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These are unprecedented times for the oil and natural gas industry as it navigates pandemic-driven demand destruction, investor calls to adapt to a carbon-constrained world, and new regulatory threats from the Biden administration.
The dreadful outlook for oil and gas producers is why more consolidations are likely in the months and years to come as companies seek to become nimbler and meet the heightened demands of shareholders, governments and consumers.
Despite the challenges, Exxon Mobil, the largest oil and gas producer in the United States, is sticking by its core business model and doubling down on oil and gas.
The oil giant isn’t burying its head in the sand, though. It’s adapting to a low-carbon future with a major investment in technology to capture and sequester carbon emissions. Exxon believes there will be a $2 trillion market for carbon capture by 2040 and recently announced a $3 billion investment over the next 5 years in new carbon capture and storage (CCS) projects.
Exxon’s investment is part of a growing divergence between the European supermajors, which are largely pivoting to become big energy companies and invest more heavily in renewables, and their U.S. cousins, which have primarily stuck to what they know best.
The European approach has drawn positive reactions from the media, which have praised these companies for taking climate change more seriously. Shareholders at BP and Shell appear unconvinced that the pivot to renewables will generate long-term profitability, though.
While some responded to Exxon’s investment with skepticism, it bolsters the case for pursuing the technology path to address climate change.
Renewables and electrification alone cannot decarbonize the entire economy. That is true for advanced economies, and it’s doubly true for developing economies that are still trying to catch up with the West’s living standards.
Carbon capture and sequestration and other technology-based solutions have a crucial role in addressing global environmental challenges. Exxon and others understand that technology and innovation are the only ways to reduce the environmental impacts of energy production and consumption without causing prices to rise and condemning billions of people to poverty. The ability
Neither approach on its own can solve the problem of climate change, but together they offer a path to a more sustainable, cleaner and more prosperous future.
The investment also makes sense from a purely business point of view and will likely play an essential role in Exxon’s value proposition as the largest, most efficient and most environmentally friendly oil and gas producer.
The CCS investment is bullish news for shareholders and climate advocates alike as Exxon develops its strategic approach to address the “dual challenge” of meeting global demand for oil while minimizing the lifecycle carbon emissions from its production.
The transition to a low-carbon economy envisions reducing the amount of fossil fuel use, not eliminating it. Global demand for oil and gas will continue for decades so technologies that reduce and sequester carbon emissions will be needed to meet the Paris Agreement commitments.
The United Nations’ Intergovernmental Panel on Climate Change and the International Energy Agency (IEA) stated that carbon capture and sequestration technology is critical to decarbonizing the economy’s industrial sector, including the petrochemical, cement and steel manufacturing
According to the International Energy Agency (IEA), the oil and gas industry’s engineering capabilities, financial resources and project management expertise are essential for achieving the Paris Agreement’s goals.
Advancing carbon capture and sequestration technology is also one of the rare areas of bipartisan agreement on climate change. Congress recently approved legislation bolstering the Department of Energy’s research and development efforts on carbon capture and extended tax provisions that incentivizes development through 2025.
President Biden is looking for ways to advance climate solutions without alienating residents of oil-producing states, which bodes well for the future of carbon capture technology.
Exxon was an early supporter of an economy-wide carbon tax, another policy that would encourage CCS deployment. A carbon tax paired with CCS would address emissions from important but often overlooked emission sources.
Despite the view that the end is nigh for the oil and gas industry, shrewd observers would do well to continue to watch how major oil companies like Exxon are approaching the challenge of climate change.
