The Great Energy Transition | Learning by Proxy

Globally, oil producers are in the process of pivoting away from oil. The exceptions are USA, Russia and Saudi Arabia. Have you heard of how like poles repel one another?

You will have to wait another week to learn more about how Oil became such a big thing. I cover it as a part of my 100th edition of Learning by Proxy. 

For now, let us talk about how oil is becoming a small thing. 

The airline industry and the oil industry seem to operate in opposite ways. Whenever airlines make a lot of money, they pay out huge dividends to their shareholders. The moment the economy tanks, they show up hat in hand expecting the taxpayer to bail them out. This is particularly true of the US and Europe. They always threaten to retrench and lay off workers most of whom live in the cities. Makes for bad optics. Politicians bend over, more often than you would think.

The oil industry toils away in obscurity. In deserts and open sea, where even if a thousand lost jobs, nobody would notice. When the oil industry makes a lot of money, it buys rights to more exploration. In places that are harder and harder to drill. 

Since the 1900s, one narrative that has always been true is “Today is peak oil, and we will run out of it in 10 years.” This pronouncement has been proven wrong repeatedly. There was always more oil to be found, there was always the possibility of drilling deeper and there was always the possibility of extracting oil from places (Tar sands) considered impossible.

A combination of supply chain problems, reduced output from the OPEC and American interference with Russia has caused oil prices to spike. This has made oil companies really rich!

But the oil industry is no longer looking at new explorations. They are just giving all the money back.

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Covid delivered a body blow to oil companies from which their volumes are yet to recover. Changes in behaviour such as work-from-home could have permanently altered the degree of oil consumption. Further, climate activists are not making life easier with the threat of carbon tax always on the horizon. 

All the oil companies are embracing the enemy or at least pretending to.

The oil firm revealed the four-fold profit increase to $12.8bn alongside a promise to spend more on low-carbon energy alternatives, and invest more than £2 for every £1 it made in Britain this decade.

Bernard Looney, BP’s chief executive, told investors that by 2025 the company plans to dedicate 40% of its spending budget to parts of the business which aid the energy transition, rising to 50% of the budget by the end of the decade.

A large proportion would be earmarked for UK projects such as giant offshore windfarms, hydrogen projects and electric vehicle charging networks. A useful counter-argument to calls for a windfall tax? Not so, Looney told the Guardian.

Source: Guardian

All the wind they can catch

Shell and ScottishPower have secured joint offers for seabed rights to develop large-scale floating wind farms as part of Crown Estate Scotland’s ScotWind leasing. The partners have won two sites representing a total of 5 gigawatts (GW) off the east and north-east coast of Scotland.

Source: Shell

Also the sun

The acquisition marks Eni’s entry into the renewable electricity generation market of Greece. Eni extends its renewable energy footprint to the country as it aims to reach carbon neutrality by 2050.

SKGR has a development platform for photovoltaic plants in Greece. Its portfolio involves a pipeline of projects at various development stages. The portfolio of projects is said to have a capacity of nearly 800 megawatts. The projects will constitute the basis for further development in the country.

Source: Entrepreneur 

But in America, it does not matter if it is Democrats or Republicans at the helm. The only thing we can appreciate the Democrats for is lip service. The Republicans don’t even bother with that.

Investors in U.S. companies can also expect their payouts to rise to record amounts, but Exxon Mobil (XOM.N) and Chevron (CVX.N), the top U.S. oil and gas companies, plan to continue ploughing money into new oil projects, encouraged by White House calls for more oil output to tackle high energy prices and inflation.

Source: Reuters

But the Europeans seem to have got into bed with renewables for good

As investments in new oil projects dwindle, oil production by Europe's top five energy companies is set to drop by over 15% to below 6 million barrels per day (bpd) by 2030 after reaching a peak of around 7 million bpd in 2025, data from Bernstein Research showed.

Britain's BP has said it will cut its oil output by 40%, or roughly 1 million barrels per day, by 2030 from 2019 levels. Shell has said its oil output peaked in 2019 while Eni said its output will plateau in 2025.

Source: Reuters

In India, both Reliance and Adani who are petroleum billionaires are turning into renewable billionaires.

In October last year, Adani Green Energy’s completed its acquisition of Soft Bank’s SB Energy at $3.5 billion. The deal was termed one of the largest in India’s renewable sector. The green energy unit’s share price has surged 80% in the past year, giving it a market cap of about $40 billion as of Feb. 8.

In December 2021, Adani Green Energy signed an agreement with the Solar Energy Corporation of India to supply it 4,667 MW of power.

Adani also plans to invest $70 billion in the next decade across the new energy sector with the aim of becoming the world’s largest renewable energy producer in the next decade—a sector in which he’ll face intense competition from rival billionaire Ambani’s Reliance Industries.

Source: Quartz

Not to be left behind…

Reliance Industries Ltd., controlled by Ambani, has signed pacts with the state government of Gujarat for a total investment of 5.96 trillion rupees ($81 billion), according to an exchange filing Thursday. Of this, about 5 trillion rupees would be used over the next 15 years to build 100 gigawatts of renewable power projects and a green hydrogen network while 600 billion rupees will be for factories making solar modules, hydrogen electrolyzers, fuel cells and storage batteries, the filing said. 

Source: Bloomberg

High oil prices encourage the energy transition, it makes the upcoming technologies look cost-competitive.

There is also a Hydrogen Transition that is afoot which I had written about last year.

China's Zhangjiakou city will deploy 655 hydrogen-fuelled buses in the competition zone during the 2022 Beijing Winter Olympic Games, the state-backed Xinhua News Agency reported on Monday.

China, the world's biggest greenhouse gases emitter, vowed to host a "green" Olympics by using high-technology to reduce carbon emissions.

It is also powering all event venues in Beijing and the neighbouring city of Zhangjiakou with cleaner energy such as natural gas, renewables and hydrogen.

Source: Reuters

If all of these investments pan out as expected, 2019 may really have been peak oil. Even if that is not the case, by 2030, you can be sure that peak oil would be far behind us. By 2040, you might identify BP, Shell, Eni and even Reliance as solar and wind companies rather than oil companies.

In the meantime, the oil companies are pacifying their shareholders with dividends. Those shareholders are going to watch their companies disembowel the cash cows and transition to a new business.