BNP Paribas, concluded in a blog post last June. Peter Nagle, an economist at the World Bank, said in a blog post that “a shift in people’s behavior” means that consumption is likely to “remain well below its pre-pandemic trend.”
Behavioral changes include reduced commuting as people work from home and gas-guzzling business flights being “curtailed in favour of remote meetings,” Nagle said. Add in the rapid rise of electric vehicles and the gathering force of action on climate change, and the fuse is lit for big change in the biggest industry on the planet. Nagle too concluded that “oil demand may have peaked in 2019.”
Big-oil shareholders have been restive for a while, following a string of dreadful financial returns. In 2020, ExxonMobil saw the first net annual loss in its merged history, losing a staggering $22.4 billion. Chevron too was in negative territory.
Lewis cites “three Ds” driving down the world’s taste for oil: decarbonization of economies to meet the Paris climate agreement; deflation of demand as renewable energy sources and electric vehicles kick in; and “detoxification” as cities, emboldened by the experience of clean air during the Covid lockdown, curb particulates and nitrogen oxide emissions from burning petroleum. Most of this hinges on the future of motor vehicles.
Automobiles currently consume almost a half of the world’s oil. Until now, reduced demand created by gains in vehicle fuel efficiency has been more than offset by the growing popularity of gas-guzzling SUVs and rising car ownership worldwide. There are currently an estimated 1.4 billion vehicles on the world’s roads.
The game-changer for oil is set to be electric vehicles, which entirely eliminate demand for oil to fuel autos. At the end of 2020, there were an estimated 10 million electric cars on the roads, plus more than 600,000 buses and trucks, according to the International Energy Agency (IEA), an intergovernmental body. That is less than 1 percent of all vehicles, but 5 percent of new cars being bought worldwide are now electric.
Rystad Energy, a Norwegian energy consultancy, says that the rise of electric vehicles is happening “sooner and faster” than expected. Virtually all the world’s large vehicle manufacturers are developing new, cheaper models with longer ranges between battery recharges. Rystad expects electric vehicles to make up 23 percent of global sales by 2025. Its senior partner Per Magnus told Reuters that their spread will “dig into global oil demand in a very significant way.”
General Motors promises it will sell only electric vehicles by 2035. Some analysts believe it may happen even sooner. “We are now witnessing the beginning of a virtuous cycle of battery cost declines that will soon make EVs far more affordable than internal combustion vehicles,” Ariel Cohen of the Atlantic Council, a think tank, wrote in Forbes last year.
In April, the International Energy Agency called on oil companies to end oil prospecting and cut production.
Most governments are backing this transformation in order to cut carbon dioxide emissions. How well that works will depend on how the electricity these vehicles require is generated. If it comes from burning coal or natural gas, then the climate benefits may be minimal. But the rise of renewables offers the hope that electric vehicles can dramatically drive down emissions, as well as delivering peak oil.
In April, the IEA, once a conservative defender of all kinds of fossil-fuel burning technologies, bought into this vision. In a report charting a course for the energy industry to net-zero emissions by mid-century, it called on oil companies to immediately end oil prospecting and pull back on production. Some big-oil CEOs objected. But in the weeks that have followed, there has been a cascade of events that seem to be shoving them down that road.
Things began at Shell. Based in Europe, the company has long been more concerned than many others about burnishing its green credentials. In February, Shell published its own roadmap to net-zero and said that it believed its oil production had peaked in 2019.
But critics cried “greenwash,” noting that the plan included a 20 percent increase in natural gas production between now and 2030 that it would offset by massive tree planting. And at Shell’s annual meeting on May 18, those critics won the support of Britain’s biggest asset management company, Legal & General, for a vote against the company’s net-zero plan, arguing that it was not ambitious enough. The revolt fell short of a majority, but it was a marker of trouble ahead for big oil.
Sure enough, a week later, on May 26, loss-making ExxonMobil was ambushed at its annual meeting by an activist group. Strikingly, the insurgents were not climate activists, but business activists who had recruited BlackRock, the world’s biggest asset manager and one of Exxon’s largest shareholders, in a successful move to replace three board members.
“Climate risk is business risk,” the founder of the group, Chris James, told reporters. He wanted board members able to steer the company to lower-carbon policies that will allow it to compete in a decarbonizing world. On the same day, more than 60 percent of shareholders at Chevron voted in favor of a motion brought by climate campaigners to force management to begin cutting emissions.
“Black Wednesday” was capped off when a judge in the Netherlands upheld an action brought by Friends of the Earth and ruled that Shell, which is registered in the Netherlands, must cut its emissions by 45 percent by 2030 — matching the promises made by European governments to comply with the Paris climate agreement.
The judge, Larisa Alwin, said there was “broad international consensus about the need for non-state action, because states cannot tackle the climate issue on their own.” Shell said it is considering appealing the verdict and complained about being singled out. But its CEO, Ben van Beurden, said it would “rise to the challenge” and “accelerate” emissions cuts as a result of the ruling.
Big oil faces public opposition that no corporate maneuvering or damage control is likely to plug.
As May ended, credit ratings agency Moody’s pronounced that the combination of the court ruling and the shareholder votes “highlights the increasing credit risk for major oil producers over concerns about climate change.”
Climate activists are themselves homing in on the credit risk, targeting financiers and insurers of new projects, as well as the oil companies themselves. In May, protesters in eight African countries occupied filling stations run by French-based oil giant Total, calling on investors to cancel a planned 900-mile pipeline to take oil from a new field on the shores of Lake Albert in East Africa to the Indian Ocean.
This month, protesters around the world persuaded several insurers to pull out of a major expansion of the Trans Mountain pipeline that would take oil from Canada’s Alberta tar sands to the Pacific coast.
The long-standing support of Western governments for big oil has begun to slip, too. Weeks after revoking a permit that would have allowed the proposed Keystone XL pipeline to take oil from Alberta tar sands across U.S. territory, the Biden administration on June 1 suspended oil-drilling leases in the rich reserves of Alaska’s National Arctic Wildlife Refuge.
Big oil faces a gusher of public opposition that no corporate maneuvering or damage control seems likely to plug. Some see the writing on the wall.
British energy giant BP’s widely referenced annual energy review has for several years been predicting peak oil in the 2030s. But in its latest 2020 review, BP moved the goalposts dramatically. Of three future scenarios presented in the review, global demand in two of them peaks in 2019, with only a tiny increase for a couple of years in the third. The company’s analysts expect a decline by 2050 of anything from 7 percent under “business as usual” to 70 percent if — as its executives claim to hope — the world heads for net-zero emissions.
So how does this play out?
While road transport makes up 48 percent of global oil demand, petrochemicals account for 14 percent, aviation 7 percent and shipping 6 percent. So net-zero will also require cuts to those markets. Those cuts may often depend on technologies that are not yet fully developed, said Rystad, the Norwegian consultancy.
It foresees reductions in petrochemicals demand from technologies that allow much greater recycling of plastic waste, for instance. It also expects ships to switch to hydrogen fuel cells or electric batteries starting in the mid-2030s. But it anticipates a “strong upward trajectory” in aviation demand for kerosene through to 2050, because “no viable oil substitution technology exists.”
That may be unduly gloomy. With the aviation industry now committed to offsetting all future emissions growth, the pressure for innovations to lower its emissions can only grow. Boeing has promoted the idea of switching to biofuels, while in Europe, Airbus, the world’s second-largest plane maker, is putting its money on hydrogen. It has three different zero-emission “concept” hydrogen planes.
The critical need for climate is not peak oil per se but peak fossil fuels of all kinds. So what of the others?
Coal, the dirtiest fossil fuel, is arguably in even deeper trouble than oil. Peak coal happened in 2013. Rystad thinks long-term decline is now baked in. A planned deal to end coal burning failed to make the communique from this month’s G7 meeting in Britain, reportedly because the Biden administration feared pushback at home. But most developed nations are following in the footsteps of Britain, which is committed to ending all coal burning in 2025.
Meanwhile, though construction of coal-fired power plants continues in Asia, the case that developing countries need and deserve coal as the cheapest way of advancing their economies is losing credibility as the costs of alternatives plummet. The IEA says solar power is now providing the cheapest electricity in history.
It has been 49 years since a major report predicted the world would run out of oil in 2022.
G7 governments have promised to cease, from the end of this year, all exports of coal-fired power plants and aid for such projects in developing countries. The Asian Development Bank says it will go one better and start paying for countries to shut their coal plants ahead of schedule.
Peak natural gas may take a while longer. Its emissions are half those of coal for each unit of energy generated, and it is currently replacing coal in power stations. Rystad expects it to become the dominant fossil fuel by 2030. But after that, it expects the last fossil fuel to peak and decline as renewables take over.
Oil literally drove the 20th century, but its eclipse now seems increasingly assured. It is 49 years since the Club of Rome published The Limits to Growth, predicting we would soon run out of oil. Its best guess was the end would come in 2022. A year off that deadline, we haven’t yet run out of oil, though according to the IEA, new discoveries in 2019 were less than a quarter of those made in 2010.
But peak oil may be upon us anyway, thanks to shrinking demand in the face of climate change and the advance of new technologies. Twenty years ago, British Petroleum (BP) briefly rebranded itself Beyond Petroleum. Soon it may be more than a slogan.